THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW A TREATISE ON THE LAW PERTAINING TO CORPORATE FINANCE INCLUDING THE FINANCIAL OPERATIONS AND ARRANGEMENTS OF PUBLIC AND PRIVATE CORPORATIONS A8 DETERMINED BY THE COURTS AND STATUTES OF THE UNITED STATES AND ENGLAND BY WILLIAM A. REID p or THX NEW YORK BAA IN TWO VOLUMES VOL. I ALBANY H B PARSONS, LAW PUBLISHER 1896 Copyright, 1896, BY HENRY B. PARSONS, T K 1896 c? V PREFACE a This work is a practical treatise upon the law of " Corporate Finance" -The Financial Operations and Arrangements of Public and Private Corporations aH declared by the courts in a large collection of cases. The idea in the preparation of the work has been that a lawyer searching for law adapted to his case would be aided by a work giving the rules declared by the courts, and, as far as necessary, showing how these conclusions were reached, the reasoning of the courts, and the application of the law to the particular cases as exemplified by the facts therein. In the text such a statement of facts, when necessary, has been made as will give an accurate idea of the case presented to the court, and the rules declared. The notes contain, in many cases, the full reasoning or argument of the courts in support of the rules, and frequently a differentiation of cases which may le assumed to be in conflict with the rules declared. Especially has the author thought a work prepared upon this plan would be of great use to those who have not access to large libraries. I trust it may prove a ready and useful help to those who may use it. WM. A. REID. NEW YORK CITY, January, 1896. TABLE OF CONTENTS. TABLE OF CONTENTS. VOLUME I. CHAPTER I. UKNKHAI. POWER TO INCUK PECUNIARY LIABILITY PUBLIC CORPORATIONS. PAOK. 1. General rules applicable to public corporations 4 2. Distinct ion between public and private corporations 5 8. Borrowing money 6 4. The United States Supreme Court on borrowing money 7 5. The New Jersey Court of Errors and Appeals on borrowing money 8 6. Issue of negotiable securities 9 7. Power of Indiana cities to issue bonds 12 8. Miscellaneous rules as to issuing bonds 12 9. Bonds issued for the erection of a county court house 15 10. Funding county indebtedness by issuing interest- bearing bonds. . 15 11. Issue of bonds to pay subscription to stock of railroad corpo- rations 16 12. Notes or warrants to cover funds to be set aside in future taxation 18 18. The issue of scrip 18 14. Purchase of real estate for erection of public buildings on time. . 19 15. Erection of town buildings 20 16. Purchase of sites for erection of and repair of school buildings. . 21 17. The same subject continued 22 18. Purchasing on credit 24 19. Building and repair of bridges 24 20. Incurring liability under California statutes 25 21. Incurring liability under Indiana statutes 26 22. Incurring liability under Kansas statutes 27 28. For lighting the streets of a city 28 24. Contract on time for lighting streets 29 25. Caring for the indigent, etc 30 26. Employment of physicians for the poor Indiana statute con- strued 31 27. Expenses connected with epidemic diseases 31 28. For what towns may not be made liable 82 29. Expenses of a committee to secure legislation 34 30. For the payment of bounties to volunteers 35 31 . Validating a contract of village trustees 36 82. Illustrations of liabilities incurred for a "corporate purpose". . . 36 Viii TABLE OF CONTENTS VOLUME I. 38. Purchase of fire engines and apparatus 37 34 Illustrations of wrongfully incurred liability 39 35. Purchase of cemetery grounds 40 38. Erection of crematory for garbage 41 87. Use of private property for sewers 42 88. Detection of criminals 42 39. Aiding private corporations 42 40. Subscription to capital stock of railroad corporation 44 41. Power of the legislature as to compensation in such matters 47 42. Constitutionality of legislation authorizing such aid 47 43. In what respect the power of the municipality is restricted 49 44. Subscription for less than the amount voted 51 45. The effect of subsequent legislation upon such a subscription ... 52 46. Statutory authority to construct a railroad 53 47. Constitutional provisions construed 53 48. What is not a work of ' ' internal improvement " in the meaning of Nebraska statutes 54 49. What is such a work 55 50. Contracts of guaranty 55 51. Employment of agents or attorneys 56 52. Contracts for legal services when allowed 57 53. Contracts for legal services how made 59 54. When a public corporation is bound for legal services 59 55. Employment of counsel for defense of officers 60 56. Indemnity for expenses of litigation 61 57. When a public corporation is not bound for professional services of an attorney 62 58. The same subject continued 63 59. What contracts with attorneys are contrary to public policy 64 60. Limitations upon the indebtedness to be incurred 64 61. The same subject continued 66 62. Limitations upon power to incur indebtedness procuring a sup- ply of water 68 63. The same subject continued 69 64. Donation of bonds to aid in developing water power 70 CHAPTER II. GENERAL POWER TO INCUR PECUNIARY LIABILITY PRIVATE CORPORATIONS. 65. General rules as to incurring indebtedness 72 66. Purchase of property 74 67. Aiding other corporations 76 68. Contracts of suretyship 77 69. Guaranty of bonds of one railway corporation by another 78 70. Guaranty of bonds of railroad corporation by one of another kind. 79 71. Circumstances surrounding corporation may authorize the guar- anty 80 TABLE OF CONTENTS VOLUME I. IX PAGE. 72. Guaranty of dividend upon preferred stock of another corpora- tion 82 73. What contract of another corporation may not be guaranteed. . . 84 74. Athletic club 84 75. Banking associations 85 76. A savings bank's powers 86 77. Corporations dealing in lands 87 78. Insurance corporations 81) 79. Manufacturing corporations 91 80. Mining corporations 92 81. Railroad corporations 98 82. The same subject continued 93 83. Raising money by borrowing notes and indorsement of them ... 95 84. Evidences of indebtedness forms 97 85. More rules on this subject 98 86. Bonds of a banking association. 101 87. Power to secure their indebtedness 102 88. Limitation of indebtedness 102 89. Debt limited by par vulue of capital stock 103 90. When a statutory limitation of indebtedness does not apply 105 CHAPTER III. POWERS OF AGENTS AND OFFICERS PUBLIC CORPORATIONS. 91. General rules 108 92. More general rules 110 93. Illustrations of the duty and powers of municipal officers 112 94. Ratification by municipal corporations of contracts made by their agents and officers 113 95. Agents and officers of counties generally 115 96. Power of county officers in California 117 97. Power of county boards in Illinois 119 98. Power of county commissioners in Indiana 121 99. Power of supervisors of counties in Iowa 123 100. Power of county commissioners in Kansas 125 101. Power of County Courts in Kentucky 126 102. Power of supervisors in Michigan 127 103. Power of County Courts in Missouri 128 104. Power of county supervisors in New York 130 105. Power of county commissioners in Pennsylvania 132 106. Power of county board in Wisconsin 182 107. Power of township trustees in Indiana 132 108. Power of selectmen of towns in Massachusetts 134 109. Power of selectmen of towns in New Hampshire 134 110. Power of supervisor? of townships in Pennsylvania 135 111. Power of selectmen and agents of towns in Vermont 186 1 12. Power of town officers in Wisconsin 188 118. Power of officers of school districts. .. 188 ; TABLE OF CONTENTS VOLUME I. CHAPTER IV. POWER OF AGENTS AND OFFICERS PRIVATE CORPORATIONS. PAOB. 114. Agency in general 142 115. Rules as to an agent's acts 145 116. To what the powers conferred on an agent may be extended 146 117. Illustrations of the binding force of an agent's act 148 118. Power of general agents 149 119. When the authority of a general agent will not be implied 151 120. Pow^r of officers generally 152 121. The same subject continued 154 122. Power of directors general rules 157 120. Directors for the first year 159 124. Directors do facto 160 125. Illustrations of the power of directors 161 120. More illustrations on this subject 163 127. Illustrations of a lack of power in directors 165 128. When notes will be held to have been authorized by a board of directors 167 129. Waiver by directors of their power to repudiate a contract 168 180. Power of trustees of a corporation 168 131. Power of officers of a corporation to employ attorneys 169 182. When officers may use bonds as collateral 170 133. When the execution of a note is not authorized 171 184. Execution of promissory notes and transfer of choses in action . 172 135. Notes signed by officers of corporation 178 180. Power of bank officers 174 187. Power of a bank cashier 175 188. When the authority of its cashier cannot be questioned by a bank 177 139. Indorsement of a draft by cashier and president of a bank 178 140. Povircr of a treasurer of a savings bank 179 141. Power of officers of mining corporations 180 142. General rules as to the power of a president 181 143. Rule as to evidence in such cases 184 144. Power of president as to transfer of assets 187 145. When a president's act is binding 188 146. Illustrations of the power of a president 189 147. Illustrations of a lack of power 192 148. What would show the authority of a president 194 149. Question of authority for the jury 196 150. Power of a president as to execution of notes 196 151. In what cases the authority of a president may not be questioned. 197 152. Giving a judgment note New Jersey 198 153. The same subject Illinois 200 154. Where contract of purchase includes giving a judgment note. . . 202 155. What raises a presumption of authority 204 156. Power of officers acting conjointly 204 TABLE OF CONTENTS VOLUME L XI MB 157. An illustration on this subject 206 158. One holding several offices 207 159. Note executed by a secretary 208 160. Power of superintendents, etc 209 161. A manager's power 211 162. Manager of a foreign corporation 212 163. Authority of a manager 214 164. What is not within the duties of a cashier of a corporation 216 165. Auditing board of a corporation 217 166. Power of a treasurer generally 217 167. Power of a treasurer as to transfer of a note 218 168. Power of a treasurer as to execution of a note 219 169. Authority of a treasurer to borrow money by means of sterling contracts 220 170. Power of u treasurer to indorse in name of corporation a note for accommodation 222 171. Power of a treasurer to indorse a note of another corporation 228 172. When a corporation will be bound by a note executed by its treasurer 225 178. When a corporation is bound by acts of its treasurer 226 174. When a corporation will not be bound by the act of its treasurer . . 228 175. Another illustration of such a case 230 176. When contracts of a chief engineer will bind a railroad corpora- tion 230 '77. Ratification by corporation of agent's acts general rules 233 178. Modes of ratification 235 179. Illustration of ratification of conduct of agent 236 180. What does not amount to a ratification 237 CHAPTER V. FRAUDULENT ACTS OF OFFICERS. 181. General rules 241 182. General rules continued 248 183. Breaches of trust 247 184. Officers interested in contracts with a corporation 249 185. Directors of an insolvent corporation preferring themselves to other creditors 258 186. Directors contracting with a syndicate composed of themselves when such a contract cannot be rescinded .... 255 187. Directors issuing shares of stock to themselves 257 188. Officers profiting by their relation to the corporation 258 189. Repudiating or avoiding such contracts 264 190. Rules as to such contracts 265 191. Circumstances under which the directors cannot avail them- selves of the defense of the invalidity of the contract 267 192. Purchase by officers of debts due by, or property of, corpora- tion. . . 269 ii TABLE OF CONTENTS VOLUME I. PAGE. 193. Purchase and sale of property of corporations by officers 272 194. Illustrations of a sale of property to corporation which was not fraudulent 274 195. When a transfer of property of corporation will be upheld 276 196. Officers voting themselves salaries or compensation 278 197. Interest upon exorbitant salary voted officer recoverable 281 198. Contracts between corporati6us having the same directors in part. 282 199. Issue of worthless, or overissue of, stock 286 200. False representations of officers deceit 288 201. A leading English decision on this subject 292 202. The rule adhered to in England 293 203. Officers conspiring to wreck a corporation 294 204. President conspiring against a corporation terms on which the corporation could rescind the contract made by him 295 205. Promoters of corporations accountable for profits 296 206. Promoters obtaining stock of corporation for nothing 298 207. Jurisdiction of equity courts as to breaches of trust, etc 300 208. When a court of equity is not open to the complaints of stock- holders 303 209. Remedy in equity 305 210. Malfeasance of the president of a corporation a stockholder's remedy 312 211. When a demand upon a directory to bring suit is not required. . 313 212. When a stockholder may bring an action 316 213. Dissolution of a corporation by a scheme of stockholders and a sale of property to themselves 321 214. The rights of the minority in such a case 324 215. Principles applied to this particular case 326 216. When a fraudulent assignment of a mortgage by the treasurer of a corporation will bind it .' 327 217. When a corporation may recover money fraudulently paid out by its treasurer 328 218. When a corporation must respond for damages resulting from a fraudulent issue of its stock 330 219. The same subject a Massachusetts decision 334 220. The same subject a Pennsylvania decision 336 221. When a corporation may not respond for damages 339 222. A Massachusetts decision on this subject 341 CHAPTER VI. PERSONAL LIABILITY OF OFFICERS. 223. Directors' liability general rules 346 224. Liability of other officers general rules 350 225. Rules as to liability of officers for diversion of property of cor- poration " 354 226. Liability of officers arising from manner of execution of com- mercial paper 357 TABLE OF CONTENTS VOLUME I. XIII FAOE. 227. Liability of officers arising from indorsement of commercial paper 380 228. Liability of officers of savings banks 363 229. Liability of a treasurer of a corporation for payment of orders on forged indorsements 368 230. Liability on contract made before complete organization of the corporation 367 281. Rule as to recovery in such a case 872 232. County treasurer liable upon his receipts to collector for money . 878 233. County treasurer liable as bailee of county funds 874 234. County treasurer paying court orders on forged instruments 876 235. Arbitration as to liability of a treasurer of a township 877 236. Liability under special provisions of charter or statute 879 287. Liability under provisions of charter Pennsylvania 882 238. Statutory liability California statutes 883 289. Statutory liability Colorado statutes 884 240. Statutory liability Iowa statutes 885 241. Statutory liability Massachusetts statutes 886 242. Statutory liability Minnesota statutes 887 243. Statutory liability Missouri statutes 888 244. Statute of New York liability for failure to file annual report. 889 245. Actions to enforce this liability 893 246. What are, and what are not, "debts" for which liability under this statute may arise 895 247. A United States Supreme Court decision on this subject 897 248. Statute of New York liability for creation of debts in excess of capital stock 3U9 249. Liability for incurring indebtedness in excess of capital stock Illinois statute 402 250. United States Supreme Court decision on a similar statute the proper action in such a case 406 251. New York statute liability for false statement in certificate, etc. , filed 407 252. Illustrations 410 253. Statutory liability Rhode Island statutes 414 254. Statutory liability various states 414 255. Liability of directors or officers under an English statute 418 CHAPTER VII. ULTRA VIRES PUBLIC COKPO RATIONS. 256. Issue of negotiable securities 424 257. Borowing money by school districts 425 258. Incurring liability in excess of funds in the treasury and amount of tax allowed for one year 427 259. Incurring a debt without provision by taxation for interest and sinking fund 429 260. Employment of an agent to negotiate bonds 430 iv TABLE OF CONTENTS - VOLUME I. PAOK. 261. Investment of sinking funds ................................. 431 262. Contract with corporation attorney for legal services ........... 433 263. Discount of its warrants by a corporation ..................... 434 264. Illustrations of ultra vires contracts .......................... 437 265. Estoppel of a public corporation to deny its liability on an ultra vires contract ............................................. 439 266. Estoppel of a contractor with a public corporation to enforce an ultra vires contract ........................................ 442 267. Injunction of public officials rules .......................... 445 CHAPTER VIII. ULTRA VIRES PRIVATE CORPORATIONS. 268. The doctrine of ultra vires as explained by English courts. . . 447 269. These rules applied by English courts to special acts of corpora- tions ...................................................... 448 270. The doctrine of ultra vires as explained by United States courts ................................................... 450 271. Illustrations of acts not ultra vires the corporation .............. 453 272. Illustrations of acts ultra vires the corporation ................. 463 273. Leasing corporation's property and franchises for a term of years ................................................... 469 274. Loaning funds of a corporation ............................... 476 275. Investing funds of corporation in stock of others ............. 478 276. Directors of an insurance company raising a guaranty capital. . . 480 277. Converting common into preferred stock ...................... 482 278. The effect of laches on the part of complaining stockholders in such cases .............................................. 485 279. Rules declared by courts as to estoppel of corporations to plead ultra vires ................................................. 487 280. "When the doctrine of ultra vires is not applicable ....... .. ...... 492 281. Rules declared by courts as to estoppel of parties to contracts with corporations to plead ultra vires ...................... 492 282. Financial arrangements contrary to public policy rules govern- ing proceedings on the part of the state, etc ................. 497 CHAPTER IX. BANKS AND BANKING. 288. Powers of banks generally ................................... 504 284. The guaranty of commercial paper by a bank .................. 507 285. Acts ultra vires a bank ....................................... 508 286. Taking mortgage on and purchase of real estate ............... 509 287. Purchasing notes ......................................... 512 288. Purchasing stock of corporations ............................ 516 289. Increase of capital stock .................... 519 TABLK OF CONTENTS VOLUME I. XV 290. Loans 519 291 . Dividends on bank shares 521 292. Lien of a bank on moneys and securities of its customers 523 293 Lien of a bank on shares of stockholders for their debts to the bank 525 294. Interest received by banks 527 296. A bank's duty as to securities deposited with it 586 296. The rights of a bank as to securities pledged to it 588 297. Personal guaranty of a bank by stockholders and directors 545 298. Misrepresentations by a bank as to solvency of a customer 545 CHAPTER X. OFFICKKS OK HANKH. 299. Directors their powers and duty 548 300. Jurisdiction of state courts in cases of directors of national banks violating their duty 554 301. Jurisdiction of courts of equity in such cases 556 302. Statutory liability of directors of national banks actions to enforce it rules 557 303. President his power and duty 561 804 President's acts binding on bank illustrations 564 305. President's arts not binding on bank illustrations 566 306. When u bank is not chargeable with constructive notice and knowledge of its president 568 307. Cashier his power and duty 569 808. Cashier's liability for his acts 578 309. Knowledge of its cashier not imputuble to bank illustrations. . 582 810. Rules as to ratification of a cashier's act by the bank 583 311. Act of cashier binding on bank 586 312. Estoppel of a bank to deny the validity of an act of its cashier in drawing drafts on its correspondent and fraudulently indors- ing them 587 318. Promise by cashier to pay draft of a customer to be drawn at a future day not binding on the bank 588 814. Teller and bookkeeper their powers and duties 593 CHAPTER XI. DEPOSITS AND CHECKS. i 315. General deposits 597 816. Depositors duty and rights , . . . . 602 317. When the ownership of a deposit is questioned rules 607 818. Passing of title by deposit of check 610 819. Deposits in savings I auks 616 820. Receiving deposits by a bank knowing its insolvency 619 821. Certificates of deposit 635 vi TABLE OF CONTENTS VOLUME II. PAGE. 822. Special deposits 634 323. The duty of a bank as to deposits and its right as to their application 636 324. Checks generally 644 325. Certification of checks 651 326. Acceptance of a check by a bank illustration 654 327. Presentment of checks for payment 655 328. When a draft on a bank fails to bind the fund in bank 661 329. Forged checks rules 666 330. Payment of forged checks or payment of checks on forged indorsements 671 381. Payment of raised checks 675 CHAPTER XIL COLLECTIONS. 332. General rules 681 333. Duty of bank , 685 334. Rules as to notes payable at bank 689 335. When a bank is liable for failure to collect notes 692 336. What action on its part will relieve a collecting bank from liability 693 337. Rules as to checks and drafts 695 338. Negligence of a bank as to check held for collection 703 339. When a bank collecting a draft is liable to the owner 705 340. When indorser of check is relieved from liability 708 VOLUME II. CHAPTER XHL . INSOLVENCY OP BANK. 341. Rules generally 709 342. Appointment of a receiver for a national bank 718 343. When an appointment of a receiver is not authorized 714 344. Powers of a receiver for a national bank 714 345. Actions of such receivers rules 715 346. Action to control the conduct of such receivers 718 347. What a receiver cannot set off in an action to recover trust funds coming into his hands 720 348. When a receiver cannot question the disposition of funds com- ing into the hands of a clearing house association 721 349. Attachment of property of an insolvent bank retains its lien against a receiver of the bank subsequently appointed 722 TABLE OF CONTENTS VOLUME II. XV11 PACK. 860. Claims against an insolvent bank jurisdiction of court appointing receiver 724 851. For what amount claim should be made and allowed 727 852. What a claimant may be charged with 729 858. Claim of an indorsor who paid a note not surrendered to him. . . 780 854. Debts due savings banks preferred under New York statute 782 855. Claims of municipal corporations for moneys deposited by their officers 785 856. Claims preferred to general creditors illustrations 788 857. Claims not preferred to those of general creditors illustrations. 747 CHAPTER XIV. LIABILITY OF BANK SHAREHOLDERS. 858. Rules generally 756 859. Rule under Minnesota statute 759 860. Rule under Michigan statute 760 861. Stockholder relieved from liability by a sale of bis stock through a broker 762 862. Pledgee of stock incurs no liability 768 863. When a stockholder ic relieved from liability 766 864. The rule where shares arc transferred to avoid liability 766 865. When a transfer of shares does not relieve the stockholder 767 366. Liability of stockholder survives 768 867. Liability of a married woman upon shares of stock held by her in her own right 770 868. Rules as to actions to enforce liability of stockholders 772 CHAPTER XV. OFFICERS OF NATIONAL BANKS CRIMINAL ACTS. 869. Misapplication of funds by officers 778 870. Making " false entries " in reports, etc 774 871. Improper certification of check 781 872. Restrictions of banking law of New York upon banks and their officers 783 CHAPTER XVI. FISCAL MANAGEMENT PUBLIC CORPORATIONS. 878. The power of county commissioners under statutes of Nebraska as to purchase of lands for a poor farm 785 874. Power of a building commission of a town in Connecticut 783 875. For what purposes r, board of education in Connecticut cannot use the public funds 789 876. Management of school funds of the state by an auditor of a county under Indiana statutes ... 791 TABLE OF CONTENTS VOLUME II. PACK. 877. Erroneous payments into the treasury of a county by a county treasurer under Indiana statutes his right to recover the same 793 378. For what a school district may settle account of an ex-assessor. . 794 379. The board of auditors of a town may be ordered to pay a judg- ment against the town for interest on its bonds 794 880. The right of a de facto county treasurer to salary 796 881. Payments to city official in excess of his salary may be recovered of him 798 382. Compelling a ministerial officer to distribute the fund in his hands 799 383. County warrants their issue and validity rules governing. . . 801 384. Statute of Limitations not applicable to county warrants 803 CHAPTER XVII. FISCAL MANAGEMENT PRIVATE CORPORATIONS. 385. Execution of contracts by corporations 805 386. What would be conclusive of the execution of a contract 810 387. Declaring dividends 810 388. Rules as to declaring dividends by a mining corporation 811 389. Borrowing money to pay dividends 814 390. Rescinding a declaration of dividend 815 391. Contracts within and outside the power of private corporations. . 317 392. Rules as to estoppel to plead that contents are ultra vires 820 CHAPTER XVIII. COUNTY BONDS. 393. County bonds generally 824 394. Bonds issued for refunding indebtedness 827 395. Bonds not within the power cf a Texas county to issue for the erection of court houses 828 396. Rights of holders of such bonds 820 397. The effect of a statute of Texas as to county bonds in which school funds may be invested 830 398. Validity of bonds as affected by the place of execution 831 399. Validity of bonds as affected by constitutional requirements 832 400. Validity of bonds as affected by limitations as to indebtedness.. 833 401. The validity of judgments against a county for which the bonds were issued cannot be questioned in actions on the bonds 840 402. The statements of a county's agent in sale of the bonds not operative as an estoppel upon the county to refund 841 403. When a county may plead an overissue 842 404. When the defense that a county was not fully organized when the bonds were issued is not open to the courts 843 405. Counties suable in federal courts 845 406. Plea of Statute of Limitations on county bonds 845 TABLE OF CONTENTS VOLUME II. XUC PAOE. 407. When statute as to presentation of claims is not applicable to judgments up<>u bonds and coupons 846 408. The proper proceeding of courts where some of the bonds of a series are valid and others invalid 847 CHAPTER XIX CITY BONDS. 409. City bonds generally 849 410. Extension of a bonded debt of a city 852 411. Bonds for funding indebtedness 854 412. Effect of a statutory limitation on bonds 856 413. Bonds in compromise of outstanding indebtedness 858 414. The effect of a statute legalizing an issue of bonds 859 415. Bonds for public improvements limitations on power to issue. 860 416. Effect of an order by resolution of council of a city for an election to authorize the issue of bonds 861 417. Bonds valid when issued as a part of the general indebtedness of a city 863 418. Validity of bonds as affected by a restriction in the charter of a city 863 CHAPTER XX. TOWNSHIP BONDS. 419. Effect of ordinance of town council not being published upon the validity of the bonds 865 420. Bonds for purchase of gravel road under Indiana statute statute held to be constitutional 867 421. The duty and power of county authorities where the vote of the towns is favorable in such cases 870 422. Effect upon bonds of a constitutional limitation upon the indebt- edness to be incurred by towns 873 423. Town bonds for improvement of public park under resolution of the Connecticut legislature when authorized and to what extent 874 424. The effect of recitals in town bonds as to estoppel of the town to claim they were issued without authority 876 425. What is required of a bona fldo purchaser 877 CHAPTER XXI. SCHOOL DISTRICT BONDS. 426. School district bonds generally 878 427. Bonds executed by a de facto board of education 880 428. The power of a city in California to issue bonds for building school houses... 880 XX TABLE OF CONTENTS VOLUME II. PAGE. 429. The power to issue bonds under Nebraska statutes 882 430. When such bonds are void under Nebraska statutes 883 431. Validity of bonds as affected by constitutional restriction upon indebtedness of municipal corporations 884 432. Bonds secured by a pledge of school fund and property 887 433. Conditions precedent to the issue of bonds 888 434. The adoption of a statute to obtain authority to issue bonds mode of calling election 890 435. When non-compliance with the requirements of the Constitution of the state is not a defense against bona fide purchasers 892. 436. When the defense that the site of the school house was not owned by the district is not open in a bona fide holder's action on the bonds 893 437. When the defense that the proceeds of the bonds were used for another purpose is not open in such an action 894 438. What does not create an estoppel of the district to defend 895 439. One of the latest decisions on the effect of recitals in bonds 89ft CHAPTER XXII. MUNICIPAL AID BONDS COUNTY. 440. County aid bonds, generally 898 441. Elections to authorize aid bonds how called how questions must be submitted to voters how result determined, etc. . . 904 442. Conditions to subscription the right to prescribe, etc 918 443. When authority to subscribe to stock gives no power to issue bonds in payment 920 444. When a donation of bonds is authorized 922 445. When county bonds donated to a railroad company cannot be scaled down 924 446. Bonds of an Illinois county secured by mortgage of its swamp lands 925 447. Precinct aid bonds 931 448. The denomination of bonds changed from those named in the proposal under Alabama statutes their validity not affected thereby 932 449. What amounts to a gift of bonds in aid not authorized. 933 450. Consolidation of railroads effect as to county aid 934 451. Constitutionality of a Tennessee aid statute 937 452. Ratification of bonds 938 453. Rules as to statutes legalizing a prior issue of bonds 939 454. Recitals on face of aid bonds their effect 941 455. Bonds and coupons not claims which require presentation to county authorities before suit 943 456. Coupons rules governing 944 457. A county suable on precinct bonds 946 458. Rules as to pleading in such cases 947 TABLE OF CONTENTS VOLUME It, CHAl'TKK XXIII. MUNICIPAL AID BONDS CITY. PAOB. 459. City aid bonds, generally 949 460. Rules as to such bonds settled in United States Supreme Court. 955 461. Why state decisions should not control United States Supreme Court 956 462. When the issue of aid bonds by a city is authorized 958 463. When the right to municipal aid is lost by delay in constructing road 960 464. The election as to aid and the effort of curative legislation 961 465. This case distinguished from others 964 466. Aid to railroads outside the state 964 467. Estoppel of a city to claim that bonds were wrongfully issued. . 964 468. What will not affect the rights of bona fide bondholders 965 469. When a purchaser of void municipal bonds cannot maintain an action for money had and received 966 470. Miscellaneous rules as to railroad aid bonds 969 CHAPTER XXIV. MUNICIPAL AID BONDS TOWNS. 471. Aid by towns, generally 970 472. Bonds invalid unless conditions are complied with 977 478. How irregularity of elections affect the validity of bonds 979 474. Effect of recitals on face of bond 981 475. The power of commissioners of towns for issuing aid bonds under New York statutes 982 476. The sealing of such bonds 989 477. Proceedings under New York statutes preliminary to issue of bonds 992 478. Bonds issued after the passage of an act authorizing a change in their terms 998 479. Rules as to the taxes collected for payment of aid bonds issued under New York statutes 994 480. Power of town authorities as to aid bonds under Kansas statutes for what time they may run . . . .* 998 481. Power of towns in Massachusetts as to aid bonds their power in the sale of them 999 482. Power of towns in Mississippi as to aid bonds for what time they may run 1000 483. Actions by bona fide holders on such bonds what they need not show 1001 484. Bonds absolutely void effect upon holders 1003 485. When a curative act of the legislature will not validate them . . . 1005 486. Effect of curative act of New York. . 1006 TABLE OF CONTENTS VOLUME II. PAOK. 487. Township aid bonds under South Carolina laws made a legal indebtedness by subsequent legislation 1007 488. An Ohio statute as to town aid held unconstitutional 1011 489. Miscellaneous rules as to town aid bonds 1011 CHAPTER XXV. BONDS AND COUPONS PRIVATE CORPORATIONS. 490. Bonds of private corporations, generally 1013 491. Meeting of stockholders to authorize the issuance of bonds when legally held 1019 492. Interest on bonds what rate, etc 1020 493. When principal becomes due 1021 494. Bonds when " issued " under Wisconsin statute 1022 495. When a mortgage trustee should countersign bonds 1022 496. Pledge of its bonds by a corporation rights of pledgee, etc ... 1023 497. Validity of bonds as affected by statutory or constitutional pro- visions 1027 498. Validity of bonds as affected by the manner of sale and charac- ter of purchasers 1031 499. Reorganization surrender of old bonds and stock for new bonds rules 1035 500. Bondholders when bona fide holders and when not the rights of such 1037 501. Holders of income bonds rules as to an accounting with them. 1044 502. Detached, uncanceled coupons rules governing 1046 503. Actions on coupons rules governing 1047 504. Guaranty of bonds of one corporation by another rules 1049 505. Lease of a bonded railroad when lessee is not bound on the bonds 1051 CHAPTER XXVI. MORTGAGES AND TRUST DEEDS PRIVATE CORPORATIONS. 506. Power of corporations to execute mortgages and trust deeds upon their property 1054 507. Statutes requiring assent of stockholders to mortgages con- strued " 1061 508. Mortgages and trust deeds rules to as place of execution, authorization mode of execution, to whom executed, etc. . . 1069 509. Estoppel of corporation to deny authority of officers to mort- gage 1077 510. Effect of laches of corporation in repudiating a mortgage 1079 511. What are reasonable provisions in a mortgage 1079 512. Chattel mortgages of corporations 1081 613. Deeds of trust and mortgages securing directors when properly given 1083 TABLE OF CONTENTS VOLUME II. XX111 PAOE. 514. The validity of mortgages as affected by restrictions, constitu tiooal, statutory, or in charter upon indebtedness to be incur red 1067 515. A mortgage of corporation property to pay purchase-money debts 1060 516. Illustration of an equitable mortgage 1091 517. Mortgage of a consolidated railroad company estoppel to claim its validity on the ground that the consolidation was not legally perfected 1092 518. Illustration of a fraudulent mortgage 1093 519. What corporation mortgages cover, and what they do not cover. 1094 520. Trustees of such mortgages their duty, rights and powers 1101 CHAPTER XXVII. INSOLVENCY OP PRIVATE CORPORATIONS. 521. How far the assets of an insolvent corporation are a trust fund for its creditors 1106 522. The power of directors of a corporation to execute an assignment of the corporation's property for the benefit of creditors 1111 523. Preference of creditors by insolvent corporations 1112 524. Attachment of property of insolvent corporation the rights of a creditor to attach lien of its attachment, etc 1117 525. Receivers rules as to appointment 1121 526. Removal of receivers and assignees 1126 527. The rights of receivers and assignees as to property of insolvent corporation 1127 528. Other rights of receivers and assignees of insolvent corporations. 1129 629. Insolvent beneficial association rules 1181 530. Liability of stockholders on unpaid subscriptions the court's right to enforce and how enforced 1132 531. Creditors' bills equitable jurisdiction 1140 532. Claims against insolvent corporation rules as to allowances, etc. 1142 583. Rules in cases of insolvent banks 1144 CHAPTER XXVIII. FORECLOSURE OF MORTGAGES AND TRUST DEEDS. 584. Jurisdiction of actions to foreclose 1147 585. Bringing such actions rules 1150 586. Parties to such actions 1158 587. General rules as to such actions 1158 538. Decrees in such actions general rules 1168 589. Decrees for sale of property 1166 540. Purchasers at sales under the decrees their rights and liabilities. 1172 541. Who may be heard on petition in foreclosure suits 1176 542. Disposition in decree of proceeds of sale 1179 548. Allowances in foreclosure suits 1182 TABLE OF CONTENTS VOLUME II. CHAPTER XXIX. RECEIVERS IN FORECLOSURE BUTTS. PAGE. 544. Receivers their appointment when they should be appointed who may be appointed their discharge and removal 1186 545. Conditions attached to the appointment of a receiver 1193 546. Receiver's right as to possession of the property of the insolvent corporation 1 194 547. The relation of the receiver to property leased by the corporation coming into his hands r 1197 548. Powers of receivers as to contracts, etc 1208 549. Power of the court and its receivers as to regulating wages of employees 1208 550. Receiver's certificates when they will be authorized the lien of such certificates and its enforcement 1210 551. Rules as to claims against receiver growing out of rolling stock coming into his possession 1215 552. Application of earnings of the road during receivership 1219 553. Jurisdiction of actions against receivers 1223 554. Claims against receivers for injuries to persons or property dur- ing receivership 1227 555. Rules as to actions for injuries to persons during receivership . . 1231 556. Rules as to allowances to receivers for counsel and expenses of parties in actions where receivers are appointed what will be allowed and what not 1232 557. Actions allowed a receiver for the protection and benefit of the property in his hands 1235 CHAPTER XXX. PRIORITIES OP LIENS IN FORECLOSURE SUITS. 558. Priorities of liens general rules 1238 559. Debts contracted for construction 1246 560. Presumption as to preferential character of a claim 1246 561. Mechanic's lien as viewed by the United States Supreme Court. 1247 562. Furnishers of supplies Kentucky statutes construed 1249 563. The rule under Ohio statutes 1252 564. Contractors Tennessee statutes construed 1252 565. Furnishers of supplies Virginia statutes on this subject construed 1254 566. Loans of money to corporation before receivership 1256 567. Claims for services rendered the corporation prior to the appointment of a receiver 1258 568. When cases are not properly removable to United States court from state court 1360 TABLE OF CONTENTS VOLUME II. < 'HAITI-IK XXXI. TAXATION BY I i K! n < ORPORATIOHB. FAOK 569. General rules 1262 570. Exemption from tuxes 1264 571. License tax 1267 572. Assessment of taxes for benefits 1268 573. When a levy of taxes by a school district is not authorized. .... 1271 574. Irregularity in the levy of taxes 1271 575. When an assessment cannot be attacked 1272 576. Federal taxation of incomes 1273 577. Injunction of a collection of taxes 1278 CHAPTER XXXII. TAXATION OK PRIVATE CORPORATIONS. 578. General rules 1279 579. Exemption from taxation rules 1280 580. Taxation of corporations rules in New York 1286 581. Taxation of corporations rules in Pennsylvania 1290 582. Privilege tax 1292 583. Computation of such rule 129T 584. Taxation of banks and shares of bank stock rules 1295 585. Taxation of railroad corporations rules 1300 586. Taxation of insurance corporations 1306 TABLE OF CASES. TABLE OF CASES. pThe references are to page*: vol. I contains pp. 1-707; vol. II, pp. 706-1807.] A. Abbot v. American Hard Rubber Co. , 258, 274, 470, 476. 1111 Abbott T. Baltimore & Rappahannockf Steam Packet Co., 464 Abbott v. Packet Co., 1232 Abby v. Bill u pa, 153 Aberdeen Railway Co. v. Blakie, 242, 251, 259, 264, 283, 816 Ackerman v. Halsey. 847, 653 Ackley School District v. Hall, 879 Adair v. Brimmer, 365 Adair v. Robinson, 1299 Adams v. Crosswood Printing Co., 203 Adams v. Davis, 1272 Adams v. East River Savings Institu- tion, 838 Adams v. Hackensack Improvement Commission, 711 Adams v. Manning, 551 Adams v. Milling Co., 254, 255, 1087, 1111 Adams v. Mills, 393 Adams v. Spokane Drug Co., 716 Adams Cotton Mills v. Dimmick, 1057, 1066, 1075 Adams Mining Co. v. Senter, 92, 180, 209, 233 Adams & Westlake Co. v. Deyette, 11U Atkinson v. Auditor, 132 Addcrley v Storm, 757 Addis v. City, 109 Addison v. Lewis, 263, 1096, 1108, 1258 Adelbert College of Western Reserve University v. Toledo, W. & W. Ry. Co., 1261 Adrian Water Works v. City of Adrian, 70 Adriance v. Rome, 151 Advertiser & Tribune Co. v. Detroit, 112 &tn& Insurance Co. v. Wires, 178 yEtna Life Insurance Co. v. Lyon County, 839, 840, 841, 848 JStna Life Insurance Co. v. Middle- port, 980 vEtna Nat. Bank v. Charter Oak Life Ins. Co., 80, 465 JStna Nat. Bank v. Fourth Nat. Bank, 598, 640, 658, 666 Agawam Nat. Bank v. South iladley, 231 Agricultural Bank v. Biasell, 52i) Ahem v. Goodspeed, 984 Ahl v. Rhoada, 1088. 1090 Aiken v. Marine Bank, 561 Aikman v. School istrict, 889, 891 Aimen v. Hardin, 416 Akin v. Jones, 665, 666 Alabama & Georgia Mfg. Co. v. Rob- inson, 1022. 1154 Alabama Gold Life Ina. Co. v. Central. etc., Assn., 74, 102 Alabama Great So. R. R. Co. v. South & No. Ala. R. R. Co., 234 Alabama Iron & Ry. Co. v. Anniston Loan & Trust Co., 1218 Albany v. Abbott, 135 Albany v. Cunliff, 446 Alberger v. National Bank of Com- merce. 1111, 1114 Albers v. Commercial Bank, 644 Albert v. Savings Bank of Baltimore, 439 Albitzue v. Guadelupe y. Caloo Min- ing Co., 1124 Alderson V. Charles County, 128 Aldrich v. Dunham, 608 Alexander v. Brown, 151, 197 Alexander v. Burchfield, 658 Alexander v. Central Railroad of Iowa, 1152 Alexander v. Cauldwell, 146, 406, 469, 567 Alexander v. Learey, 816 Alexander v. Tolleston Club of Chi- cago, 494 Alford v. Miller, 250 Allard v. Gaston, 975 Allegheny City v. McClurksan, 65, 108, 942 Allegheny County v. McKeesport Dia- mond Market, 1267 Allegheny County v. Western Penn- sylvania Hospital, 132 Allen v. Addington, 294 Allen v. Bank, 576 Allen v. Citizens' St. Nav. Co., 143, 144. 288 Allen v. City of Janesville, 65 Allen v. Clark, 895, 396 Allen v. Commercial Bank, '">') Allen v. Curtis, 806, 811. 560 XXX TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 706-1807.] Allen v. First Nat. Bank, Xenia, 510, 520 Allen v. Fourth Nat. Bank, 672 Allen v. Inhabitants of Jay, 43, 44 Allen T. Louisiana, 71 Allen v. Montgomery R. R. Co., 91, 1054, 1077 Allen v. St. Louis Bank, 539 Allen v. South Boston R. R. Co., 335, 343 Allen v. Sullivan R. R. Co., 1014 Allen v. Suydam, 681 Allen v. Taunton, 33 Allen v. Walsh, 388 Allen v. Wilson, 316 Alley v. Adams County, 919, 974 Allis v. Jones, 235, 806, 807, 821, 1112 Allison v. Coal Company, 392 Allison v. Hubbell, 188 Allison v. L. H. C. & W. R. Co., 46 Allison v. Railway Company, 946 Alston v. State, 754 Alta Silver Mining Co. v. Alta Placer Mining Co., 1075 Alton v. Mulledy, 445 Alves v. Bank, 528 Alvord v. Syracuse Sav. Bank, 986 American Bridge Co. v. Heidelbach, 1222 American Central R. R. Co. v. Miles, 279, 356 American Construction Co. v. Jackson- ville, T. & K. W. Ry. Co., 1196, 1197 American Exchange Nat. Bank v. Oregon Pottery Co., 174, 206 American Express Co. v. Haire, 687 American Ins. Co. v. Oakley, 191 American Loan & Trust Co. v. East & West R. R, Co. of Ala. (Jersey City Iron Co., Intervener), 1246 American Loan Trust Co. v. St. Louis & Chicago Ry. Co., 1048 American Loan& Trust Co. v. Toledo, C. &S. Ry. Co., 1018 American National Bank v. American Wood Paper Co., 1042 American Sunday School Union v. Philadelphia, 1265 American Sunday School Union v. City of Philadelphia, 1265 American Nat. Bank v. Bushey, 602 American Pig Iron Storage Co. v. State Board of Assessors, 1279 American Preservers' Trust v. Taylor Mfg. Co., 501 American Trust & Sav. Bank v. Gueder & Paeschke Manufg. Co. 619, 1146 American Tube & Iron Co. v. Ken- tucky Southern Oil & Gas Co., 1156, 1157 Ames v. Merriam, 649, 658 Ames v. Union Pacific Ry. Co., 1209 Amey v. Mayor, etc., 49 Anderson v. Armstead, 627 Anderson v. Blattau, 627 Anderson v. Kerns Draining Co., 870 Anderson v. Kinley, 239 Anderson v. Kissam, 568 Anderson v. Lemon, 251 Anderson v. Leverick, 600 Anderson v. Linn, 771 Anderson v. Philadelphia Warehouse Co., 764, 765 Anderson v. Railroad Company, 1177 Anderson v. Rogers, 704 Anderson v. Santa Anna, 939 Anderson v. Sibley, 995 Anderson v. Speers, 400 Anderson County v. Pocola & Fall River Ry. Co., 899 Anderson County Comrs. v. Beal, 966 Andover v. Grafton, 134, 135 Andover v. Kendrick, 145 Andrew v. Blachley, 656 Andrews v. Board of Supervisors Knox County, 121 Andrews v. Insurance Co., 493 Andrews v. Kings County, 1297 Andrews v. National Foundry & Pipe Works, 1099 Andrews v. Suffolk Bank, 688 Anfenger v. Anzeiger Publishing Co., 384 Angel v. Town of Hume, 993 Angle v. Chicago, St. P., Minn. & Omaha Ry. Co., 462 Anheuser-Busch Brewing Co. v. Clay- ton, 753, 754 Anheuser-Busch Brewing Assn. vj Morris, 747 Anonymous, 620, 720 Anonymous Case, 624 Antietam Paper Co. v. Chronicle Pub. Co., 1074 Anthony v. Adams, 33, 34 Anthony v. Jasper County, 866 Appeal of Hopkins, 752 Appleby v. Mayor, etc. , 446 Arapahoe Cattle & Land Co. v. Stevens, 163 Ardher v. Waterworks Company, 1121 Ardesco Oil Co. v. North American Co., 473 Argente v. San Francisco, 5, 65, 233, 441, 444, 788, 942 Arkansas Valley Agr. Society v. Eich- holtz, 257 Armour Bros. Bkg. Co. v. Board, etc., of Finney County, 803 Armstrong v. American Exchange Nat. Bank, 628 Armstrong v. Chemical Nat. Bank, 544 TABLE OF CASES. ZXJU Bank, [The references are to pagea Armstrong v. Cowles, 418 Armstrong v. Ettlesohn, 720 Armstrong v. Exchange Nat. 601 Armstrong v. National Bank of Boyer- town, 744 Armstrong v. Scott, 712 Armstrong v. Trautman, 720 Armstrong v. Warner, 720 Arnold v. Mayor of Poole, 98 Arnold v. Suffolk Bank, 526 Arnold v. Weimer. 723 Arnot v. Erie Ry. Co., 1052 Arnott v. City of Spokane, 437 .Arthur v. Qnswold, 410 Arthur v. School District of Polk Borough, l^i:{ A-i-hi rin.in v. Bank, 1129 Ahhburg Ilailway Carriage & Iron Co. v. Riche, 449, 451 Asher v. Bank, 600 Asher v. Sutton, 193, 562 Asher v. Texas, 1267 Ashhurst's Appeal, 1084, 1112 Ashley v. Board, 880 Ashley v. Board of Supervisors of Presque Isle County, 827, 844 Ashley v. Kiunan, 280 Ashley v. Ryan, 1294 Ashenbrodel Club v. Fin lay, 470 Ashuelot Manufg. Co. v. Marsh, 198 Ashuelot Nat. Bank of Eeene v. School Dist. No. 7, Valley County, ss 4 Ashuelot Railroad v. Elliot, 265, 1047 Ashurst's Appeal, 283 Aspinwall v. Butler, 519 Aspinwall v. Succhi, 390 Association v. Austin, 738 Association for Colored Orphans v. Mayor, etc., of New York, 1289 Atchison v. Butcher. 851 Atchison Board of Education v. De Kay, 888, 889 Atchison, T. & 8. F. R. Co. v. Comrs., 318 Atchison. Topeka & S. F. R. R. Co. v. Jefferson County, 899, 940, 973 Atkins v. Petersburg R. R. Co., 1258 Atkinson v. Rochester Printing Co., 623, 62. 7.VJ Atlanta & Florida R. R. Co. v. Western Ry. Co. of Alabama, 1141 Atlanta Hill Mining Co. v. Andrews, 250 Atlantic Bank v. Merchants' Bank, 330, 882 Atlantic Cotton Mills v. Indian Or- chard Mills, 329, 838 Atlantic City Water Works Co. v. Read, 70 I contains pp. 1-707; ToL II, pp. 708-1807.] I Atlantic & N. C. R. R. Co. v. Cowleu, M Atlantic &Pac. R. R. Co. v. Le Sueur, 1282, 1300 A. & P. R R Co. v. St. Loui*. 493 Atlantic & Pac. Ry. Co. v. Yavapai County, 1302 Atlantic State Bank of Brooklyn v. Savery, 528 Atlantic Trust Co. v. Proceeds of the Vigilancia, 1066 Atlantic Trust Co. of New York v. Town of Darlington, 1012 Atlantic Water Works v. Atlanti City, 80 Atlas Bank v. Nahant Bank, 1118 Atlas Nat. Bank v. Savery, 515, 516 Attaway v. Third National Bank. 245 Attorney-General v. Aspinall, 121, 249 Attorney -General v. Bank of Niagara, 305 Attorney -General v. Bay State Mining Co., 1073 Attorney-General v. Bay Supervisors, 128 Attorney -General v. Continental Life Ins. Co., 664, 666 Attorney-General v. Corp. of Leicester, 198, 249 Attorney-General v. Kell, 249 Attorney -General v. Life & Fire Ins. Co., 101, 102 Attorney-General v. Lichfield, 121 Attorney -General v. Norwich, 121 Attorney -General v. Poole, 121 Attorney-General v. Sefton, 1275 Attorney-General v. Tudor Ice Co., 494 Attorney-General v. Utica Ins. Co., 305, 555 Attrill v. Huntingdon, 413 At water v. American Exchange Nat. Bank, 1124 Atwood v. Merry weather, 298, 324 Atwood v. Shenandoah Valley R. R. Co., 1027, 1038 Auburn Savings Bank v. Hayes, 734 Auerbach v. Le Sueur Mill Co., 74, 106 August v. Fourth Nat. Bank, 667 Augusta Bank v. Augusta, 923 Augusta Bank v. Hamlin, 175 Augusta, T. & G. R Co. v. Kittel. 286. 254, 826, 1076. 1079, 1097 Aurora Agr. & Ilort. Society r. Pad- dock, 163, 1078. Aurora & Cincinnati R. Co. v. City of Laurenceburgh, 455 Aurora City v. West, 946, 955 Austin v. Berlin, 884 Austin v. Daniels, 247, 365 XXX11 TAULE OF OASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Austin v. District Township of Col- ony, 140, 840 Austin v. Gas Company, 1264 Australian Steamship Co. v. Mounsey, 102 Auxiliary Company v Vickers, 1121 Averell v. Second Nat. Bank, 595 Averill v. Barber, 310, 316 Avery v. Ladd, 1145 Avery v. Job, 445 , Axt v. Jackson School Township, 133 Ayers v. McCalla, 1262 Aymar v. Boers, 702 Ayrault v. Pacific Bank, 688 Ayres v. Bank, 601 B. Babbitt v. Savoy, 35, 60 Babcock v. Goodrich, 118 Bachellor v. Priest, 702 Bachrach v. Norton, 720 Bacon v. Irvine, 316 Bacon v. Mississippi Ins. Co., 99, 182 Bacon v. Pomeroy, 769 Badger v. Badger, 168 Badger v. Bank of Cumberland, 571 Baer v. English, 1146 Bagaley v. Pittsburg Iron Co., 198 Bagnall v. Carlton, 260, 297, 298, 299 Bagnall v. State of Wisconsin, 1299 Bagshaw v. Eastern Union Railway Co., 300, 450, 471 Bagshaw v. Seymour, 271, 294 Bailey v. Bidwell, 621 Bailey v. Mayor, etc., 29, 294 Bailey v. Murphy, 530 Bailey v. Pittsburg & Connellsville Gas. Coal & Coke Co., 166 Bailey v. Sawyer, 772 Bailey, Receiver, v. Burgess, 349 Bain v. Peters, 713 Bain v. Bank of Washington, 459 Baird v. Todd, 67 Baker v. Boston, 19 Baker v. Guarantee Trust & Safe De- posit Co., 1018, 1055 Baker v. Harpster, 155 Baker v. Inhabitants of Windham, 62 Baker v. Johnson County, 124 Baker v. North Western Guaranty Loan Co., 490, 821 Baker v. Railroad Co., 305 Bakewell v. Police Jury, 871 Balbach v. Frelinghuysen, 613, 614. 709, 712 Balch v. Wilson. 710. 712. Baldwin v. Bank of Newbury, 359 Baldwin v. School City of Logans- port, 63 Ball v. Allen, 660 Ball v. Presidio County, 831 Ballard v. Carmichae/, 809 Ballin v. Loeb, 1125 Ballon v. Campbell, 218 Ballston Spa Bank v. Marine Bank, 574 Baltimore City R. R. Co. v. Sewell. 198 Baltimore & Ohio R. R. Co. v. Glenn, 1137 Baltimore & Philadelphia Steamboat Co. v. McCutcheon, 191, 210 Bait., etc., R. R. Co. v. Wilkens, 334 Bainbrick v. Campbell, 191, 210 Bancroft v. Lyunfield, 35, 61 Bancroft v. Wilmington Conf. Acad- emy, 574, 895 Bangor Boom Corporation v. Whiting, 145 Bangor Savings Bank v. City of Still- water, 37, 424 Bangs v. Lincoln, 387, 769 Bank v. Alexander, 608 Bank v. Armstrong, 706, 731, 737, 750, 753, 754 Bank v. Baker, 513 Bank v. Bank, 170, 209, 644, 655, 692 Bank v. Beal, 731 Bank v. Bergen County, 857 Bank v. Bletz, 529 Bank v. Bouny, 1285 Bank v. Bridges. 1086 Bank v. Burkhardt, 1213 Bank v. Burns, 692, 705 Bank v. Butchers', etc., Bank, 170 Bank v. Butler, 545 Bank v. Calder, 572 Bank v. Carpenter, 527 Bank v. Case, 772 Bank v. Childs, 527 Bank v. Christopher, 571, 583 Bank v. Church, 209 Bank v. City of St. Joseph, 866 Bank v. Colby, 545 Bank v. Comegys, 207 Bank v. Cortright, 807 Bank v. Cunningham, 571 Bank v. Cupps, 670 Bank v. Davis, 535 Bank v. Dearing, 775 Bank v. Diefendorf, 620 Bank v. Dowd, 626, 731, 750, 753 Bank v. Dunn, 192, 193, 216, 217, 588 Bank v. Flagg, 690 Bank v. Foreman, 642 Bank v. Gillespie, 736 Bank v. Goetz, 752 Bank v. Goodman, 682, 692, 705 Bank v. Grace, 433 Bank v. Graham. 546 Bank v. Green, 620, 668 Bank v. Gruber, 529 Bank v. Headley, 600 TABU xxxn: [The references are t< pagea: N"! I Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Hank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Hank v. Bank v. Hank v. Hank v. Hank v. Bank v. Bank v. Hank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. 146, Bank v. Rink v. Bank v. Bank v. Hank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v.' Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Bank v. Hank v. Bank v. Bank of Bank of 645, HenniriLrer. .Vj:J, 642 Hi-brr, UT. Hoch, 562 Hooper, 359 Howard, 653 Hubbcll, 618, 706 Hughes. 523 Johnson. .VJ7 .I..n, -s. 172. 216, 641 Keavv, 5SO Keim", 561 Kennedy, 555 Kitliler, 1155 Kin-r. 721. ",:\\ Ijmier, 517, 76:} Leach, 651 Le Grand, 642 Littrll. 588 Lovitt, 688 Loyped, 583 Mason, 609 Matthews, 495, 942 Miller, 617 Mixtc-r. 716 NiMNO, 583 North. 942 Noxon, 620 Patterson. 32, 73, 98, 142, 145, 203 Perk, 523 Pepom, 577 Poisart. 562 Porter Township. 866 Railway Co.. 605 Richards, 655 Russell, 753, 754 Savery, 583 Schaumburg, 583 Srhrauck, 1117 Schreiner, 640 Schuler. t>45 Sherburne, 514 Simpson, 514 Smith. 5:55. 600, 617 South Iladloy. 114 Strauffer. 527 Stover, 5:55 Sullivan. 504 T< nnessee. 1101 Walker, 736 Wallace. 690 Wasson, 1084 Wen as, 523 Weil, 659 Whittle, 1084, 1112 Wiegand. 562 \Villinms. 629 Winchester. 227 Wulfekuhler, 241, 1117 Alexandria v. Sanders. 508 America v. Indiana Bkg. Co., 656, 657 contains pp. 1-707; vol. II, pp. 70&-lft07.] Bank of America v. McNeil. Hank of Attica v. Pott-cr & Stymus Mfg. Co.. 151. 1 .1.;, 197 Bank of Auburn v. Putnam, I Hank nl" AuiruMa v. Ivtrle '.).">, Bank of Bat a via v. New York. L. K. A W. R. R. Co.. 14'.. '.m Bank of Hennington v. Raymond, 7. 6. 1112 Bank of Chillicothe v. Swayne, 90, 529 Bank of Columbia v. McKVnney, 691 Bank of Columbus v. Bruce. 76 Bank of Commerce v. Hart, 517. 577 Bank Conns, v. Hank of Bulfalo. 550 Bankof (Ji-nesee v. I'atchin, 78, 173, :!i;<>, 405, 508 Bank of llealdsburg v. Hnilliarke, 174, 579 Bank of Hoi! v S'<.-j,,.r S v. I'in^on, 525 Bank of Huntsville v Hill, 5xo Hank of Ireland v. K vans' Charities, 344 Bank of Kentucky v. Schuylkill Hank. 233, 338, 339, 1079 Bank of Lindsbor^ v. Obci- Bank of Louisiana v. tttrusburjr. ."i'27 Bank of I^ouisiana v. Slerlin-r. .VJ? Bank of Marj'land v. Ruff, 158 Bank of Metropolis v. Guttschlir.k, 146 Bank of Metropolis v. Jones, ">?i> Bank of the 'Metropolis v. First Nat. Bank of Jersey City, 706 Bank of Middlebury v." Bin^ham, 52M liank of Middlebury v. Ed^crton. 471 Bank of Middlebury v. Rutland R. R. Co.. 144, 195 Bank of Mobile v. Hugrins, 681 Bank of Montreal v. Dewar, 627 Bank of Montreal v. J. E. Potts Salt & Lumber Co., 252. 1071. 1081, 1115 Bank of Montreal v. White, 644 Hank Mutual Redemption v. Hill, 551 Bank of New Hanover v. Kenan. 01(7 Hank of New York v. American Dock & Trust Co., 157 Bank of New York v. Bank of Ohio. m Bank of North America v. T;mblvn, 506 Bank of Pennsylvania's Estate. 718 Bank of Peru v. Karnswnrtli. ti'JT Bank of Pittxlmrirh v. Ncal. 980 Bank of Poughkeepsie v. 880 Bask of Republic v. Baiter, 631 \X.\1V TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.1 Bank of the Republic v. Millard, 597, 645, 651, 662, 664 Hunk of Home v. Village of Rome, 49, 9a=i, 1007 Bunk of St. Albans v. Farmers' Bank, 670 Bank of Mary's v. Calder, 563 Bank of St. Marys v. St. John, 241, 249, 302 Bank of San Luis Obispo v. Wicker- sham, 295 Bank of Springfield v. First Nat. Bank of Springfield, 652 Bank of U. S. v. Bank of Georgia, 673, 677 Bank of United States v. Dandridge, 32. 146, 204, 340 Hank of U. 8. v. Davis, 361 Bank of United States v. Lane, 686 Bank of the United States v. Macales- tcr, 603 1'ank of the University v. Hamilton, 363 Bank of Utica v. Smailey, 763 Bank of Vergennes v. AA arren, 154 Hank of Washington v. Triplett & Neale, 681 Hank of Yolo v. Weaver, 151 Hanks v. New York Club. 157 Bannock County v. Bunting, 13 Banque Franco-Egvptieune v. Brown, 1016, 1017 Barber v. City of Saginaw, 112 Barbour v. Bayon, 644, 656 Barb Wire Co. v. Chicago B., etc., Ry., 890 Barcalow v. Totten, 1140 Barclay v. Culver, 1289 Barcus v. Hannibal, Rolls County & P. P. R. Co., 180 Bareno v. Hannibal, Rollo Co. & P. R. R. Co., 180 Hard v. City of Augusta. 45, 952 Hard v. Manufacturing Co., 495 Bardstown & Louisville R. R. Co. v. Metcalfe, 1054, 1096, 1169 Barker v. Chesterfield, 134 Barker v. Mechanics' Ins. Co., 97, 101 Barker v. Rochester Nat. Bank, 528 Barlow v. Planters' Bank, 688 Barnard v. Knox County, 67 Barnert v. Mayor, etc., 62 Barnes v. Brown, 242, 260, 268, 278. 282, 286, 309 Barnes v. Chicago, Milwaukee, etc., Ry. Co., 1163 Barnes v. Gas Light Co., 569, 570, 583 Barnes v. Korneguy, 1283, 1284 Barnes v. Ontario Bank, 75, 102 Barnes v. Suddard, 494 Barnes v. Town of Lacon, 852, 941, 973, 1004 Barnet v. National Bank, 527, 528, 531 Barnet v. Smith, 657 Barnett v. Denison, 872 Barney v. Dewey, 294 Barnum v. Board of Supervisors of Sullivan County, 997 Barnum v. Okolona, 1COO Barr v. New York, L. E. & W. R. R. Co., 257, 268, 27S. 1023 Barr v. Pittsburgh Plate Glass Co., 252, 260 Barry v. Merchants' Exchange Co., 1289 Barrett v. City of East St. Louis, 851 Barrick v. Austin, 573 Barrow v. N. & C. T. Co., 494 Barry v. Merchants' Exchange Co., 73, 75, 85, 102, 153, 1269 Barry v. Missouri, Kansas, etc., Ry. Co., 1045 Bartemeyer v. Rohefs, 900, 906, 953 Bartholomew v. Bentley, 248, 369 Bartlett v. Drew, 1133 Bartlett v. Remington, 617 Bartlett v. Kinsley, 790 Barton v. Barbour, 1223 Barton v. P. J. & U. F. Plank Road Co., 75, 1117 Barton v. Swepston, 445 Bash v. Culver Gold Mine Co., 300 Bason v. King's Mining Co. . 1075 Bassett v. City of El Paso, 1262 Bassett v. St. Albans Hotel Co., 388 Bateman v. City of Covington, 438 Bates v. Androscoggin River R. R. Co., 485 Bates v. Boston &N. Y. Central R. R. Co., 1014 Bates v. Independent School District, 879 Bates v. Iron Co., 147, 227 Bates v. Short, 520 Bates v. State Bank, 459 Bates County v. Winter, 446, 935 Bath County v. Amy, 944 Butler v. Brandywihe, 135 Battle v. North Western Cement Co., 263 Battle v. Corporation of Mobile, 48 Bauer v. Franklin County, 129, 437 Bauer v. Platt, 379, 380 Baumgartner v. Hasty, 38 Bay City Bridge Co. v. Van Etten, 312 Bayless v. Orne, 305 Bay or v. Schaffner & Co.'s Estate, 1145 Bay View Homestead Assn. v. Wil- liams, 353 Beach v. Inhabitants of Conway, 133 Beach v. Miller, 239, 253, 1087 Beal v. City of Somerville, 611 TAIU.I: OK CASES. \ X X V [The references are to page*: v-.i. I ,-.. mains pp. 1-707; vol. n, pp. 708-1807.) Bcal v. National Exchange Hunk of Dallas. Tin H.-al v. liailroad Co.. 348, 1183 Heal v. St. Cn.ix County, 182 Bcaman v. Lrake Downy, U20 Beman v. Kufford, 471 v. Township. 135 Isley v. Ontario Bank, 1096 Beattic v. Del , L. & W. Railroad Co., -,>: Beaty v. Li -KSI-C of Knowler, 50, 478 Beaver v. Armstrong, 940 IT Dam v. F rings, 138 Beck v. Kantorowic/., 298 Beck with v. Windsor Manufir. Co.. 1 I-', Bedford R. R. Co. v. Bowser, 1<>I>. :*. 471 Heche v. Board, etc., 57 Bret)'* v. Kichni'ind Light, Heat i Power Co., 1006 Beecher v. D;iey, 92 Beechcr v. Rolling Mill Company, 1024, 1069 Beeehrr v. SchicflVlin, 809. 310 Bcckman v. Saratoga & Schenectady R R. Co., 917, 958 Beeman v. Black, 1012 Beenev, County Treasurer, v. Irwin, I 110 Beers v. Bridgeport Spring Co., 816 Beers v. New York Life Ins. Co., 263 Beers v. Phoenix Glass Co., 73, 102, 153 BcM.-n v. Burke, 263. 1057 Belknap v. Davis, 218. 865 Belknap v. North American Bank, 868 Bell v. Chicago. St. L. & N. O. R. R. Co.. 964, 1055 Hell v. Ha-erstown Hank, 686 Hell v. Hanover National Bank, 525, 564 Hell v. Live Stock Co., 430 Hell v. Mali. 287 Bell v. Montgomery Light Co., 318 Hell v. PUttevtlle, 42 Belleville Savings Bank v. Winslow, 198 Bell's Gap Railroad Co. v. Pennsylva- nia, rj'.n Belmont v. Krie Ry. Co.. 1043 Heinent v. Plattsburg & Montreal It. R. Co.. 1077, 1082 Benedict v. Construction Companv, 1122 Benedict v. Lansing, 98, 150, 152, 172 Benedict v. Rose, 090 Benefit Assn. v. Blue, 496 Benjamin v. Elmira, Jefferson A. < : andaigun R. R. Co., 1014 Benjamin v. Wheeler, 19 Bennett v. Glenn, Trustee, 1138 Bennett v. Great Western Ti N-graph Co., 1140 Benoit v. Inhabitants of Con way, 134 Benseik v. Thomas. 491 i \ lit -at horn, 242 Benson v. Waukcsha. 42 Hentley v. Columbia Ins. Co. ,842 IJeiiti.ii v. German-American Nat. Bank Bergen v. Fi^hinir Company, 1086 Berks County v. I'll.-. i:;J Berlin v. New Britain, 790 Berlin Iron Bridge Co. v. City of San Antonio. 429 Bernard's Township v. Stebbins. 991 Herrv, Recr, v. Yates, 478 Barton v. Walten. 250 Meveritl^'e v. Railroad Co., 476 Heverley v. Lincoln Gas Co., 98, 234 Be/on, t'omr., v. Pike, 89 Hibby v. Hall. ',':{ I Biekford v. Fir>t Nat. Bank of Chi- cago, 357. 645, 652. 697 Bicknell v. Widner School Township, 20, 133. 427 liid.lle v. City of Terrell, 429 Bien v. Bear River fc Auburn W. & M. Co.. 174, 190 Biggs v. Pennsylvania & New Eng- land R. R. Co.. 1034 Bill v. National Park Bank, 653 Bill v. Western Union Tel. Co., 316, 823 Bingham v. Stewart, 358 Binney's Case, 72 Bird v. Daggett, 152, 210. 227 Bird Coal & Iron Co. v. Humes, 242 Birdsall v. Clark, 59 Hischoffsheim v. Brown, 1016 Bishop v. Houghton. 812 Bishop v. Moorman, 874 Bi-Spool Sewing Machine Co. v. Acme Mfg. Co.. 156 Bishop v. City of Jeffersonville, 897 Bissell v. City of Kankakee, 567, 852, 949 Bissell v. Mich. So. & No. Ind. R. R. Co., 106, 153, 809, 822, 453, 469, 471, 491, 546 Bisscll, Receiver, v. Heath, 761 Black v. Delaware, etc.. Canal Co., 471 Black v. Skreeve, 1051 Hlaeklcy v. Andrew, 658 Hlaekman v Li-hman. 11, 952 Blackshire v. Iowa Homestead Co., 805, 1071 Blain v. Airar, 294 Blaine v. Brown, 708 Blair v. Coming County. 917. 947. 948 Blair v. Perpetual Ins.'Co . 4C,:{ XXXVI TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Blair v. Lewis, Hannibal, etc., R. R. Co., 1172, 1198, 1194, 1221, 1238 Blake v. Buffalo Creek R. R. Co., 251, 280, 282 Blake v. Griswold, 412 Blake v. Holley, 155. 173 Blanchard v. Kuull, 850 Blanchard's Gun-Stock Turning Fac- tory v. Warner, 74 Bland v. Commercial & Railroad Bank, 638 Blanding v. Burr, 49, 923 Blanding v. Davenport, I. & D. R. Co., 151 Blanton v. Board of County Comrs., 907 Blasdcl v. Locke, 617 Blatchford v. Ross, 248, 260 Bletz v. Columbia Nat. Bank, 554 Bliss v. Anderson, 463 Bliss v. Kaweah Canal & Irrigation Co., 192, 204 Bliss v. Matteson, 260, 282 Block v. Commissioners, 955 Blodgctt v. Gardiner, 522 Blood v. Marcuse, 180 Bloodgood v. Mohawk & Hudson R. R. R. Co., 958 Bloomington v. Chicago & Alton R. R. Co., 1268 Blount v. Windley, 718 Bloxham v. Florida Central & P. R. R. Co., 1305 Blum v. Looney, 831 Board v. Senn, 1272 Board, etc., v. Applewhite, 121 Board, etc., v. Arrghi, 801 Board, etc., v. Boyle, 122 Board, etc., v. Boynton, 31 Board, etc., v. Bradford, 122 Board, etc., v. Brown, 825 Board, etc., v. City of Lincoln, 793 Board, etc., v. Cole, 57, 123 Board, etc., v. Crook County, 67 Board, etc., v. Everett, 29 Board, etc., v. Gregory, 122 Board, etc., v. Hill, 22, 874 Board, etc., v. flon, 31 Board, etc., v. Jennings, 31 Board, etc., v. La Fayette, M. & B. R. R. Co., 470. 471 Board, etc., v. Lomax, 121 Board, etc., v. McClintock, 17 Board, etc., v. Nelson, 376 Board, etc., v. O'Connor, 123 Board, etc., v. People ex rel., 800 Board, etc., v. Roenner, 126 Board, etc., v. Reynolds, 471 Board, etc., v. Richardson, 122 Board, etc., v. Seaton, 31 Board, etc. , v. Taylor, 63, 64 Board, etc., v. Verburg, 121 Board, etc., v. Ward, 122 Board, etc., v. Webb, 126, 442 Board, etc., v. Weider, 826 Board of Coinrs. v. Bright, 949 Board of Commissioners v. State, 971 Board of Comrs. of Gilson County v. Ticheuor. ?H3 Board Comrs. Hamilton County v. State, !:i5 Board of Comrs. of Kingman County v. Cornell University, 942 Board of Education v. Fonda, 990 Board of }ducntion v. Fowler, 882 Board of Education v. Martin, 882 Board of Supervisors v. Deyoe, 380 Board of Supervisors, etc., v. Ed- wards, 120 Board of Supervisors of Madison County v. Brown, 913 Board of Supervisors v. Weider, 1004 Board of Supervisors of Mercer County v. Hubbard, 899, 910, 918, 945 Board of Trustees v. Smith, 100 Board of Trustees of Augusta v. Maysville & B. 8. R. R. Co. ,969 Boehm v. Rail, 1086 Bohan v. Township, 135 Bohm v. V. Loewer's Gambrinus Brewery Co., 103, 172 Bohn v. Brown, 415 Bohn Mfg. Co. v. Lewis, 961 Bolles v. Brimfield, 939 Bolles v. Town of Amboy, 976 Bolton v. Board of Education, 879 Bolton v. Richard, 600 Bommer v. S. S. Co., 234 Bonaparte v. Tax Court, 1277 Bond v. Manufg. Co., 490, 495 Bond v. Terrell Cotton & Woolen Mfg. Co., 821 Bonesteel v. City of New York, 113 Bonnell v. County of Nuckolls, 67 Bonnell v. Griswold, 393, 412 Booe v. Junction R. R. Co., 471 Book Company v. De Golyer, 1118 Boom v. Utica, 5, 114 Booth v. Bank, 183, 190, 321 Booth v. Robinson, 76, 97, 102, 282 Booth v. Welles, 755 Brock v. Perkins, 720 Borough of Henderson v. County of Sibley, 895 Borough of York v. Forscht, 125 Borup v. Nininger, 682 Bosler's Admr. v. Bank, 712 Boston & Albany Railroad v. Richard- son, 335, 336 Boston & P. R. R. Co. v. New York &N. E. R. Co., 278 Boston, etc., R. R. Corp. v. Salem, etc., R. R. Co., 471 TAIM.I OP C \-l 8. \\.\V11 [The references are to page*: vol. I contains pp. I TilT: vol. II. pp. 708-1307. j Boston, C. A: M. H. R. Co. v. State, 1300 Boston &Roxbury Mill Corporation v. Newman, U17 Boston Safe Deposit Trust Co. v. Adrian, Mich., Water Works, 1183 Boston Safe I>c|.o>it v v Tru-t Co. v. Bankers fc Merchants' Telegraph Co., lOiW Bothwcll v. Millikan. 127-' Botsford v. New H;ivcn. Middlctown, etc.. K. H. Co . r.M'.t Bottomley v. Fisher. Boaghtoo v. otis. 884, :::H) Bound v. South Carolina Rv. Co.. lio:?. ni;o. HOT. 1171. 1184, ll*."), 121<.. 1211. I . Bound v. South Carolina Ry. Co., Ex parte. Mitchell. 12*1 Bound v. South Carolina If. R. Co., Ex parti- Walker; Ex parte Cal- der, 1184 Bound v. South Carolina Kv. Co. (Maytield. Intel -verier), 1172 Bound v. Soiitli Carolina Ry. Co. (Quintard. Intervener), 1260 Bouitleaux v. Cognard, 438 BowdcH v. Johnson, 764, 767 Bowen v. Morris, its Bowers v. Evans. 7.">:{ Bowen v. Newell. Ii56 Bowles v. Lambert , 359 Bowles v. Stai. Bowman Dairy Co. v. Mooney, 820 Bowyer v. Camden, 1086 Boyce v. Montnuk Coal & Gas Co., 1069 Boyce v. Tahh, !'--' Boyd v. Beck. .">;* Boy. I v. Kmiiiei-son. 601, 698 Boyd v. Mr\i< Southern Bank, 650 Boyd v. Sims. :Uti Boyden v. Hank of Cape Fear, 597, ' 888 Boydston v l{o< kwall County, 117 Boyer v. Boyer. 12!7 Boyin^ton v. Wilson Sewing Machine Co., in:, Boyle v. Thurbcr, 413 Boy nt on v. Match. 166 Bracket! v. (Jriswokl, 393, 413 Bnidbury v. lioston Canoe Co., 85 Bradlee'v. Warren Savings Bank, 179 Bradley v. Italian!, 75, 102, 107, 153 489, 496, 1M2 Bradley v. Farwell. 1108 Bradley v. l'....lc, 291 Brady v. Mayor, etc., 995 Bradv v. Supervisors. et Brady v. Mayor, etc.. of Brooklyn, 379 Brady v. Mayor, etc., :,. 20. K:J Brady \. May or of NYw York, 444 BiBdj v. Mayor, etc. S 21 Brahm \. A.ikins, .VJH, 600, 604, 649 Bnan-inl v. New York & Harlem H. H. Co.. U.V., 1014 Uraiin-rd v. New York Central H. R. Bnnch v. Jessup. 93. 473. 1096 Branch Bank at Huntsville v. Stcl<-. 688 Brand) Bank at Mobile v. Collins, 549 Branch Bank at Mobile v. Scott. 549 Branch Bank at Montgomery v. Har- rison. .V.N Branch Bank at Montgomery v. Kiiox, r.i.y ;M. 699, 700 Branch Bank at Mobile v. Strother. B88 Bninch, Sons & Co. v. Atlantic A Gulf R. R. Co.. 1077 Brandt v. Goodwin, 897, 411 Brandao v. Barrett, 524 Bras! in v. Somcrville Horse R. R. Co., 465 Breckenridge County v. McCracken, 920, 931, 946, 947, 948 Breene v. Bank, 726 Breitung v. Lindauer, 416 Bremen Savings Bank v. Branch Crookes Law Co.. 361 Brenham v. German-American Bank, 12, 14, 864, 884. 1000 Brennan v. Mississippi Home Ins. Co., 1307 Brennan v. Titusville, 1267 Brent v. Bank of Washington, 525, 526 Brewer v. Boston Theatre, 306, 317, 324. 325 Brewer v. Otoe County, 788, 804 Brewster v. Hatch, 260 Brewster v. Hyde, 857 Brewster v. Stretmnn, 271 Brideubecker v. Lowell, 170, 574 Bridgeport v. Railroad. 979 Bridgeport Bank v. Dyer, 658 Bridgeport City Bank v. Empire Stone Dressing Co.. 78, 152, 405 Briggs v. Bank. 692 Briggs v. Partridge, 360 Brigps v. Spaulding. 303, 347, 351, :,:,:; Briggs v. Whipple, 62 Bright v. Banking Co., 506 Bright v. MeCullough, 870 Bright v. Metairie Cemetery Assn., 181 Brinckerhoff v. Marvin, 1058 Brinkerhoff v. Bostwick, 848. 555, 556, 560 XXXV111 TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-18or.l Brinkman v. Hunter, 654 Brinkmeyer v. City of Eransville, 19 Briiikwortli v. Grable, 969 Briscoc v. Allison, 929 Bristol v. Scrantpn, 259 British & American Mortgage Co. v. Tibballs, 687 British Coml. Life Ins. Co. v. Comrs. of Taxes, 1287 Britou v. Mayor, etc., 29 Brockert v. Central Iowa Ry. Co., 1227 Brockman v. Metcalf, 154 Brockway v. Allen, 359 Erode v. Firemen's Ins. Co., 13, 100 Broadhead v. Milwaukee, 49, 957 Brodie v. McCabe, 827 Brome v. Cuming County, 57 Bronson v. Railroad Company, 1042 Brooke v. Railroad Company, 1079 Brooklyn v. Breslin, 59 Brooklyn v. Insurance Company, 965 Brooklyn Gravel Ro&d Co. v. Slaughter, 182 Boughton v. Manchester Water Works, 73, 90, 98 Broughton v. Pensacola, 844 Brouwer v. Appleby, 193 Brouwer v. Harbeck, 111, 1117 Browser v. Brooklyn Trust Co., 234 Brower v. Haight, 527 Brown v.* Bank, 536 Brown v. Board, etc., 15 Brown v. Bon Homme County, 857 Brown v. District of Columbia, 111 Brown v. Donnell, 173, 494 Brown v. Duluth M. & N. Ry. Co., 287, 495, 1030 Brown v. Grand Rapids Parlor Furni- ture Co., 144, 251, 1071, 1081, 1082, 1085, 1120 Brown v. Houston, 1293 Brown v. Leckie, 645, 648, 652 Brown v. McElroy, 605 Brown v. Montgomery, 624 Brown v. Pierce, 645 Brown v. Point Pleasant, 1004 Brown v. Spofford, 980 Brown v. Supply Company, 1057, 1075 Brown v. Maryland, 1013, 1267 Brown v. Toledo, P. & W. R. R. Co., 1199, 1202 Brown v. Weymouth, 180 Brown v. Winnisimmet, 92 Brown v. Wright, 197, 239 Browne v. National Color Printing Co., 299 Brovnell v. Town of Greenwich, 983, 984, 993 Brownlie v. Campbell. 293 Bruce v. Platt, 394, 398, 399 Bruff v. Mali, 286, 287 Brunswick-Balke-Collender Co. v. Boutell, 358 Brush v. City of Carbondale, 121 Bryan v. Page, 446 Buchanan v. Litchfield, 66, 839, 855, 897, 929, 968 Buck v. Barder. 390 Buck v. Memphis & Little Rock R. R. Co., 1096 Buck v. Seymour, 1096 Buckeye Engine Co. v. Donran Brew- ing Co., 1125 Buckeye Marble & Freestone Co. v. Harvey, 470 Buckley v. Briggs, 455 Budd v. Budd, 429 Buell v. Buckingham, 285, 1074, 1084, 1108,1112 Buffalo v. Bettinger, 996 Buffalo & Allegany Railroad Co. v. Carey, 390 Buffalo, etc., R. R. Co. v. Board, etc., 871 Buffalo, etc., R. R. Co. v. Lainpson, 250 Buffit v. Troy & Boston R. R. Co., 153 Buford v. Keokuk L. Packet Co., 278 Building Fund Trustees v. Bossieux, 554 Bull v. Bank of Kasson, 645, 655, 657 Bullard v. Randall, 664 Bullene v. Coates, 601 Buller v. Harrison, 616 Bullock v. Curry, 46, 908 Bunch's Exr. v. Fluvanna County, 954 Buncombe Turnpike Co. v. McCarson, 145 Bundy v. Jackson, 263 Bunting v. Camden & Atlantic R. R. Co., 1043 Burbank v. Dennis, 300 Burch v. Paper Company, 144 Burdon v. Association, 1118 Burger v. Burger, 608 Burges v. Mabih, 906 Burgess v. Pue, 143, 144 Burgess v. Seligman, 988 Burke v. Smith, 258 Burkhaltcr v. Second National Bank, 648 Burkinshaw v. Nicolls, 328 Burley v. Marsh, 260 B. G. & M. R. R. Co. v. Warren, 126 Burlington Water Co. v. Woodward, 68, 69 Burnes v. Atchison, 952 Burns v. Mayor of N. Y., 114 Burnett v. Abbott, 27, 121, 437 TABLE OF CASES. X \ X 1 \ [The reference* are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1907.] Caldwell v. Nat. Mohawk Valley Bank, .171 Caledonia A: Dmnb.irtonville Ry. v. Magistrates of Helensburgh, 4. r *0 Calboun v. .Memphis A: I'aducnh R R Co., 1096 California Safe Deposit A: Trust Co. v. Cheney Kicctrie Light. <. phone & Power Co.. 1 14i> California State Telegraph Co. v. Alia Teleirraph Co., Ml Callanan v. Brown, s-Jl Callaway M. A: M. Co. v Hat 819 Calumet Paper Co. v. Siotts I ment Co., 1140 Calvert v. Idaho Stage Company, 144 Cambridge Water Works v. Somer- ville Dyeiiiir A: Blea<-liitiir Oo Camden v. Stuart, l<-_x C'amden te Atlantic R. R. Co. v. May's Landing A: Kirg Harbor City R. R. Co.. Cameron v. First Nat. Bank, 470 Cameron v. Seaman. 391, : Campbell v. American Zylouite Co., 485 Campbell v. Argenta Gold A Silver Mining Co.. K.M Campbell v. Merchants & Fanners' Ins. Co., 158 Campbell v. Mississippi Union Bank, 505 Campbell v. Morgan, 810 Campbell v. Paris A: Decatur R. R. Co., 971, 973 Campbell v. Pope, 15s, . -,>:{} Campbell v. Texas & N. I). R. R. Co., 1054 Canada Southern R. R. Co. v. C-h- hard, 1080 Canal Bridge v. Gordon, 263 Cantillon v. Dubuque & N. W. R. R. Co., 976 Capitol State Bank v. Lane, 688 Carey v. Giles, 98, 173 Carey v. Houston & Texas Central Ry. Co.. 1147, 1165 Carley v. Graves, 749 Calling's Case. 299 Carman v. Prest., etc.. Franklin Bank of Baltimore. 509 Carpenter v. Briggs. 152, 180 Carpenter v. Buena Vista County. Carpenter v. Farnsworth. Hid Carpenter v. Union, 4 Hi Carr v. Hamilton. 718 Carr v. Lc Fevre, 1014 Carr v. Risher. 390 Carr v. State, 1146 Carrigan v. Port, Crescent Imp. Com- pany, 155 Burnlmm v. Bowen, 1220, 122',', Burnham v. Strafford, 187 Burnham v. Webster. .171, 6H1 Burr v. City of Carbondale, 37, 70, 850 Burr v Mi-I>mmld. 7.1. 1108 Burn-ill v. Bushwic k R. H. Co.. Ix'H'J Burrill v. Nuhaut Bank, 671, 1074, 107.1 Burrill v. Boston, 440 Burroughs v. Richmond ('.unity. !Hti Burroughs & Springs v. Commission- ers, 1047 Burrow v. Zapp, 525 Burrows v. Bangs, 680 Burt v. Railroad Co., 880 Burt v. Rattle, .t|. 1055 Burton v. Norwich. 138 Bush v. Sprague. 547 Burnett v. First Nnt. Bank, 609 Bush v. Wolf. 11<> Bushnell v. Beloit, 4*. I'.' Bushwick. etc., Turnpike Co. v. Eb- betts, ;!ls Busscy v. Gil more. 21 Butchers', etc.. Bank v. Hubbell, 744 Butler v. Cornwall Iron Co., 262 Butler v. Dunham, 953 Butler v. Eaton, 519, 756 Butler v. Passaic, 890, 1270 Butler v. Poole, 772 Butler v. Rahm, 1096 Butler v. Smalley, 891, 392, 413 Butler v. Sullivan County, 57 Huttc Hardware Co. v. Schwab, 470 Hutti- County v. Morgan, 374 Butternut v. O'Malley, 138 Butts v. Little. 67 Butts v. Wood. 242, 247, 250, 279, 280, 282, 283, 809, 365, 556 Butts v. Cuthbertson, 142 Butz v. City of Muscatine, 982 Byer v. Rollins, 316 c. Cabaniss v. Hill, 67 Cable v. Gaty. 3*9, 415 Cable v. McCime, 389, 415 Cady v. Sanford, 417 Cady v. Watertown, 139 Cngwin v. Town of Hancock. 985. 986 Cagswell v. Ball, 311 Cahill v. Kal. Mut. Ins. Co., 144,161 ( airo v. Vane, 893. 966 Cairo & St. Ixmis R. R. Co. v. City of Sparta, 954 Cairo. V. & C. Ry. C'o. v. Matbews, 1804 Cake v Bouck. 562 Caldwell v. Justices. >l Burke, 49 xl TABLE <)F ( AH 3. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Carroll v. Siebenhaler, 118 Carroll County v. Smith, 911, 912, 957 Carson City Sav. Bk. v. Carson City Elevator Co., 470, 489, 49f> < 'nrter v. City of Dubuqxie, 56 Carter v. City of New Orleans, 1177 Carter v. Ford, etc., Co., 315 Carter v. Glass Co., 55<) Carter v. Hightower, 1129 Carter v. Palmer, 2ol Carter County v. Slaton, 946 Cartwright v. Dickinson, 1132 Carver v. Braintree Manufg. Co., 414 Cary- Holiday Lumber Co. v. Cain, 809 Cary, Assignee, v. McDougald, 573 Caryl v, McElratb, 191 Casco Nat. Bank of Portland v. Clark, 359 Casev. Bank, 226,567, 729 Case v. Beauregard, 750, 1140 Case v. Hawkins, 191 Case v. Morris, 657 Case v. Wresler, 800 Case of Bowton, 615 Case of Sargeant, 615 Casey v. Galli, 772 Casey v. People, 954, 976 Casey, Receiver, v. Societe de Credit Mobilier, 733 Cash v. Auditor of Clark County. 26 Cass v. Dillon, 49 Cass County v. Chicago, B. & Q. R. R. Co., 1302 Cass County v. Johnston, 803, 957 Castle v. Belfast Foundry Company. 154 Castle v. Lewis, 234 Cate v. Patterson. 631 Cates v. Allen. 1139 Catlett v. Starr, 809 Catlin v. Eagle Bank, 1108 Catron v. La Fayette County, 14 Cave v. Cave, 338 Cavin v. Gleason, 751 Caylus v. New York, K. & S. R. R. Co., 1042,1043 Cazeaux v. Mali, 287, 291, 309 0., B. U. P. R. R. Co. v. Smith, 899, 903 ( 'ecder v. H. M. Loud & Sons Lumber Co., 198, 210, 232 Central Bank v. Empire Stone Dress ing Co., 78, 152, 465 Central Bank v. Pratt, 529 Central Bank v. St. John, 528 Central Building & Loan Assn. v Lampson, 491 Central Gold Mining Co. v. Platt, 1054 Central Nat. Bank v. North River Bank, 667 Central Nat. Bank v. Valentine, 616 Central R. R. Co. v. Collins, 517 Central Railroad v. Georgia, 1282 Central R. R. Co. v. Pennsylvania R. R. Co., 517 Central Railroad v. State Board of Assessors, 1300, 1301 Central R. R. & Bkg. Co. of Georgia v. Farmers' Loan & Trust Co. of New York, 1196, 1206 Central Transportation Co. v. Pull- man's Palace Car Co., 473, 477, 488, 1178 Central Trust Co. v. Bridges, 260, 1091, 1096 Central Trust Co. v. Condon, 1075 Central Trust Co. v. Florida Ry. & Nav. Co. (Hawkins, Intervener), 1164 Central Trust Co. v. Kneeland, 1095 Central Trust Co. v. N. Y. City & Northern R. R. Co., 264, 1162 Central Trust Co. v. Ohio Central R. R. Co., 1179 Central Trust Co. v. Richmond, N. I. &B. R. R. Co., 1249, 1251 Central Trust Co. v. St. Louis, A. & T. Ry. Co.. 1194 Central Trust Co. v. W abash, St. L. & Pac. Ry. Co., 1185, 1202, 1206, 1222, 1225. 1233, 1236 Central Trust Co. v. Wabash, St. L. & Pac. Ry. Co. (Swayne, Intervener), 1219 Central Trust Co. of New York v. Bridges, 1238, 1253, 1254 Central Trust Co. of New York v. Chattanooga, Rome & Columbus R. R. Co. ,^1195 Central Trust Co. of New York v. Chicago, K. & T. Ry. Co. (Holton- Warren Lumber Co., Intervener), 1179 Central Trust Co. of New York v. Cincinnati, J. & M. Ry. Co. 1243 Central Trust of New 1 ork v. East Tennessee, Va. & Ga. R. R. Co., 1223, 1225 Central Trust Co. of New York v. Marietta & Nor. Ga. R. R. Co., 1158 Central Trust Co. v. Marietta & North Ga. Ry. Co. (Blue Ridge Marble Co., Interveners), 1204 Central Trust Co. of New York v. Marietta & No. Ga. Ry. Co. (Groome, Intervener), 1216, 1218 Central Trust Co. of New York v. Marietta & No. Ga. Ry. Co. (Hia- wassee Co., Intervener), 1216 Central Trust Co. of New York v. Marietta & No. Ga. R. R. Co. TAUI.K OF CASES. Xli [The reference* are to page*: vol. I contain* pp. 1-707; vol. II, pp. 708-1307.] (Jackson & Slurp ( '<. , Intervencn. 1.M7 Cent ml Trust ('<>. of New York v. Marietta A: N... , ..I A; Wisti-rn Citruliim R. H. CD".. 1093 Central Trust Co. of New York v. St. Louis. A. &T. Ry. Co., 1230 Central Trust CD. of Nc\v York v. Shclliel'l & Birmingham Coal, Iron & Rv. Co.. 11 To Central Trust Co. v. Sheffield A: Birm- ingham Coal. Iron A: Ry. Co. (Anniston Loan & Trust Co., Inter- vener). 1211 Central Trusi C.i. of New York v. Valley Kv. C ... 1234. 12:r> Central Trust Co. of New York v. Wabnsh. St. L. A: !':.-. Hy. Co. (St. Louis. K. A: N. W. Ry. Co., Intervener). 1208 Central Trust Co. of New York v. United States Rolling Sto( k Co., 1188 Centre Township v. Board, etc., 935 ('liable v. NicamuguaCnnnl Construc- tion Co.. 1197 Chaffee v. Fort, 019, 624 Chaffey County v. Potter, 828, 885, 836, 837. 842. 897. 972 Clmffin v. Cummincrs, 756 Challis v. Parker. 871 Chamberlain v. lioard of Education of Cranberry Township, etc., 12fi3 Chamber! lin v. City of Burlington, 46 Chamberlain v. Monmouth Mining Company, 203 Chambers v." Falkner. 477, 497 Chambers v. Miller. 600 Chambers v. St. Louis, 493, 494 Chambers County v. Clews, 830 (Jhambliss v. Robertson, 530 Champion v. Gordon. 057 Chandler v. Hoag, 390 Chandler, Receiver, v. Bacon, 299 Chapin v. Dike. 979 Chapin v. Vermont A: Ma^saehu-eit> Riilnud, 1000, 1014. 1043 Chapman v. Comstock. 897 Chapman v. County of Douglas. 87, 786, 788,860 Chapman v. Derby, 720 Chapman v. McCrca, 686 Chapman v. While, 598, 66-1 Charles v. Hoboken, 112 Charles River Bridge v. Warren Bridge MB Clmrlotte Building & Loan Assn. v. Board Comrs., etc., 1300 vi Charter (Jas Engine Co. v. Charter. MO Chase v. Cannon. 716 4ir, ( in- . ll-.ihorn. 'J(7 Chaska Company v. lioard of Super \ i-n-.s .,i ' iiiit\ . 7 ! ChattahoDchee Nat. Bank v. Scbley, 888 Chattanooga. R. A: C. R. R. Co. v. Evans. 1111 Clmutauqiui County Bank v. Risley. 309 Cheanev v. Hnis<'r, 49 Cheeney v. Brooktield. 448 C'heeney v. La Fayette, B. A: \V. Ry. ( '<:. -,'Tlt. :r,6 ' Chemical Nat. Bank v. Armstrong. 729, 730 Chemical Nat. Bank v. Kohncr, 154, 170, 571. 579 Chemical National Bank v. Wagner. 151 Chemical Nat. Bank of Chicago v. City Bank of Portage, 519, 574 Chemung Canal Bank v. Supervisors of Cbemong, 130, 131. 995 Cheney v. Libby. 690 Chesapeake Bank v. Swain, 034 Chesapeake & Ohio Canal Co. v. Blair. 1047 C. & 0. R. R. Co. v. Barren County Court, 908 Chesapeake A: Ohio Railroad v. Vir- ginia. 1282 Chester County v. Barber. 434 Chester Glass Co. v. Dewey, 460, 494. 756 Chestnut Hill, etc., Co. v. Rutter, 1075) Chctlain v. Republic Life Ins. Co.. 302, 460 Chew v. Ellingwood. 596. 1111, 1112 Chewacla Lime Works v. Dismukes, 82 Chicago v. Sheldon, 29 Chicago v. Shober, etc., Co., 445. 801 Chicago & Atl. R. Co.. v. Derke*. 493 Chicago & A. R. R. Co. v. I.amkin 1302 Chicago & A. R. R. Co. v. People. 1263. 1264. 1302 Chicago Building Society v. Crowell. 153 Chicago. B. & K. C. R. R. Co. v. Guf le\, 1280 Chica-ro, B. & Q. R. R. Co. v. Lewis. Chicago. B. & Q. R. R. Co. v. School Dist. No. 1. 1302 Chicago. D. & V. R. K Co. v. Coyer, xlii TAIJLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Chicago, D. & V. R. R. Co. v. Fos- dick, 1080, 1151, 1153, 1156 Chicago, D. & V. R. R. Co. v. Smith, 70, 964 . Chicago Deposit Vault Co. v. Mc- Nulta, 1200 Chicago & Eastern 111. K. R. Co. v. Hay, 357 Chicago F. & M. Ins. Co. v. Keiron, 627 Chicago Gas Light Co. v. People's Gas Light Co., 503, 1178 Chicaeo & Grand Trunk Ry. Co. v. Turner, 1047 Chicago & Iowa R. R. Co. v. Pyne, 1015 Chicago, K. & W. Ry. Co. v. Comrs., 974 Chicago, K. & W. R. R. Co. v. Comrs., 911 Chicago, K. & W. R. R. Co. v. Ozark Township, 51 Chicago M. &F. Ins. Co. v. Carpenter, 627 Chicago F. M. Ins. Co. v. Stanford, 645, 660 Chicago, M. & St. Paul R. Co. v. Hartshorn, 900 Chicago, M. & St. P. Ry. Co. v. Wa- bash, St. L. & Pac.'Ry. Co., 1177, 1178 Chicago & N. W. R. R. Co. v. James, 167 Chicago, Pekin & S. W. R. R. Co. v. Prest., etc., Town of Marseilles, 455, 503 Chicago, R. I. & P. R. Co. v. Union Pac. Ry. Co., 82 Chicago, etc., v. Boone County, 210 Chicago, etc., R. R. Co. v. Coleman, 210 Chicago, etc., R. R. Co. v. President, etc., 460 Chicago, St. Paul, M. & O. Ry. Co. v. Bayfield County, 1305, 1306 Child v. Boston & Fairhaven Iron Works, 414, 415 Childs v. Alexander, 529 Childs v. Brown Township, 136 Childs v. City of Anacosta, 68 Chilton v. People, 1014 Chipman v. Foster, 810 Chittenden v. Thaunhauser, 414 Choisser v. People, 934, 940, 966, 967 Chouteau v. Allen, 241, 245, 1098 Chouteau v. Rowse, 647, 660 Christian County Court v. Smith, 907, 911 Christopher v. Mayor of New York, 445 Chrystie v. Foster, 567 Chubb v. Upton, 762, 1028 Church v. Imp. Gas Light Co., 98 Church v. Sterling, 235 Cincinnati, etc., Co. v. Clarkson, 144 Cincinnati R. R. Co. v. Clinton County, 49 Citizens' Bank v. City of Terrell, K*>, 833, 834 Citizens' Bank of Baltimore v. llo\v- ell, 686 Citizens' Bank of Louisiana v. Board of Assessors for the Parish of Or- leans, 1285, 128C Citizens' Bank of Steubenville v. Car- son, 640 Citizens' B. L. & S. Assn. v. Coricll, 347, 553 Citizens' Loan Assn. v. Lyon, 366 Citizens' Nat. Bank of Cincinnati v. Cincinnati, N. O. & T. R. Ry. Co., 287 Citizens' Nat. Bank of Davenport v. Importers', etc., Nat. Bank of New York, 648 Citizens' Pass. Ry. Co. v. Philadel- phia, 104 Citizens' Savings & Loan Association v. Topeka, 27, 930, 932 Citizens' Savings Bank v. Person. Cir- cuit Judge, 726 Citizens' Sav. & Loan Assn. v. Perry County, 948 City v. Commonwealth, 954 City v. Lamson, 1047 City of Aberdeen v. Honey, 438 City of Alma v. Guaranty Saviusrs Bank, 861 City of Aurora v. West, 49, 864, 949, 951 City of Austin v. Nallo, 857 City of Beatrice v. Brethren Church. 1280 City of Brazil v. McBride, 27 City of Bridgeport v. Housatonuc R. R. Co., 16, 45, 49 City of Bryan v. Page, 430 City of Buffalo v. Balcorn, 445 City of Buffalo v. Holloway, 294 City of Cardillac v. Woodsocket Insti- tution, 14, 827 City of Cairo v. Campbell, 795 City of Carlylc v. County of Clinton, 1270 City of Champaign v. Harmon, 5, 437, 438 City of Chicago v. Blair, 1270 City of Chicago v. Cameron, 316, 1015 City of Chicago v. Gage, 232 City of Chicago v. Hasley, 795 City of Chicago v. The People, fi.') City of Cleburne v. Brown, 44 City of Columbus v. Dennison, 969 TABU xliii [The references are to pages: vol. I contains pp. 1-707; TO). II, pp. 706-1907.] City of Council Bluffs v. Stewart, 66 Citv of Corpus Christi v. Central Wharf & Warehouse Co.. 441 City of Corpus Christi v. Woessner, 429 City of Crawfordsville v. H-iys. 39 t Delphi v. Bowen, 1271 City of Detroit v. Dean, 316 City of Detroit v. Whittemore, 62 City of East St. Louis v. Albrecht, City of East 8t Louis v. East St. Louis Gas, Light .& Coke Co., 487 City of Savannah v. Kelly, 56 City of Selma v. Mullen, :w City of Sherman v. Williams. 433 City of Shreveport v. Flournoy, 13 City of Somerville v He.d, 611.624 City of Springliuld v. Kd wards, 40, 66. SOI City of Tacoma v. Lillis, 798. 799 1 City of Terrell v. Dcssaint, 1JO City of Valparaiso v. Gardner, 80, 69, 874 City' of Vincennes v. Callender, 69 City of WillianiHport v. Common " wealth, 20 City of East St. Louis v. Maxwell. 13 City Hank v. Butemn City of East St. Louis v. Thomas, 59 f East St. Louis v. Wehrung, 59 City of Ellsworth v. Rochester, 442 City of Eufaula v. McXab, 43 Citv of Kvansville v. Woodbury, 12 City of Findlay v. Pert/, 113 City of Galena v. Corwith, 20, 121 City of Geneseo v. Geneseo Natural ^ Gas, Coal Oil, Salt & Mineral Co., MQ City of Grand Rapids v. Hydraulic- Co., 70 City of Greenrnstle v. Hazlett, 19 City of Indianola v. Jones, 108 City of Indianapolis v. Ely, 29 City of Indianapolis v. Indianapolis, etc., Co.. 28, 30, 69 City of Indianapolis v. Miller, 39 City of La Fayette v. Cox, 5, 20, 952 City of Learned v. Jordan, 1145 City of Lexington v. Butler, IOC, 55 j, 897 City of Lexington v. McQuillan's Heirs, 946 City of Logansport v. Dykeman, 59 City of Macou v. East Tenn., V. & G. Ry. Co., 953 City of Madison v. Smith, 850 City of Mt. Vernon v. Hovey, 949, " !.:,.. City of Muscatine v. Chicago, R. I. & P. Ry. Co.. 1301 City of Nashville v. Sutherland, 438 City of Oakland v. Carpenter, 29 City of Paris v. Cracraft, 795 City <>f I'aterson v. Board of Chosen " Freeholders, 117 City of Pekin v. Reynolds. 950 City of Poughkecpsic v. Quintanl, s5:> Citv of Quincy v. Steel, 316, 820 City of Quite; v. Warfield, 8~><>. D'J'.t City of Richmond v. McfJirr. !'.. *JV> City of Richmond v. Richmond A: Danville R. R. Co.. 1 -.:; City of Rochester v. Quintard. s.17 Citv of St. Louis v. Alexander, -19. ' 1114 Citv Hank v. Hnice, ?ii, 455 Citv Hank v. Cutter, 685 City Bunk v. FirM Nat. Rank, 661 City Bunk v. Girord Bank, 657 City Bank of Baltimore v. Batenian, " 14--, City Bank of Hartford v. Press Co. (Lira.), 809 City Bank of New Haven v. Perkins. 572 City Hank of Sherman v. Weiss. 711 Citv Council of Montgomery v. We- tumpka Plank Road Co.. 50, 74, 480 City & County of St. Louis v. Ale.x- " ander. >;' City Nat. Bank v. Burnes. 600 Clallin v. Farmers & Citizens' Bank. 250. 334. 342 Claflin v. Houseman. 554 Claflin-v. South Carolina R. R. Co.. 171 Claiborne County v. Brooks. K> 1000 Clap v. Interstate Street Ry. Co., 1192 Clapp v. City of Spokane, 1044 Clapp v. Co'unty of Cedar. 115, 8:52, 941 Clapp v. Peterson, 455; 1117 Clark v. American Coal Co., '2m, 27 Clark v. Bever, 1028 Clark v. Central R. R. & Hkir. Co ..f Georgia, 1222 Clark v. City of Janesville, 4*. '!! 958. 1047 Clark v. Citv of South Hen.l. :<* Clark v. Columbus, 67 Clark v. Davenport, 4 Clark v. DCS Moines. _>--. 111. 4:57 Clark v. Kdirnr. 'J)s Clark v. FarnuT-' Woolen Mfir. ('<>., 169 Clark v. Farrinirton. 74. 463 (lark N. Flint A: Pen .M:ir,|iiett,- R. R. Co.. -.TO Clark v. Iowa Citv. 1047 xliv TA15I.K OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1&07.] Clark v. Polk County, 446 Clark v. Saline County, 788, 860 Clark v. Sheldon, 995, 997 Chirk v. Stackhouse, 650 ( 'lark v. Titcomb. 75, 102, 188 Clark v. Town of Nobleville, 22, 878 Coffin v. City of Indianapolis, 13, 856, 863 Coffin v. Henshaw, 638 Coffin v. Nantuckct, 111 Cogan v. Mayor, etc., of New York, 131 Clark v. Nat. Metropolitan Bank, 659 , Coggeshall v. City of Des Moines, 66, Clark Nat. Bank v. Bank of Albia, 575 Clarke v. City of Rochester, 69, 1007. Clarke v. Hawkins, 712 Clarke v. School District, 41 Clarke v. Supervisors of Hancock County, 898, 1004 Clarke v. White, 323 Clauser v. Stone, 655 Claussen v. United States, 778 Clay v. Towle, 244 Clay v. Wright, 137 Clearwatcr v. Meredith, 325, 499 Clement v. Everest, 880 Clements v. Empire Lumber Co., 1233 67 Coghlan v. South Carolina R. R. Co., 1020, 1103 Cogswell v. Rockinghaiu Savings Bank, 617 Cohea v. Hui\t, fi91 Coit v. Gold Amalgamating Co., 1029 Coit v. Noble, 681 Colby v. Copp, 1108 Cole v. Northwestern Bank, 539 Coleman v. Coleman, 371 Coleman v. Ewing, 641 Coleman v. Second Avenue R. R. Co., 260, 279 Colcr v. Cleburne, 872 Clerks' Savings Bank v. Thomas, 549 ! Coler v. School Township. 880 Cleveland v. Amy, 140 | Coles v. Cleburne, 857 Cleveland v. State Bank of Ohio, 445 I Collector v. Day, 1276 Cleveland, C. & S. R. R. Co. v. Collen v. Wright, 372 Knickerbocker Trust Co., 1222 Cleveland Rolling Mill Co. v. Joliet Enterprise Co., 1129 (lews v. Bank of New York, 595 Clinch v. Financial Corporation, 325 Clinton Company v. Kernan, 176, 527 i Colman v. Riches, 294 C., W. & Z. R. R. Co. v. Comrs. of Colman v. Eaves, 828 Colling wood v. Merchants' Bank, 696 Collins v. Gilbert, 980 Collins v. Hatch, 5 Colman v. Eastern Counties Ry., 84, 95. 451, 471 Clinton County, 53 Clough v. Hart, 57 Clow v. Brown, 415 Clvde v. Richmond & Danville R. R. " Co., 1157, 1222, 1223, 1236 Coal Company v. Lotspeich, 296 Coates v. Preston, 645 Coatesville Gas Co. v. County of Chester, 1266 Coates v. Donnell, 565 Cocheco Nat. Bank v, Haskell, 571, 575, 579 Cochran v. Anglo-American Dry Dock & Warehouse Co., 1018 Cockerell v. Cholmeley. 991 Coddington v. Gilbert, 984 Codman v. Vermont & Canada R. R. Co., 1052 Cody v. City Nat. Bank, 682 Coe v. Columbus, Piqua & Ind. R. R. Co., 1013, 1021, 1054, 1077 Coe v. East & West R. R. Co. of Ala., 1020, 1029, 1031, 1034, 1035, 1040. 1041 Coe v. Errol, 1294 Coe v. New Jersey Midland Ry. Co., 1055, 1198, 1258 Coffin v. Anderson, 634 Coffin v. City Council, 69 Colorado C. R. R. Co. v. Lea, 46 Colusa County v. De Jarnett, 118 Colt v. Barnes, 952 Colt v. Brown, 720 j Colt v. Wollaston, 294 Colter v. Frese, 1250 Columbia Bank v. Gospel Tabernacle Church, 218 Columbia & P. S. R. R. Co. v. Chil- berg, 1305 Columbia Electric Co. v. Dixon, 821 Columbia Finance & Trust Co. v. Kentucky Union Ry. Co., 1050, 1095, 1168 Columbian Bank's Estate, 752 Columbian Southern Railway Co. v. Wright, 1304 Colwell v. Keystone Iron Co., 233 Coman v. Lakey, 1068 Coman v. State ex rel. Armstrong, 123 Comanche County v. Lewis, 12, 844 Combination Trust Co. v. Weed, 102. 307 Combs v. Scott, 172 Commercial Bank v. Newport Mfg. Co., 102 Commercial Bank v. Union Bank, 695 Commercial Bank of Albany v. Hughes, 598, 637 TAi:i.K <>K CASES. riv [The references are to pages: vol. I contain* pp. 1 707: vol. II, pp. 708-1907.) Commercial Bank of Buffalo v. Kurt- right, ;:{ Commercial Bank of Danville v. Burgwyn, 570 Commercial Bunk of Erie v. Norton, Coinim T< i:il Ifcmk of Kentucky v. Vanillin. >'<^1 Commercial Bank of Manchester v BOIHHT, 648 Commercial Bank of Manchester v. Nolan, 530 Commercial Bank of Pennsylvania v. Armstrong. 744, 745, I'M Commercial & Farmers' Nat. Bunk v. First Nat. Bank, 668,671 Commercial Fire Ins. Co. v. Board of Revenue of Montgomery County, 01 Commercial Nat. Bank v. lola, 27 Commercial Nat. Bank v. Proctor, 808,648 Commercial Nat. Bank of Cincinnati v. Hamilton Nat. Bank of Ft. Wayne. 706 Commercial & Railroad Bank v. 1 lamer, 691 Commissioner v. Winkley, 803 Commissioners v. Bolle's, 897. 982, 1002 Commisiouers v. Clark, 353, 897, 965, 980 Comrs. v. January, 328, 888, 897, 965, 868 Commissioners v. Kelley. 437 Commissioners v. Lee, 116 Commissioners v. Thayer, 915 Comrs., etc., v. Holman. 31 Comrs. of Cra\cn County v. Atlantic fc N. C. R. R. Co., 97 Comre. of Highways v. Newell, 16 Comrs. of Knox County v. Aspinwall, 71, 328. 897, 913, 956, 980 Comrs. of Knox County v. Wallace, 49 Comrs. of Leavcnworth County v. Brewer, 1 1'.' Comrs. of Li-avcnworth County v. Miller. :,:, Comrs. ex rel. Thomas v. C.mirs. Allegheny County, 49 Comrs. Court of Limestone County v. Rather, 943 Common Council of City of Mus- kc.iron v. Gore, 852 Commonwealth v. American Life Ins. Co.. 1-.".i'J Commonwealth v. American Machine Co., 1292 Commonwealth v. Bank, 884 Commonwealth v. R. R. Co., 1806 Commonwealth v. Canal Co., 1293 Commonwealth v. Comrs. of Alle- gheny, 954, 1000 Commonwealth v. Commission Philadelphia. i:i'J Commonwealth v. East Baugor Con solidated Slate Co.. 1280 Commonwealth v. Kdgerton Coal Co . l >'?!. 1292 Commonwealth v. Erie & Northeast Railroad. 1097 Commonwealth v. Essex Company. 917 Commonwealth v. Fall Brook Co., 1279 Commonwealth v. Franklin Insurance- Co., 1203 Commonwealth v. J. B. Lippincott Co., 1280 Commonwealth v. Judge, etc., ! .lolin-on \. Wood, 129 Count v of Lancaster v. Cherrau A: C. K. It Co., 900 County of Lancaster v. Fulton CramptoM v /at.riskie, 788 Crane v 1 learn. Crane v. Pa.-iiic Bank, 1121 Crane v. Railway Co., 920 Craven \ Atlantic A: North Carolina It It Co. Hli:i. | II-..M Craw v Ban-Tor Home Proprietary. 108 Craw v. Village of Toledo. 1268 Crawford v. Louisiana State- Bank. 681 Crawfordv. Ross, 1191 Crawford v. Spencer, 362 Crawford v. West Side Bank. 653,65? Crawsbaw v. City of Roxbury, 125 County of Mtu'on v. Slion--. !M:{. :{5. Cromwell v. County of Sac, 840. 886, :JH <)46. 980, 1041 County of Stevens v. St. Paul, M. A: Cromwell \. Ixivctt. 048 M. Ry. Co.. 1282 County of Tipton v. Locomotive Works. '.:{.-). 937. 938 County of Warren v. Marcv, 328, 897. Coxcrl v. Rhodes. 3, 004 Covert v. Rogers, 1112 Covey v. Pittsburir. Ft. Wayne & Chicago R. It. Co., ior>4 Covington A: Lexington R. R. Co. v. Bowler, 271 Covington v. C., etc.. Bridge Co., 73, c A- L. It. It. Co. v. Ken ton County Court. 10 C & N. R. R. Co. v. .lames, 150 i . A <). R. R. Co. Court. 40 Cowdrey \ (Jalveston, Houston, etc Railroad. 1200. 12:52 Cowen v. WeKt Troy. 114. 446 Cowgill v. Ing, I(i06 Cowra v. \Im - i County. 845 Cox v. Batteinan. 025 Co\ \. Midland Counties Ry. Co., Its ( 'ov v. ( 'it v Council. 69 Craft v. So'utli Boston It. It. Co.. 227. 2:10, 2:15. 338 Craig v. Gregg, 5 Grande R. R. Co. v. United States Trust Co., 1017, 1023 Deringcr's Admr. v. Deriuger's Admr., BOB Derrv v. Feck, 293 De Ruvigne's Case, 800 Des Moines Gas Co. v. West, 98, 489 Desmond v. Jefferson, 18 Despatch Line of Packets v. Bellamy Manufg. Co., 99, 150, 157, 158, 172, 1074, 1100 Detroit Sav. Bank v. Truesdale. 506 vii Devaynes v. Noble, 676 Devlin v. Mayor, etc., City of New- York, 2 " De Voss v. Richmond, 111 Dewar v. Bank of Montreal, 629 Di-ucv v. K'ln-rs. 690 Dewey v. Railway Co., 470, 821 Dewing v. IVnliearies, 811, 560 De Witt v. Walton, 860 Day v. .li T--.-V ( 'itv, 112 Diamond Wa'ich (V v. Roeber, 822 Dibble v. Town of New Haven, 789 Dickerson v. Cass County, 1126 Dickinson Hardware Co. v. Pulaski County, 56 Dickinson v. Inhabitants of Conway, 133 Dickinson Township v. Linn, 139 Dill v. Wareham, 446 Dillingham v. Kelly, 1228 Dillon v. Insurance Co., 589 Dimpfel v. Ohio & Miss. Ry. Co., 316 Dinsmore v. Duncan, 1014 District Township of Walnut v. Ran- kin, 879 Ditch v. Western Nat. Bank of Balti- more, 616 Ditch Company v. Zellerbach, 942 Dively v. City of Cedar Falls, 69 Dix v. Dummerston. 137, 879 Dixon County v. Field, 832, 883, 835, 836. 839, 842, 843, 869, 885, 897, 925 Dobbins v. Commissioners, 1276 Dodd v. Wilkinson, 356 Dodge v. City of Memphis, 1004 Dodge v. County of Platte, 111 Dodge v. Minnesota Plastic Slate Roofing Co., 388 Dodge v. National Exchange Bank, 646. 671 Dodge v. Woobry, 300, 306, 811, 313, 314. 348. 1273 Doe v. Northwest Coal & Transporta- tion Co., 1124 Dolan v. Joint School District, etc., 140 Dolan v. Mayor, 796 Dolsen v. Brown, 665 Donaldson v. Haldane, 848 Donnell v. Lewis County Sav. Bank. 504. 572 Donohugh v. Philadelphia Library Co.. 1266 Donovan v. Mayor, etc., of New York, 446 Doon Township v. Cummins, 896 Dorian v. City of Shreveport, 867 Dorsey v. Abrams, iil~ Dorsey County v. Whitehead, 445 D.ty v. Bates, 187 Doty v. Ellsbree, 125, 844 TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.] Doud v. Nat.- Park Bank of New York, 545 Doud v. Wisconsin P. & 8. Ry. Co., 316 Dougherty v. Hunter, 191, 198, 210 Douglass v. City of Anniston, 1262 Douglass v. Ireland, 164 Douglass v. Mayor, etc., of Placer- ville, 5, 25, 43 Douglass v. Mayor, etc., of Virginia, 121 Douglass v. Pike County, 957, 1037 Dow v. Beidleman, 1176 Dow v. Memphis & Little Rock R. R. Co., 1103, 1186, 1231 Dowd v. Stephenson, 193 Downes v. Phoenix Bank, 604 Downer v. Zanesville Bank, 525 Downing v. Dunlap Coal, Iron & Ry. Co., 1123 Downing v. Mount Washington Road Co., 145 Drake v. Flewellen, 350 Drake v. Phillips, 795 Dresser v. Missouri, etc., Construc- tion Co., 615 Driesbach v. National Bank, 528, 531 Driftwood Valley Turnpike Co. v. Board, etc., Bartholomew County, 26, 427, 437, 442 Drovers' Nat. Bank v. Anglo-Ameri- can P. & Provision Co. , 653, 682, 692, 696, 697, 705 Drovers' Nat. Bank v. O'Hare, 607 Drown v. Pawtucket Bank, 689 Drury v. Cross. 242, 243, 1108 Druse v. Wheeler, 144 Dubuque College v. Dubuque, 236 Dubuque County v. D. & P. R. R. Co., 49 Duffleld v. Wire & Iron Works, 761 Duggan v. Pacific Boom Co., 154, 239 Duke v. Markham, 1069, 1077 Dull v. Ridgway, 135 Duncan v. Board of Comrs. of Law- rence County, 123 Duncan v. Brennan, 524 Duncan v. Jaudon, 539, 583 Duncan v. Maryland Sav. Institution, 528, 535 Duncan v. Mobile & Ohio R. R. Co., 1047 Duncan v. Watson, 688 Duncotnb v. New York, H. & N. R. R Co., 260, 270, 278, 282, 308, 1024, 1039, 1055, 1084, 1112 Duncombe v. City of Fort Dodge, 108 Dunham v. Cincinnati, P., etc., R. R. Co.. 1095 Dunham v. Isett, 1054 Dunham v. Village of Hyde Park, 1268 Dunn v. Weston, 207 Dunphy v. Traveller Newspaper Assn., 316 Durant v. Iowa County, 972 Durfee v. Old Colony & F. R. Co., 322 Durkee v. City Bank, 527, 528 Durnford v. Patterson, 681 Dustin & Musick v. Hodgen, 601 Dwight v. Lumber Company, 209 Dwight v. Smith, 1045 Dwyer v. Rathbone, Sard & Co., 809 Dykers v. Bank. 664 E. Earle v. Seattle, Lake Shore & Eastern Ry. Co., 318, 474 East Anglian Ry. Co. v. Eastern Coun- ties Ry. Co., 95, 449, 471 Easterly v. Barber, 398, 402 Eastern Counties Ry. Co. v. Hawkes, 448, 491 Eastern Delaware Bridge Co. v. Metz, Collector, 1295 Eastern Townships Bank v. Vermont, National Bank, 729 Eastman v. Coos Bank, 145, 574 Easton v. Railroad Co., 1234 East New York, etc., R. R. Co. v. Lighthall, 183 East New York & Jamaica R. R. Co. v. Elmore, 260 East Nissouri v. Horseman, 799 East Oakland v. Skinner, 446 East River Bank v. Gedney, 702 East River Nat. Bank v. Gore, 596 East Rome Town Co. v. Brower, 156 Eaot St. Louis v. East St. Louis, etc., Co., 69 East St. Louis v. People, 66 East St. Louis Gas Light & Coke Co. v. City of East St. Louis, 438 East Tennessee, Va. & Ga. R. R. Co. v. Atlanta & Florida R. R. Co., 1195 Eaton v. Robinson, 318 Eaton & Hamilton R. R. Co. v. Hunt, 471 Eaton v. Union County Nat. Bank, 1300 Ebough v. German Reformed Church, 169 E. Carver Co. v. Manufacturers' Ins. Co., 193, 217 Eccles v. Drovers & Mechanics' Nat. Bank, 608 Ecker v. First Nat. Bank of New Windsor, 575 Eddy v. La Fayette, 1230, 1231 Eddy v. People, 954, 962 Eddy v. Wallace, 1225 Edey v. City of Shreveport, 13 TAKI.i. li [The references are to pageu: vol. I contain* pp. 1-707; vol. II, pp. 708-1307.] Edison v. Edison L'nitt-il I'lionograph Co., 1121 Edison General Electric Co. v. Bar- ker, 811 Kilsi.ii v. Angcll, 702 Edwards v. Aheravron Ins. Society, 1152 Edwards v. Carson Water Co., 157, IT','. 809 Edwards v. Grand Junction Ry. Co., 198, 491 Edwards v. Kearney. -". .rds v. Iftarcv. 1000, 1014 Edwards v. People, !TI Egbert v. Payne. 608 lan v. Blanke, 401 Ehle v. Chiltenaniro Bank, 521 Elilcniian v. St. Louis Nut. Bank, 640 Eirhelberger v. Finley, 568, 596 Eidinan v. Bowman. 171 Einsphar et al., Trust era First German Lutheran Zion Church of Adams Co., v. Wagner. 260 Einstein v. Rosen fold, 1121 Elder v. State, 870 Elderkin v. Peterson, 1136 El Dorado Co. v. Elstner, 118 El Dorado Co. v. Reed, 119 Eldridge v. Smith, 471, 1096 Electric Traction & Mfg. Co. v. City of New Orleans, 1280 EK-vator Co. v. Clark, 752 Elkins v. Camden 8 First Nat. Bank of Lyons v. Ocean Nat. IJjuik, 841 liv TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] First Nat. Bank of Meadville v. Fourth Nat. Bank, 687 First Nat. Bank of Memphis v. Kidd, 507, 511 First Net. Bank of Middletown v. Council Bluffs City Water Works Co., 229 First Nat. Bank of Monmouth v. Dun- bar, 636 First Nat. Bank of Omaha v. Hasten Bank, 713 First Nat. Bank of Peoria v. Commer- cial Nat. Bank of Peoria, 1144 First Nat. Bank of Quincy v. Ricker, 668, 669 First Nat. Bank of Chicago v. Bank, 706 First Nat. Bank of Rochester v Pier- son, 513, 515, 516 First Nat. Bank of Rock Island, 111., v. Leyshed, 157 First Nat. Bank of Salem v. Anderson, 1096 First Nat. Bank of Sheffield v. Tomp- kins, 568 First Nat. Bank v. Sioux City Ter- minal R. R. & Warehouse Co., 1070 First Nat. Bank of Springfield v. Coleman, 603 First Nat. Bank of Evansville v. Fourth Nat. Bank of Louisville, 705 First Nat. Bank of Texarkana v. De Morse, 523 First Nat. Bank of Trinidad v. First Nat. Bank of Denver, 700, 701 First Nat. Bank of Walla Walla v. Hungate, 1297 First Nat. Bank of Washington v. Whitman, 651, 652 First Nat. Bank of Whitehall v. Tis- dale, 175, 562 First Nat. Bank of Winona v. Winona Plow Co., 1134 First Nat. Bank of Wymore v. Miller, 707 Fisher v. Attleborough, 111 Fisher v. Board of Directors, etc., 56 Fisher v. Concord Railroad, 265 Fisher v. Evansville, etc., R. R. Co., 471 Fisher v. Gas Company, 163, 181 Fisher v. Harrisburg, 42 Fisher v. Knight, 721, 731 Fisher v. Murdock, 583 Fisk v. C., R. I. & P. R. Co., 166 Fisk v. Potter, 1096 Fiske v. Eldridge, 359 Fister v. La Rue, 198 Fitch v. Constantine Hydraulic Co., 205 Fitch v. Lewiston Steam Mill Co., 143, 144, 234, 1053, 1073, 1078 Fitchett v. North Pennsylvania R. R. Co., 1047 Fitzgerald v. Barker, 362 Fitzgerald v. Evans, 1181 Fitzgerald v. Fitzgerald & Mallory Constr. Co., 318, 319, 320 Fitzgerald & Mallory Construction Co. v. Fitzgerald, 198, 210, 21 :: Fitzhugh v. Bank of Shepherdsville, 526 Fitzhugh v. Land Company, 172, 193, 198 Fitzsimmons v. Express Co., 233 Flagg v. Railroad Co., 262, 283 Flagg v. School District No. 70, 894 Flagler Engraving Machine Co. v. Flagler, 807 Flannigan v. California Nat. Bank, 588 Flannery v. Coates, 601 Flash v. Conn, 398, 413, 769 Fleckner v. U. S. Bank, 142, 146, 176, 494, 513, 527, 577, 759 Flemming v. Denny, 660 Fletcher v. Osborn, 617 Fletcher v. Sharpe, 710 Flint v. Pierce, 164 Flint v. Roger, 641 Flint & Pei e Marquette Ry . Co. v. Dewey, 242 Flint Road Cart Co. v. Stephens, 711, 712 Flitcroft's Case, 347, 352 Florence M. Co. v. Brown, 646 Florer, Treasurer, v. McAffee, 1271, 1272 Florida Land & Imp. Co. v. Merrill, 287 Floyd v. Perrin, 1008 Fluker v. Railway Company, 1123 Fluty v. School District, 446 Fogarties v. State Bank, 660, 662 Fogg v. Blair, 1028, 1110. 1113, 1114, 1242 Fogg v. Supreme Lodge, 1131 Foley v. Hill, 597 Folger v. Chase, 206, 573 Folger v. Insurance Company, 1118 Follansbe v. Kilbreth, 168 Foot v. Rutland & Whitehall R. R. Co., 145, 157 Foote v. Glenn, 1138 Foote v. City of Salem, 18, 19, 65 Foote v. Mining Co., 316 Foote v. Mt. Pleasant. 919 Forbes v. San Rafael Tr. Co., 154 Forbes v. East Hampton Rubber Thread Co., 811, 816 Forbes v. Whitlock, 348 Ford v. Kansas City & I. S. L. R. R Co., 1122 TA1M.1 Iv [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 706-1807.] Ford v. MrClun. Ford v. .Mitch.-ll, 628 Ford v. Plaiikinton Bank, 1110, 1125, 1127 Fordyce v. Du Host-, l-J-J'J Foreman v. Murphy. 46 Foresjnan v. Cli:i-r. 1271 Forniquet v. \V.>i FcliciuuaR. R. Co., Forster v. Clements, 637 Fortier v. New Orleans Nat. Bank, BOO Fort Payne Coal & Iron Co. v. Sayles. 1122 Fort Payne Furnace- Co v. Fort Payne Ood A: Iro.i Co., 1123 Fort Worth City Co. v. Smith Bridge Co., 89 Fosdick v. Sohall, 1187. 1190, 1193. 1194, 1220, 1221, 1222, 1239, 1245, 1260 Fosdick v. Sturges, 166 Foss v. City of Chicago, 59 Foss v. Harbottle, 294. 298, 306 Foster v. Belcher's Sugar Refining Co., 260 Foster v. Coleman, 117, 436 Foster v. Essex Bank. 193, 636 Foster v. Kenosha, 49 Foster v. Mansfield, C. & L. M. Ry. Co., 101 6, i!37 Foster v. Ohio-Colorado Reduction & .Mining Co., 219 Foster v. Oxford, W. & W. Ry. Co., 242 Foster v. Paulk, 645, 350 Foster v. Planing Mill Co., 1114, 1118 Foster v. Railway Co., 282 Fougeray v. Cord, 281 Fouke v. Jackson County, 57 Fourth Nat. Bank v. City Nat. Bank, 743 Fourth Nat. Bank v, Francklyn, 887 Fourth Nat. Bank of Chicago v. City Nat. Bank of Grand Rapids, 649 Fourth Street Nat. Bank v. Yardsk-y, 645 Fowler v. Jarvis-Conklin Mortgage Trust Co., 1192 Fowler v. Scully. 509, 510 Fowler v. Trust Co., 1234 Fox v. Bank of Kansas City, 601 Fox v. New Orleans, 446 Fractional School Dist. No. 1 v. Joint Board of School Inspectors, 880 Francis v. Evans, 747, 753 Francis v. Howard County, 14, 888, 842 Frank v. Chemical Nat. Bank, 639, 668, 679 Frank v. Hicks, 234 Frankfort Bank v. Johnson, 159, 167, MB Frankland v. Johnson, 858 Franklin Avenue (irrman Sav. Inst. v. Board of Education. 494 Franklin Bunk v. Bvram. Franklin Bank v. Commercial Bunk, .-,17 Franklin Bank v. Cooper, 580 Franklin Hank v. Freeman. 660 Franklin hunk v Stevens, 580 Franklin Company v. Lcwiston for Savings, 478. 479, 493, 508, 517 Franklin County v. layman, 58 Franklin County v. Nashville. Chat- tanooga, etc., Railway. 1304 Franklin Count v Court v. Louisville A: Nashville K. It. Co., 1801 Franklin County Nat. Bank v. Beal, Receiver, 750 Franklin Insurance Co. v. Jenkins, 248, 347. 849, :.v,> Fray lor v. Sonora Mining Co., 283 Frazer v. Tunis, 895 Fra/ier v. Bank, 721 Fra/icr v. East Tennessee, Va. & Ga. R. R. Co., 1057, 1246 Frederick v. City Council of Augusta, 23, 70 Freehill v. Chamberlain, 846 Freeman v. Plaindealer Co., 203 Freeman v. Stine, 279 Freeman's Bank v. National Tube Works, 744 Freeman's Nat. Bank v. Lavery, 587 Freiberg v. Cody, 660 Frelinghuysen v. Baldwin, 715 Frelinghuysen v. Nugent, 626, 737 French v. Andrews, 1124 French v. City of Burlington, 66, 886 French v. Dunn County, 132 French v. Gifford, 1233 French v. O'Brien, 172 French v. Ouincy, 35, 41 French v. Teschemaker. 44 Freund v. Importers , etc., Nat. Bunk, 652. 655 Fridley v. Bowen, 510 Friend v. City. 955 Friend v. Gifbert, 20 Frost v. Belmont, 33, 571 Frost v. St. Paul Banking & Invest- ment Co., 1182 Frost Manufg. Co. v. Foster, 347 Fry, Collector, v. Chicot County, 63 Frye v. Tucker, 206 Fugitt v. Nixon, 702 Fuld v. Burr Brewing Co., 457 Fuller v. Bennett, 681 Fuller v. City of Chicago, 66 Fuller v. Hooper, 810 Fuller v. Inhabitants of Groton, 85. 61 Fullerton v. School District of Lin- coln, 883 Ivi TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 70&-1307.] Fullerton v. Sturges. 608 Fulton v. Town of Riverton, 942 Fulton County v. Mississippi & Wabash Railroad, 898, 904 Furnald v. Glenn, 1137, 1140 Furniss v. Gilchrist, 97, 206 G. Gaar v. First Nat. Bank of Centralia, 510 Gaddies v. Richland County, 904, 939, 971 Gale v. South Berwick, 125 Gale v. Village of Kalamazoo, 29 Galena Insurance Co. v. Kupfer, 627, 648 Galena & Chicago N. R. R. Co. v. Menzies, 1096 Gall v. City of Cincinnatti, 29 Gallagher v. Brunei, 294 Galveston R. R. Co. v. Cowdrey, 1095 Gamble v. Queens County Water Co., 73 Gane v. Losemo Printing Co., 809 Gans v. Swituer, 417 Gansevoort v. Williams, 187 Gardiner v. Pollard, 309 Gardiner v. Tyler, 1232 Gardner v. B. & M. R. R. Co., 211 Gardner v. Butler, 214, 241, 242, 250, 263, 264 Gardner v. Graham, 1058 Gardner v. National City Bank, 665 Gardner v. Ogden, 251, 326 Gnrham v. Mutual Aid Society, 1118, Garland v. Board of Revenue, 25 Garrard County Court v. McKee, 126, 127 Garrett v. May, 1013 Garrett v. Plow Company, 1074, 1084, 1112 Garrettson v. North Atchison Bank, 655 Garrison v. Howe, 69, 380, 390, 393, 398 Gas Company v. San Francisco, 233, 890 Gashwaler v. Willis, 174, 180 Gas Light Co. v. Nashville, 1307 Gates v. Railroad Co., 1080 Gause v. City of Clarksville, 23, 102, 857 Gay Manufacturing Co. v. Gittings, 1244 Gazette v. Bolton, 136 Gebhard v. Eastman, 99. 760, 1134 Geisenheimer v. Dodge, 394 Gelpcke v. City of Dubuque, 19, 49, 825, 850, 909, 924, 955, 956, 957, 964, 1047 Genesee County Savings Bank v. Michigan Barge Company, 157, 209 Geneva Nat. Bank v. Independent School District, 879 Genoa v. Woodruff, 946 George v. Central R. R. & Bkg. Co., 318 George v. Nevada Central R. R. Co., 93 George v. Oxford Township, 877 George v. St. Louis Cable & Western Ry. Co.. 1180 George v. Wabash Western Ry. Co., 1174 Georgia v. Atlantic & Gulf R. R. Co., 1236 Georgia Company v. Castleberry, 183 Georgia Pac. Ry. Co. v. Gaines, 397 Georgia Seed Co. v. Talmadge, 1146 Gere v. Supervisors of Cayuga County, 131 Gerhard v. Baley, 294 German Exchange Bank v. Comrs. of Excise, 610 German Sav. Bank v. Franklin County, 920, 948, 968 German Savings Bank v. Wulfekahler, 563, 564 German Sav. Inst. v. Adal, 662 Germantown F. M. Ins. Co. v. Dhein, 454 Gernsheim v. Olcott, 1147 Gerry v. Stoneham, 33 Getty v. C. R. Barnes Milling Co., 156, 235 Getty v. Devlin, 299 Gibbons v. Mobile & Great Northern R. R. Co., 47, 49, 958 Gibbs v. Gas Company, 1178 Gilbert v. Washington City, Va. Midi. & Great Southern R. R. Co., 1047 Giblin v. McMullen, 348 Gibson v. Cookp, 685 Gibson v. Furniture Company, 1111 Gibson v. Goldthwaite, 174, 175 Gibson v. Joyce, 326 Gibson v. Poor District, 24 Gibson v. School District, 40 Gilbert v. Manchester Iron Co. , 763 Gilbough v. New York & P. R. R. Co., 1047 Gilchrist v. Helena, H. S. & 8. R. Co., 1076, 1077 Gildersleeve v. Lester, 246 Giles v. Merritt, 617 Gilkey v. Paine, 811 Gill v. Balis, 1117 Gillespie v. Broas, 57, 121 Gillespie v. Davidge Fertilizer Co. , 470, 489 Gillespie v. Palmer, 803 TABLE OF CASES. Mi [The references are to page*: vol. I contains pp. 1-707; vol. II. pp. 7X18-1307.] Gillett v. Board of Supervisors of Logan County, 120 Gillett v. Campbell, 98, 154. 173 Giilett v. Moody, 70, 550, 1087 Gillis v. Bailey, I'M Gilmim v. City of Sheboygan, 1264 Gilinun v. Milwaukee, 42 Oilman v. Telegraph Co., 1186, 1222 Gilman, etc., R. R. Co. v. Kellv, >:!. 263 Gilman v. N. O. & 8. R. R. Co.. 952 Gilson v. Board of Comrs. of Rush County, 89, 871 Gilson v. Town of Daytou. 974 Girard Life Ins. Annuity & Trust Co. v. Cooper, 1206 Gist v. Drakely, 92 Githere v. Clarke, 882 Gladstone Exchange Bank v. Keating, 606 Glasier v. Rolles. 294 Glass v. Ferd Heim Brewing Co., 470 Glenn v. Liggett, 1188 Glenn v. McAllister's Execrs., 772 Glenn v. Marbury, 1138 Glenn v. Noble. 656 Glenn v. Orr, 772 Glenn v. Springs, 772 Glenn, Trustee, v. Williams, 1137 Glidden v. Unity. 145 Glines v. Supreme Sitting, Order of Iron Hall, 1128 Globe Works v. Wright, 193 Gloninger v. Pittsburgh & Conuells- ville R. R. Co., 1019, 1057, 1087 Gloucester Bank v. Salem Bank, 673, 677 GloTer v. Lee, 151 Godbold v. Branch Bank of Mobile, 348, 549 Godin v. Bank of the Commonwealth, 602, 650 Goddard v. Bank, 670 Goddin v. Crump, 48. 49, 901, 964 Goetz v. Bank of Kansas City, 696 Goff v. Rehoboth, 134 Go forth v. Rutherford Ry. Construc- tion Company, 907 Gold v. Clyne. 397 Goldbeck v. Bank, 236 Gold f rank v. Young, 1129 Gold Mining Co. v. Anglo-California Bank, 169, 222, 226, 236, 520, 806, 942 Goldsmith v. Stetson. 753 Goldsmith v. Stewart, 802 Goodell v. Buck, 752 Goodin v. Cincinnati, etc., Canal Co., 282, 306 Goodin v. Canal Company, 1108 Goodloe v. Godly. 088 Goodman v. Simonds, 1001 viii Goodmar v. Oakley, 805 Goodrich v. Reynolds, Wilder & Co., 206 Goodrich v. Winchester, etc., T. P. Co., 870 Goodwin T. Union Screw Co., 158, 195 Goodyear Dental Vulcanite Co. v. Caduc, 858. 354 Goodyear Rubber Co. v. George D. Scott Company, 1111 Gorder v. Plattsmouth Canning Co., 1071, 1086, 1089 Gordon v. Board of Comrs. Dearborn County, 121 Gordon v. Newman, 1166 Gordon v. Preston, 1055, 1084 Gordon & Gomila v. Muchler, 647 Gorman v. Boise County, 798 Gough v. Staats, 707 Gould v. Cayuga County Nat. Bank, 562 Gould v. Little Rock, M. R. & T. Ry. Co., 1083, 1084. 1112 Gould v. Town of Oneonta, 988 Gould v. Town of Sterling, 111, 993 Govers' Case, 298 Grafins v. Land Company, 210 Grafton Bank v. Woodward, 583 Graham v. Morstadt. 660 Graham v. Norton, 944 Graham v. Railroad Co., 254, 1028, 1042. 1113, 1137 Grammel v. Cnrmer, 664, 665 Grand Chute v. Winegar, 328, 897. 956 Grand Gulf Bank v. Archer, 494, 530 Grand Lodge v. Waddill, 74 Grand Rapids & Indiana R. R. Co. v. Sanders, 1043, 1048 Grand Rapids Safety Deposit Co. v. Cincinnati Safe & Lock Co., 197, 253 Grand Rapids Savings Bank v. War- ren, 761 Granniss v. Cherokee Township of York County, 1010 Grajt v. City of Davenport. 68, 69 Grant v. East & West R. R. C'o. of Ala., 1020, 1027, 1034, 1040, 1057, 1075 Grant v. Fiol, 597 Grant v. Spokane Nat. Bank, 720, 734 Grant v. Taylor, 523 Grant v. Walsh, 619. 620. 1146 Grape Sugar Manufg. Co. v. Small, 197 Graves v. Mono Lake Hydraulic Min- ing Co.. 267 Gray v. Coffin, 769 Gray v. New York & Virginia St. Ship Co.. 250,309 Great Falls Bank v. Fariuington, 145 Iviii TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.] Great Luxembourg Ry. Co. v. Mag- nay, 242, 471 Great Western Telegraph Co. v. Loew- euthal, 1140 Greaves v. Gouge, 300, 317, 556 Greeley v. Thurston, G41 Green v. Barrett. '294 Green v. City of C'ape May, 39 Green v. Easton. 394. 3U5 Green v. Hugo, 246 Green v. Odd Fellows' Sav. & Com- mercial Bank, 599 Green v. Walkill Nat. Bank, 555 Green B-iy v. Braune, 800 Green Bay & Minnesota R. Co. v. Union Steamboat Co., 89, 94, 473, 819 Green County v. Conness, 1282 Greenlaw v. King, 326 Greenleaf v. Norfolk Southern Ry., 236 Greenpoint Sugar Co. v. Whitin, 1060, 1066. 1068 Greensburg, Milford & Hope Turn- pike Co. v. McCormick, 456 Gregg v. George, 704 Gregg v. Union County Nat. Bank, 628 Gregory v. City of Bridgeport, 790 Gregory v. Patchell, 324 Greig v. Riordau, 155 Grenada County Supervisors v. Brog- den, 939 Grew v. Breed, 769 Gribble v. Columbus Brewing Co., 236 Gridley v. La Fayette. B. & Missis- sippi Ry. Co., 246, 279, 356 Griffin v. Chase, 747 Griffin v. Goff, 641 Griffith v. Burden, 824 Griffith v. Chicago, B. & P. R. Co., 156 Grill v. S. C. Co., 348 Griswold v. City of East St. Louis, 438 Griswold v. Haven, 333 Grover & Baker Sewing Machine Co. v. Polhemus, 152 Grusenmeyer v. City of Logansport, 122 Guaranty Trust & Safe Deposit Co. v. Green Cove Springs & Melrose R. R. Co., 1151, 1152, 1153 Guelich v. National State Bank, 682 Guernsey v. Burlington Township, 55, 1011 Guild v. Bank, 535 Guild v. Parker, 244, 264, 278, 354 Guilford v. Minneapolis, S. Ste. M. & A. Ry. Co., 1080 Gulf, C. "& S. F. R. R. Co. v. State, 1178 Gulf Railroad Company v. Miami County, 44, 905 Gunther v. Mayer, 1018 Guthrie v. Reid, 527 Gutta Percha o:{ Hook v. Bosworth, 1197 Hooker v. Eagle Bank. 170 Hooker v. Vandewater, 1178 Hooper v. Ely, 129 Hoosac Mining & Milling Co. v. Donat , Hope v. Deaderick, 48 Hope v. International Society, 1152 Hope v. Salt Company, 1087 Hope Mutual Life Ins. Co. v. Wood, 90 v. Putt, 188 Hopkins' Appeal, 1111 I In] .kins v. Roseclare Lead Company, 108 Hopkinson v. Foster, 664 Hopper v. Sage. 816 Hopper v. Town of Covington, 948 Horn v. Mayor, etc., Ill Hornblower v. Crandall, 291 Hornblower v. Duden, 58 Hornor v. Henning, 388, 400, 403, 406, 418. 557 Hornsby v. Eddy, 1229 Horn Silver Mining Co. v. New York, 1294 Horn Silver Mining Co. v. Ryan, :;K 349, 558 Horton v. Mobile School Comrs., 881 Horton v. Sayer, 1152 Horton v. Town of Thompson, 936, 994. 1007 Horton Ice Cream Co. v. Merritt, 192 Horwitz v. Ellinger, 597 Hospes v. Car Company, 1084, 1135 Hotchin v. Kent, 166, 172 Hotchkiss v. Marion, 18 Hotchkiss v. Pluukett, 140, 790 Hotel Co. v. Wade, 275, 1038, 1084 Hot Springs Ind. Sch. Dist. v. First Nat. Bank of Hot Springs, 734 Hough v. Cook Land Co., 494 Houghton v. Dodge. 234 Houghton v. First Nat. Bank of Elk- horn, 571 House v. Cooper, 309 Howard v. City of Oshkosh, 25 Howard v. Savings Bank, 618 Howe v. Barney, 558 Howe v. Boston Carpet Co., 456 Howe v. Deuel, 309 Howe v. Freeman, 1055 Howe v. Hartness, 608, 628 Howe v. Keeler, 235 I In we v. Newmarch, 338 Howe v. St. Clair, 1232 Howe v. Tool Co., 246, 254 Howe Brown & Co. v. Sanford Fork & Tool Co., 1087 Howell v. City of Peoria, 66 Howell v. McCrie, 172 Howell v. Western R. R. Co., 1080 Howland v. Myer, 191 Hoyle v. Pittsburgh & Montreal R. Co., 263. 270, 282, 826, 1082 Hoyt v. Shelden, 284 Il.iyt v. Stoddard, 1203 Hoyt v. Tbompson, 157, 180, 194, 202, 217, 225. 243, 466, 576 Hubbard v. Bank, 1118 Hubbard v. Camperdown Mills, 171 Hubbard v. Lyndon, 188 Ixii TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Hubbard v. New York & Harlem R. R. Co., 1013, 1014 Hubbard v. New York, etc., Invest- ment Co., 241, 250 Hubbard v. President, etc., 724 Huber v. Bossart, 657 Hucksteiu v. Herman, 642 Hudson v. Elevator Company, 1214 Hudson v. Marietta, 67 Hudson v. Wilkinson, 1129 Hudson County Catholic Protectory v. Board of Township Committee of Kearney, 1279 Hugg v. City Council of City of Cam- den, 57 Hughes v. Antietam Manufg. Co., 198 Hughes v. Bank of Somerset, 166 Hughitt v. Johnson, 655 Hulbert v. Carver, 627 Hull & Argalls v. County of Marshall, 832 Hull v. Bank, 650 Humboldt v. Long, 830, 835 Humboldt Mining Co. v. American Mfg., Mining & Milling Co., 84 Humboldt Trust Co 's Estate, 628 Humes v. Decatur Land Imp. & Fur- nace Co., 151 Humphrey v. McKissock, 320, 1097, 1100 Humphrey v. Patrons' Mercantile Assn.. 73, 469. 490 Humphries v. Bicknell. 657 Hun v. Cary, 347, 364, 365, 553 Hunkins v. Johnson, 136 Hunt v Bullock, 1096 Hunt v. Fawcett, 67, 445, 953 Hunt v. Memphis Gas Light Co,, 1055 Hunt v. Rahway, 1270 Hunt v. Townsend, 739 Hunter v. Louisville & Nashville R. R. Co., 1264 Huntei v. Nolf, 434 Hunter v. Roberts, Thorp & Co. (a Cor- poration), 811 Huntington v. Attrill, 212. 408, 409 Huntington v. Savings Bank, 467 Huntley v. Lincoln Park Commrs., 1269 Huntress v. Burbank, 522 Huntsville Belt Line & M. S. Ry. Co. v. Corpening, 151 Huron Printing & Binding Co. v. Kittleson. 237 Hussey v. King, 322 Hutchinson v. BidweH, 262 Hutchinson v. Green, 1111 Hutchinson v. Self, 46 Hutchinson v. Surrey Consumers' Gas Light & Coke Assn., 157 Hutchinson v. Sutton Manufg. Co., 246, 348 Hutton v. Scarborough Cliff Co., 325 Hyde v. Larkin, 187, 234, 235, 583 Hyde v. Continental Trust Co., 1278 Hyde Park Gas Co. v. Kerber, 310, 318 Hyland, Auditor, v. Central Iron & Steel Co., 12.72 Hylton v. United States, 1273 Hypers v. Griffin, 357 I. Ide v. Passumpsic & Connecticut Rivers R. R. Co., 1014 Ihl v. Bank of St. Joseph. 609 Ilgenfritz v. Pettis County Bank, 639 Ilion Bank v. Carver, 247 Illinois Central R. R. Co. v. City of Decatur, 1306 Illinois Linen Co. v. Hough, 279, 356 Illinois & St. Louis R. R. & Canal Co. v. City of St. Louis & Pacific Ele- vator Co., 29 Illinois State Hospital v. Higgins. 800 Illinois Trust & Savings Bank v. First Nat. Bank, 753 Illinois Trust & Sav. Bank v. Smith, 622 Imboden v. Perrie, 666 Importers & Traders' Bank v. Everett, 620 Independent District v. Schreiner, 886 Indiana. Nat. Bank v. Holtzclaw, 667 Indianapolis Rolling Mill v. St. Louis, F. S. & W. Railroad, 168, 191, 214, 235 Indianapolis & St. Louis Ry. Co. v. People, 1302 Indig v. National City Bank of Brook- lyn, 687, 692 Industrial & Mining Guaranty Co. v. Electrical Supply Co., 1252 Ingerman Drainage Comrs. v. State ex rel., 800 Ingelhart v. Thousand Island Co., 270, 271 Ingwersen v. Edgecombe, 1110 Inhabitants of Boston v. Brazer, 379 Inhabitants, etc., v. Weir, 857. Inhabitants of Brighton v. Wilkinson, 871 Inhabitants of Frankfort v. Inhab- itants of Winterport, 56 Inhabitants of Norwich v. County Comrs., 871 Inhabitants of Westbrook v. Inhab- itants of Decring, 20, 35 Innerarity v. Bank, 571, 583 Innerarity v. Merchants' Nat. Bank, 338 In re A. D. St. Nav. & Col. Co., 485 ! AHI.K CASES. Ixiii [The reference* are topaffea: vol. I contahu pp. 1-7U7; vol. II, pp. 708-1907.] In re Appeal of Des Moines Water Co., !-.".i^ In re Armstrong, 535 In re AMI In n- Hul.ia, etc., 828, 888 In re Barnard, I nited States Trust Co. of New York v. Omaha & 8t. I.e. uis Ky. Co.. 1227 In r Hritisli Seamless Paper Box Co., 328 1 ipe Bret. ,11 Co., 299 In re Cardiff Savings l'.ank. Davies' Case, i-.':; In re Certain Stockholders of the Cali- fornia Nat Bank of San Diego, In re Commissioners of Central Park, ::.; In re Cork & Y. Ry. Co., 497, 1059 In re Denham & ('!., 347 In re Klwes. r,>7.-> In re Empire City Bank, 757 In re Kno. 775 In re European Bank, 338, 570, 583 In re Forest of Dean Coal Mining Co., 347 In re German Mining Co., 153, 365 In re Hallett's Estate, 626 In re Herman, 716 In re Home Provident Safety Fund Assn., 1129 In re .lames' Estate, 811 In re Johnson, 1145 In re Land Allotment Co., 420 In re I.e Blanc. 817 In re Lchigh Co.'s Estate, 1112 In re Lewis, 1123 In re London & Birmingham R. R. Co., 365 In re Louisiana Savings Bank, 598 In re Marseilles Ex tension Ry. Co., 570 In re Mast, Buford & Burwell Co., 1187 In r- Middle Dist. Bank, 712 In re Millward (Mill Cracker Co., 809 In re Minnclmlia Driving Park Assn., In re Mohawk & II. R. Co., 157 In re National, etc., Stx'icty, 497 In re New Mashonaland Exploration Co., 422 In re North Australian Territory Co. (Archer's Case). 298, 428 In re North River Bank, 628, 626 In re Patent File Co., 98 In re Pendleton Hardware & Imp. Co.. 1 .Vi In re Petition of Powers, 129 In re Pyle Works, 246 In re Reciprocity Bank, 771 In re Rochester. Hornellsville & Lacka wanna R. R. Co., 820 In re Seln>-elt, 181 Jackson v. Cartwrigbt Lumber Co., 203 Jackson v. Hathaway, 1101 Jackson v. Ludeling, 244, 826, 1108 Jackson v. Market Company, INI Jackson v. Newark Plaukroad Co., 816 Ixiv TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.] Jackson v. Newton, 641 Jackson v. New York Central R. R. Co., 308 Jackson v. Traer, 166, 1033 Jackson County v. Brush, 59, 918 Jackson Insurance Co. v. Cross, 602, 603 Jackson School Township v. Farlow, 800 Jacksonville, N. W. & 8. E. R. R. Co. v. Vfrden, 904, 971 Jacksonville, T. & K. W. R. R. Co. v. American Construction Co., 1184 Jacobs v. Knapp, 1250 Jacobsohn v. Belmont, 688 Jaffray v. Matthews, 1114 Jagger v. National German-American Bank of St. Paul, 682 James v. Rogers, 743 Jansen v. Ofcto Steitz New York Glass Letter Co., 209 Janvrin v. Town of Exeter, 125 Jarrolt v. Moberly, 968 Jarvis v. Manhattan Beach Co., 334 Jarvis v. Wilson, 655 Jassoy v. Horn, 600, 603 Jeffepson Countv v. Single, 132 Jelliff v. Newark, 1270 Jemison v. Citizens' Savings Bank of Jefferson, Texas, 466. 467 Jenkins v. Hutchinson, 368 Jenkins v. Walter, 629 Jenks v. Chicago, 59 Jennings v. Coal Ridge Improvement Co., 1291 Jermain v. Lake Shore & Mich. So. Ry., 816 Jersey City v. Howeth. 1269 Jesup v. City Bank of Racine, 1073 Jesup v. Illinois Central R. R. Co., 245, 307, 1053 Jesup v. Wabash, St. Louis & Pac. Ry. Co., 1173 Jhons v. People, 144 John v. C. R. & F. W. R. R. Co., 49, 870 Johnson v. Bush, 180 Johnson v. County of Stark, 49, 899, 901, 905, 929, 944, 945, 953, 964, 978, 1004 Johnson v. Farmers' Bank, 600 Johnson v First Nat. Bank of Ho- boken, 672 Johnson v. Fisher, 388 Johnson v. Goslett, 294 Johnson v. Kessler, 900, 907 Johnson v. Laflin, 762 Johnson v. Monell, 624 Johnson v. School District, 40 Johnson v. Smith, 235 Johnson v. Switch Company, 151 Johnson v. Ward, 649 Johnston v. Bank, 604 Johnston v. County of Becker, 428 Johnston v. Craw ley, 143 Johnston v. Shortridge, 583 Johnston v. Building Association, 154 Joint Stock Discount Co. v. Brown, 347. 352 Joliet Electric Light & Power Co. v. Ingalls, 201 Joliff v. Newark, 1270 Jones v. City of Cincinnati, 19 Jones v. A very, 203 Jones v. Barlow, 390, 394 Jones v. Garcia Del Rio, 294 Jones v. Glover, 1146 Jones v. Green, 1142 Jones v. Guaranty & Indemnity Co.. 1057 Jones v. Guaranty, etc., Co., 97 Jones v. Hawkins, 188 Jones v. Milton, etc., Co., 144 Jones v. Morrison, 566 Jones v. Pacific Woolen Co., 665 Jones v. Pearl Mining Company, 1123 Jones v. Pendleton County Court, 127 Jones v. Robinson, 1146 Jones v. Town of Lake View, 1269 Jones v. Trustees Florence Wesleyan University, 144 Jones, McDowell & Co. v. Arkansas Mechanical & Agricultural Co., 1108 Jones Mfg. Co. v. Commonwealth, 1292 Jones, Treasurer, v. Rushville Natural Gas Co., 1272 Jonesboro' City v. Railroad Company, 940 Jordon v. Bank, 721 Jordon v. Long Island Railroad Co., 155, 234, 239 Jordan v. Nat. Shoe & Leather Bank, 641 Jordan v. Osceola County, 124 Jourdaine v. Leprone, 701 Joy v. Manion, 157 Joy v. Plank Road Co., 209 Judson v. City of Bessemer, 952 Judson v. Rossie Galena Co., 1141 Judy v. Farmers & Traders' Bank, 639 Junction Railroad Co. v. Bank of Ash- land, 1021 Junction R. R. Co. v. Cheneay, 1014 Juniata Township v. Reamer, 136 Just v. Wise Township, 971 Justine v. City of Logansport, 59 J. W. Butler Paper Co. v. Jeffery, 295, 1115, 1141 TAUl.K OF CASES. K [The reference* are to page*: vol. I contains pp. 1-707; rol. II, pp. 708-1907.] K. Kadish v. Garden City Eq. Loan & Bdg. Assn., 470, 495 Kaiser v. Savings Bank, :J71 Kul;iinu7.(x) K. Nov. Mfg. Co. v. McAlMer, l.-i2, 217 Kalamii/. >o Spring & Axle Co. v. Wi- ii'.ns, Pratt A: Co., 1117 Kane v Independent School District of Rock Rapid*, 67, 886 Kansas Mut. Life Assn. v. Hill, Treas- urer, etc , l:l'7 Kansas Valley Nat. Bank v. Rowell, 509 Katcnherger v. City of Aberdeen, 17, m Kean v. Davis, 288, 359 Kean v. Johnson Keen v. Bceknmn. t!34 Keene v. Collier, 634 Keeney v. Converse-. Cfil Keenev v. Jersey City, 114 Keitbfiburg v. Frirk. 970, 976 Kelley v. city of Milwaukee, 19, 42 Kelley v. I.indsey, 13:1 Kellev v. Mayor, etc., of Brooklyn, 20 Kelley v. Newburyport Horse Rail- road, 238 Keliey v. Town of Milan, 17, 872, 886 Kelly v. Boyhan, 1082 Kelly v. Fall Brook Coal Co., 152 Kelly v. McCormick, 990 Kelly v. Mobile Building & Loan Assn., 454 Kelly v. Trustees of Ala. & Cin. R. R. Co., 93. 1013, 1096 Kelsey v. National Bank, 236, 490 KeUy v. Serpent, 248, 250, 278 IV. Teale, 1H Kelty v. Seeond Nat. Bank. 648 Kendall v. Bishop. 20, 1115 Kendig v. Dean, 811 Kenieott v. Supervisors, 916, 930, 956 Kennard v. C:i-< ('mini v ln|s Kennebec & Portland "R. R. Co. v. Portland & KenueU-c R. R. Co., in:,.-i. ID?:! Kennedy v. California Sav. Bank, J7u, :.!.;, 519 Kennedy v. Gibson, 554, 558, 715, 772 Kennedy v. Green, 888, 570 Kent v.'Brickmaking Co.. 298 Kent v. Iron Co.. 1!". 1162 Kent v. Quicksilver Minim; Company, 92, 94. 458. 482, 486 Kenton Insurance Co. v. Bowman, 210 Kenton Ins. Co. v. City of Covington, 1806 ix Kentucky Central I! II Co. v. Com- monwealth, I Kentucky Cent nil R. R. Co. v. Counlv of Pendleton, IIHK) Kentucky Flour Co.'s Assignee v. Mcn-hanK Nvt. Bank, 1146 Kent'ieky 1'nion R. Co. v. County of Bourbon, 906.907, 931 Kentucky. W. & M. L. S. R. R. Co. v. Clark County Court. 46 Keokuk Xortlu rn Line Packet Co. v. Davidson Keokuk ct Western R. R. Co. v. Mis- souri. 1282 Kerrison v. Stewart. 1158 Ketchuin v. City of Buffalo, 20, 24, 32 Ketchum v. Duncan, 171, 1048, 1047, 1256 Kettlewell v. Watson, 888 A*-ociiition, 495 Keyser v. Hit*, 758, 771 Kickland v Menashu Wooden Ware Co.. W4 Kiichli v. C'ity of Minneapolis, 428 Kilborne v. Lyman, 1118 Kilbourne v. Supervisors of Sullivan County, 995, 9M8 Kiley v. Forsee, 145, 184 Killinsrsworth v. Commercial Bank of Rodney. 330 Kilsby v. AVilliams, 601 Kilvinston v. City of Superior, 41, 485 Kimhall v. Cleveland. 209, 573 Kimball v. Donam, 664 Kimball v. Goodburn, 218 Kimball v. Norton, 617 Kimball v. School Dist. No. 4. 888 Kimbnll v. Town of Lakeland, 941 Kimmel v. Dickson, 621 Kinder v. Shaw, 539 King v. Egginton, 626 King v. Howard. 1152 King v. Insurance Company, 1129 King" v. Paterson & Hudson River Railroad, 816 King v. Union Iron Co. , 381 Kingmim v. Perkins. 665 Kinirsbury v. School District, 111 Kinkier v. Junini. >* Kinnie v. O'ty of Waverly, 60 Kinyon v. Stanton, 646 Kirk v. Bell, 217 Kirkland v. Killc. :503, 395 Kirkpatrick v. I'enrosc Ferry Bridg> Co., 279 tn v. Anderson, 592 Kitchen v. Branch Bank at Mobile. 528 Kitchen v. Cape Cirardcau & State Line R. R. Co., 7:> Ixvi TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-70T; vol. II, pp. 708-1S07.] Kitchen v. St. Lous, etc., Railway Co., 233, 241, 283, 285, 286, 1084, 1114 Klauber v. Biggerstaff, 628 Kleekamp v. Meyer. 660 Klen v. K. II. Steel Co., 1124 Klcise v. Galush-v, 975 Klemme v. McClay, 174 Kline v. Bank of tescott. 362 Knatchbull v. Hallett, 731, 732, 742, 751 Knecht v. United States Savings Inst., 597 Kneeland v. American Loan & Trust Co., 1172, 1202, 1218, 1220, 1239, 1240 Kneeland v. Foundry, etc., Works, 1220 Kneeland v. Lawrence, 1037 Knight v. Fisher, 721 Knight v. Lanir, 98, 150, 218 Knott v. Venable, 702 Knower v. Haines, 387 Knowles v. Duffy, 263 Knox v. Baldwin, 398, 399, 402 Knox v. Bank of United States. 530 Knox County v. Aspinwall, 858 Knox County v. Ninth Rational Bank, 914, 957 Koch v. Nat. Union Building Assn., 151, 194 Koehler v. Black River Falls Iron Co., LaFayette, M. & B. R. R. Co. v. Geiger, 17. 870 La Fayette Savings Bank v. St. Louis, etc., Co.. 78 La Fayette Savings Bank v. Stoneware Co., 362 Laforge v. Ma gee, 118 La Grange Butter Tub Co. v. National Bank of Commerce, 1114, 1118 Laing v. Burley, 757 Lake County v. Graham, 40, 832, 835, 836, 839, 872, 897, 927, 972 Lake County v. Rollins, 40, 839. 927 Lake Erie & Western R. R. Co. v. Indianapolis Nat. Bank, 1146 Lake Shore Banking Co. v. Fuller, 1115 Lake Shore & Mich. So. Ry. Co. v. Chicago, 59 Lake Shore & Michigan Southern Ry. Co. v. City of Grand Rapids, 1306 Lake Superior Iron Co. v. Brown, Bonnell & Co.. 1168 Lake Superior Iron Co. v. Drexel, 412, 455 Larkin v. Willamette Valley, etc., R. R. Co., 465 Lamar Water & Electric Light Co. v. City of Lamar, 438 Lamb v. Cecil, 576 Lamb, Trustee, v. Laughlin, 1108 254, 258, 275, 282, 283, 301, 807, I Lamprell v. Billericay. 1025, 1108 Koetting v. State, 1146 Koontz v. Bank, 1213 Koppikus v. State Capitol Comrs., 68 Korn v. Mut. Soc., 90 Koshkonong v. Burton, 946 Kountze v. Hotel Company, 1186 Kraft v. Coykendall, 394 Kramrath v. City of Albany, 113 Kreiijer v. Railroad Company, 946 Kritner v. Woodson, 389 Kuhu v. Bank, 657 Kuntz v. Sumption. Treasurer, 1272 Kupfer v. Bank of Galena, 598, 699 Kyle v. Malin, 5, 20 L. Laborde v. Consolidated Assn., 671 Lacey v. Central Nat. Bank, 511 Laclede Bank v. Schuler, 662. 664 Ladies' United Aid Society (Methodist Home) v. Philadelphia, 1266 La Dow v. First Nat. Bank of New London, 530 Lady well Mining Co. v. Brooks. 299 La Fayette Bank v. McLaughlin, 690 La Fayette. B. & M. Ry. Co. v. Chee- ney, 270 Lancaster Bank v. Woodward, 5fi:>, 650 Lancaster County v. Cheraw & C. R. R. Co., 210 Lancaster County Nat. Bank v. Smith, 636 Land Company v. Sloan. 154 Land Credit Co. of Ireland v. Lord Fermoy, 554 Lander v. Castro, 350 Landers v. Frank Street Methodist Epis. Church of Rochester, 152 Land Grant Ry. & Trust Co. v. Davis County, 918 Landis v. * West Pennsylvania R. R. Co., 1037 Lane v. Bank of West Tennessee, 550, 570 Langan v. Francklyn, 263 Langdon v. Town of Castleton, 60, 138 Langhorne v. Robinson, 1264 Langston v. South Carolina R. R. Co., ^1014, 1047 Lanham v. First Nat. Bank of Crete, 535 Lansing v. Lytle, 1002 Laredo v. McDonnell, 64 Laredo v. Martin, 64 TAIU.i: iK (ASKS. Ixvii [The referenceM are to pagti<: rol. I contain* pp. 1-7O7; rol. U, pp. 708-1807.) La Salle Nat. Bank v. Tolu Hock & K}' Lasher v. Stimson, 354 Lessen County v. Shinn, 57 Laulmch v. Leibert, 642 Laughlin v. braley, 1095 Lavt'tistein v. City of Fond du Lac, Law v. Cross, 169 Law v. People, 4, 40, 66 Lawless v. Reese, 445 Lawn-lie.- v. Gebhard, 152, 167, 172 Ijiwrencr v. .Morgan's La. & Tex. It. R. A: Steamship Co., 1176 Lawrence v. Schmidt, 648 Lawn-nee v. Stonington Bank, 701 Lawrence v. Trailer, 1271 biwn nee v. Tucker. 10.X Lawrence Iron Works Co. v. Rock- brid sfc Company, 11 24 Lawrenceville Cement Co. v. Parker, 466 Lawson v. Hunk, W3. 694 Law son v. Richards, 657 I^iy v Austin, 206 Liivbouni v. Seymour, 1130 Lazarus, Use rf, v. Shearer, 192, 359 Lazenr v. Nat. Union Bank of Mary- land, 512, 515. 529 La/ier v. Horan, 689, 690 I. .-h v. Hal-. 506, 635 Leachman v. Dougherty, 1271 Leather Manufacturers' Bank v. Mor- gan, 602. 606, 675 Leavenworth v. Norton, 27 Leavenworth County v. Brewer. 126 Leavenworth County v. Chicago, Rock Island, etc., Ry. Co., 1172 Leavenworth County v. Keller, 126 Leavenworth County v. Miller, 844 Leavenworth, L. & G. Ry. Co. v. Douglas County, 919 Leavitt \. BUtchfora, 85 I.eavitt v. Connecticut Peat Company, itt Leavitt v. Palmer, 469 I.eavitt v. Simes, 602 Lcavitt v. Stanton. I.eilwich v. .McKiiu. 857 Lee v. Board, etc., of Ionia County, 128 Lee v. Neuchatel Asphaltc Co., 813 Lee v. Pittsburg Coal & Mining Com- pany, 154, 181 I v. Smith, 575. 579 Lee v. Trustees of Flemington, 43 l.'-e County v. Rogers, 897, 949 Lee County v. State ex rel., 801 Leeds v. City of Richmond, 42 Lcekins v. Nordyke & Marmon Com- pany, 152 Leffman v. Flanigan. 306,563 I^ftley v. Mills, 641 Leggett v Rink of Sing Sing. 526 Leggett v. New Jersey Manufg. Com- pany. 193, 199 Le Grand v. Manhattan Mercantile Assn.. 73. 92 Lehigh Coal A: Navi -ration Co. v. Ccn- tnil Railroad, 1207 Leighton v. Camplx-ll. 414 Leloup v. Mobile, 1 .';:. 1293 Leo v. Union Pac. Railway Co., 102, :n:{. 1024 Leon County v.. Vann, 114 Leonard v. A. Ins. Co., 466 Leonard v. Burlington Mut. Loan Assn., 201 Leonard v. City of Canton, 4, 441 Leonard v. Long Island City, 89 I.e I Joy v. Globe Ins. Co.. 817 Leslie v. Lori Hard. 183, 407, 500 Lester v. Bank of Mobile. 528 Lester v. Webb. 219, 227 Levey v. New York Central & H. R. R. R. Co., 151 Levi v. Bank, 750 Levy v. Bank of the United States, 595, 1213 Levy v. Mutual Benefit Life & Fire 'Ins. Co., 89 Levy v Peters, 657 Levy v. U. S. Bank, 600 Lewis v. Barbour County Comrs., Ill Lewis v. Board, etc., of Sherman County, 15 Lewis v. Bourbon County, 826, 900, 905, 941 Lewis v. Comanche County, 5, 844 Lewis v. Commissioners, 844 Ixj wis v. Freeholders of Hudson, 62 Lewis v. Hartford Silk Manufg. Co., 189 Lewis v. International Bank 647 Lewis v. Jeffries, 1088 Lewis v. Lyons, 1060 Lewis v. Madocks, 742 Lewis v. Montgomery, 404, 40 Lewis v. Nicholson. 309 Lewis v. Park Bank. 599 Lewis v. Pima County, 948 Lewis v. Planters' Bank, 688 Lewis v. St. Albans Iron & Steel Works, 347 Lewis v. Traders' Bank, 665 Lewis v. United States, 729 Lewis v. Vicksburg k Meridian R. R. ( '-. .. 1233 Lewis, Admr. v. Glenn, Trustee, 11:57 Lexington v. Butler, IH:;T Libby v. Union National Bank, 198, 512 Laebfritz v. Dubuque St. Rv. Co., 235 Ixviii TABLK OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.] Life & Fire Ins. Co. v. Mechanic Fire Ins. Co., 75, 98. 102, 150, 182, 439 Lightner v. City of Peoria, 1268 Lilly v. Miller, 657 Lime City B., L. & Sav. Assn. v. Black, 1123 Lincoln v. Sun Vapor Street Light Co., 861 Lincoln B. & L. Assn. v. llass, 1095 Lincoln County v. Luming, 845, 846, 847 Lincoln County Court v. United States, 847 Lincoln Township v. Cambria Iron Company, 948 Linden v. Case, 118 Lindley v. Bank, 655 Lindsley v. McClelland, 628 Lingle v. National Ins. Co., 271 Linn v. Chambersburg Borough, 1012 Linthicum v. Ray, 1101 Lionberger v. Mayer, 571 Lionberger v. Rouse, 1296 Lippincott v. Carriage Co., 246, 254, 1087 Lippincott v. Town of Pana, 876, 904, 971, 973, 976, 982, 983 Litchfield v. Ballan, 930, 968 Litchfield v. McComber, 871 Litchfield v. White, 364 Little v. Chadwick, 752 Little v. City of Rochester, 42 Little v. Kerr, 156 Little Rock v. Merchants' National Bank, 1004 Little Rock & Fort Smith Ry. Co. v. Huntington, 1104 Little Rock & Fort Smith Railway v. Worthen, 1282 Little Warrior Coal Co. v. Hooper, 1123 Liverpool & Great Western Steam Co., v. Phoenix Ins. Co., 473 Live Stock Assn. of New York v. Levy, 502 Livingston v. Hollenbeck, 121 Livingston v. Lynch, 325 Livingston County v. First Nat. Bank of Portsmouth, 920, 935, 941, 965 Livingston County v. Weider, 852 Lloyd v. City, 955 Lloyd v. McCaffrey, 664 Loan Association v. Stonemetz, 279 Loan Association v. Topeka, 43, 44 Locke v. Davisou, 13, 16 Locke v. Merchants' Nat. Bank, 686 Lockhart v. Van Alstyne, 416, 485 Lockwood v. Thunder Bay River Boom Co., 157, 165 Logan v. Earl of Courtown, 84 Logan County Bank v. Townsend, 505, 543 Lohman v. New York & Erie R. R. Co., 154 Long v. Court, 1123 Long v. Straus, 600 Longbottom's Execrs. v. Babcock, 597 Loomis v. Bank, 571 Lord v. Yonkers Fuel Co., 1060 Lorillard v. Clyde, 164 Lott v. Mayor, etc., of City of Way- cross, 67 Loudenslager v. Bonton, 1055 Loughlin v. Marshall, 627 Louisiana v. New Orleans, 37 Louisiana v. Wood, 787, 855, 860, 925 Louisiana State Bank v. Orleans Nav- igation Company, 78, 100 Louisiana State Bank v. Senecal, 571, 583 Louisville City Ry. Co. v. City of Louisvillfi, 29 Louisville, etc., R. R. Co. v. County Court, 48 Louisville, etc., R. R. Co. v. David- son, 49 Louisville & Nashville R. R. Co. v. Commonwealth, 1282, 1302, 1304 Louisville ng Isl .nd City, 821 l.y.'ll v. Saniiourn, l.VJ Lyman v. Bonney, 306 Lvman v. Northern Pac. Elevator Co., 11 H Lynch v. First Nat. Bank of Jersey City, 653 Lynde v. Columbus, C. & I. C. Ry. Co., 1161 Lynde v. The County, 832, 920, 921 Lvmle v. Winnebago County, W7, 941, 982 Lyndeborough Glass Co. v. Massa- chusetts (Mass Co., 9, 238 Lyndon Mill Co. v. Lyndon Literary & Biblical Inst.. 172, 182 Lyng v. Michigan, 1267, 1293 Lyon v. New York, S, & "W. R. R. Co.. 1048 Lyon v. State Bank, 530 Lyons-Thomas Hardware Co. v. Perry Stove Manufg. Co., 1114, 1117 Lytle v. Lansing, 1002 M. Mass v. Missouri, Kansas & Tex. Ry. Co., 1043 Mann v. Second Nat. Bank, 601 McAleer v. MrMurrav, 250 HcAllen v. Woodcock, 271 McAllister v. Plant. 1054, 1096 McBec v. Central Trust Co. of New York, 1U7. 1148 McBlair v. Gibbes, 269 McBniin v. Grand Rapids, 114 McCahc v. Board of Comre. of Foun- tain County, 121 MeCall v. California. 1267 McCallie v. Mayor, etc., 964 McCaim v. First Nat. Bank, 519 McCaslin v. State, 446 McCarty v. Roots, 95 McClave v. Thompson, 402 McClelland v. Reynolds, 359 McCloskey v. City of Albany, 114 McClure v. Board of Comn. of La Plata County, 376 McClure v Levy, 262 McCl'irc \ Ox ford Township, 71, 446, 836. 892. 897 McComb v. Barcelona Apartment As social ion. -Jim, 1048 .McConnell v. Hainin. 851 McConville v. (iilmour, 720 McCormick v. Bay City, 112 McCoy v. Briant, 444 McCoy v. Washington County, 1048 MeCracken v. Citv of San Francisco, li:t. 939 McCracUen v. Hobison, 263 McCrary v. Chambers. 818 McCrory v. Junction R. R. Co., 471 HcCulloogfa v. Moss, 78, 9<>, i.v. 1 McCul lough v. Talladega Ins. Co., 98 McCunly's Appeal, 1055, 1093 McDermott v. Bank. 572 McDonald v. Chisholm, 203 McDonald v. Houghton, 258 McDonald v. Mayor, 114, 443, 444, 445 McDonough v. Temnleman. 14-"i McDowell v. Bank of Wilmington, 525, 637, 642 McDowell v. Rutherford Ry. Con- struction Company, 906 McElhenny's Appeal, 298, 299 McElrath v. Pittsburg & Steubcnville R. R. Co., 1038 McElroy v. Nucleus Association, 1074 McEwen v. Davis, 610, 638. 640 McGargcll v. Hazleton Coal Company, 161 McGarrahan v. Mining Co. , 857 McGcorge v. Big Stone Gap Improve- ment Co., 88, 303. 304, 1123 McGhee v. Claridy, 1232 McGourkey v. Toledo & Ohio Central Ry. Co., 243 McGrade v. German Sav. Inst., 660 McGregor v. Covington & Lexington R. R. Co., 1021 McGregor v. Deal & Dover Ry. Co., 95," 450, 491 McGregor v. Loomis, 597. 697 McGregor's Excere. v. Vaupel. 1298 McGugin v. Railroad Company, 1250 Mell.-irg v. Eastman, 898 M. Henry v. Hazard. 992 McllenrV v. Railroad Co., 816 Mcllhen'ny v. Binz, 1098, 1172, 1241 Mclndoe v. St. Louis, 498 Mclntirc v. Blakrley, 608 Mclntire v. Pembroke, 185 Mclntirc v. Preston, 106, 206 Molntosh v. Tvler, 648 McKay's Case, 259, 800 Ixx TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] McKeag v. Collins, 193 McKeesport District v. Miller, 139 McKenzie v. Woolcy, 900, 907 McKiernan v. Leuzen, 98, 173 McKim v. Odom, 110 McKinster v. Bank of Utica, 581 McKleroy v. Southern Bank of Ken- tucky, 670 McLain v. Wallace, 609, 684, 710 Me Lane, Trustee, v. Plaeerville & Sacramento Valley R. R. Co., 97, 1013, 1053 McLaughlin v. Citizens', etc., Assn., 870 McLaughlin v. D. & W. R. R. Co., 485 McLean v. Jephson, 1288 McLean v. Pittsburgh Plate Glass Co., 811 McLean County v. City of Blooming- ton, 1268 McLellan v. File Works. 80 McLendon v. Anson County, 946 McLendon v. Commissioners, 1048 McLeod v. Evans, 622, 731, 747, 749, 750, 753 McMahon v. Morrison, 1282 McManus v. Duluth, Crookston & Northern R. R. Co., 960 McMasters v. Reed, 1013 McMurray v. Moran, 1183 McMuirav v. Oil Company, 203 McNab v: McNab & Harlin Mfg. Co., 821 McNeal v. Allegheny Township, 135 McNeil v. Chamber of Commerce, 226 McNeil v. Shober & Cargueville Lith. Co., 359 McNeil v. Tenth National Bank, 627 McNeill v. Lacey, 246 McNulta v. Lochridge, 1224 McPherson v. Foster, 66, 442, 826 McTighe v. Macon Construction Com- pany, 1095 McVeany v. Mayor, 798 McWhorter v. People, 792 M. T. Co. v. Howe, 46 Machinists' Nat. Bank v. Field, 335 Mackintosh v. Eliot Bank, 668 Mackintosh v. Flint & Pere Marquette R. R. Co., 821 MacNaughton v. Osgood, 308 Macomber v. Doane. 665 Macon & Birmingham R. R. Co. v. Gibson, 974 Macy v. City of Indianapolis, 19 Madison v. Ross, 144 Madison Ave. Baptist Church v. Bap- tist Church in Oliver St., 234 Madison County v. Bartlett, 16 Madison County v. Paxton, 914, 915 Madison County v. Priestly, Treas- urer, 912 Madison County Court v. Richmond, Irvine& T. F. R. R. Co., 908 Madison, etc., Plank Road Co. v. Watertown Plank Road Co., 74. 80, 453, 459, 468, 471 Madison, etc., R. R. Co. v. Norwich Sav. Society, 78 Madry v. Cox, 900 Magee v. Cowperthwaite, 1232 Magee v. Mokelumne Hill Coal & Min- ing Co., 99, 102 Magee v. Pacific Improvement Co., 470 Magill v. Hinsdale, 339 Magniac v. Thompson, 931 Magor v. Ray, 7, 10, 378, 444, 821, 1004 Magruder v. Colston, 756 Mahaiwe Bank v. Peck, 640 Maher v. City of Chicago, 65, 164, 488 Mahone v. Manchester, etc., R. R. Corp. 182 Mahone v. Southern Telegraph Co., 1185 Mahoney Mining Co. v. Anglo-Cali- fornia Bank, 564 Main v. Casserly, 490 Main Jellico Mountain Coal Co. v. Lotspcich, 263 Maine v. Grand Trunk Ry. Co.. 1293 Maisch v. Saving Fund, 306, 307 Makin v. Institution for Savings, 618 Mallory v. Hanaur Oil Works, 501, 820 Mallory v. Mallory & Wheeler Co., 172, 246, 298 ' Mallory v. West Shore & Hudson River R. R. Co., 1042 Manchester & Lowell Railroad v. Con- cord Railroad, 821 Mandeville v. Union Bank of George- town, 637 Mandeville v. Welch, 663 Maneval v. Jackson Township, 24, 136 Mangels v. Donan Brewing Co., 1150 Manhattaa Bank v. Walker, 623, 635 Manhattan Beach Co. v. Harned, 334 Manhattan Brass Co. v. Webster Glass & Queensware Co., 583 Manhattan Co. v. Lydir> Manning v. Norfolk Southern R. R. Co., 1042, 1048 Manufacturers' Hank v. Continental Bank, 612, 744, 750 Manufacturers' Hank v. Sroii.-ld. .">;-.! Manufacturers' Nat. Bank v. Barnes. 604, GHO Manufrs. Nat, Bank v. Newell. i<5 Manufrs. Sav. Hank v. Wig Muddy Iron Co., 288 Manufacturing Co. v. Ferguson, 1070 Maux Ferry Gravel Road Co. v. Brane- gan. 278 Mapes v. Scott, 511 Marble v. Jamcsville Manufg. Co., mi Marble Company v. Harvey, 81 Marhury v. Kentucky Union Land Co., 79, 88 March v. Eastern Railroad, 265, 306 Marey v. Ama/cen, G17 Marcy v. Township of Oswe^o, 880, 885, 842. Mr Maricopa it Phwnix R. R. Co. v. Ari- y.oiri Territory, 1805 Marine Bank v. Biays, 163 Marine Bank v. Butts, 529 Marine Bank v. Clements, 180, 182, 183, 207 Marine Bank v. Fulton Bank, 597, 615, 662, 745, 750 Marine Bank of Chicago v. Birney, 598 Marine Bank of Chicago v. Chandler, 598, 627, 647 Marine Bank of Chicago v. Ferry's Admr., 596 Marine Bank of Chicago v. Ogden, 646 Marine Bank of Chicago v. Rushmore, 599, 627, 647 Marine Bank of Buffalo v. Butler Col- liery Co., 148, 197, 284 Marine Nat. Bank v. National C'ity Bunk, 654 Marine Nat. Bank v. National C'itv Bank, c.vj Marion County v. Harvey County, 903 Marion Savings Bank v. Dunklin, 497 Market Company v. .Jackson, !*> Market fc Fulton National Hank v. Jones, 1066 Market Street Bank v. Stompe. vs Markey v. Mutual Hem-tit Ins. Co., 193 Markley v. Rhodes, 561 Marks, Trustee, etc., v. Trustees of Pardue University, 26 Marlatt v. Levee Steam Cotto:i Press Co., 210 Marlborough Manufg. Co. T. Smith, 166 Marquette, H. & O. R. R. Co. v. United States. l:;ol Marquette A. Ontonagon R. R. ('-. \. Taft, l.VJ Marrett v. Hrackett. 659 Marsh v. Burroughs, 1183 Marsh v. Fulton County. 71. Ill, 471. 787, 872, 897. 936, 989, 956. 1004 Marsh v. Maxwell, 648 Mar-It v. Oncida Central Bank. 598 Marsh v. Small, 643 Marsh v. Whit more, 168 Marshall v. P. & M. Savings Bank of Alexandria. 5.13 Marshall v. Harris. 371 Marshall v. SHliiiian. 936. 972, 1005 Marshall v. Vicksburg, 1059 Martel v. City of East St. Louis, 793 Martin v. Great Falls Manufg. Co., 182 Martin v. Mayor, etc., of Brooklyn, 446 Martin v. Morgan. 601 Martin v. Niagara Falls Paper Mfg. Co., 149, 186, 1066 Martin v. Railway Company, 188 Man in v. Santa "Cruz Water Storage Co., 235 Martin v. Victor Mill & Mining Co., 235 Martin v. Webb, 149, 177. 184, 187, 553, 623 Marza v. Bait. & Ohio R. R. Co., 12*2. 1303 Mason v. Chandler, 359 Massachusetts & 8. Construction Co. v. Cove Creek Township, 1008 Massey v. Fisher, 731 Massey v. Papin, 109o Masterton v. Mayor, etc., of Brooklyn. 80 Mather v. Union L. & Trust Co., 228 Matson v. Alley, 151 Matter of Clark v. Sheldon, 907 Matter of Fayerweather, 1300 Matter of Franklin Bank, 598 Matter of Prime, 1290 Matter of Tiffany & Co., 1290 Matthews v. Patterson, 385 Matthews v. Skinker, 498, 501), 510 Maupinv. Franklin County, 446 Maury v. Mason. 7.V5 Maxey v. Williamson Count v, N24. 893, 902, 900 Maxwell v. Planters' Hank. f >7<>. 571 Mayer v. Griina. I'JT 1 Mayor v. Sands. is: Mayor v. Wetumpka Wharf Co., !' ' sr.i Mayor of Ludlow v. Charli.m. 9M 1 \.\ii TABLE OK CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Mayor of Norwich v. NorfolkRy. Co., 491 Mayor, etc., v. Inmtin, 233, 250 Mayor, etc., v. Kirkley, 111 Mayor, etc., v. Tenth Nat. Bunk, 361 Mayor, etc.. of Baltimore v. Baltimore & Ohio R. R. Co., 74 Mayor, etc., of Baltimore v. Eschbuch, 109 Mayor, etc., of Baltimore v. Musgrave, 111 Mayor, etc., of Baltimore v. Poultney, 112 Mayor, etc., of Baltimore v. Reynolds, 110, 111 Mayor, etc., of Cartersville v. Baker, 23 Mayor, etc., of Jackson v. Bowman, 29 Mayor, etc., Kokomo v. State, 949, 950 Mayor, etc., of Rome v. Cabot, 29. 70 Mayor, etc., of Rome v. Me Williams, 68 Mayor, etc., of Staple of England v. Governor, etc., of Bank of Eng- land, 344 Mayor, etc., of Wetumpka v. Winter, 47, 48 Mead v. Kegler, 73, 75, 100, 102 Mead v. Mali, 287, 309 Mead v. Merchants' Bank of Albany, 647 651 Mead v.' New York, H. & N. R. R. Co., 1013, 1055 Mechanics' Bank v. Bank of Columbia, 359, 572 Mechanics' Bank v. New York & N. H. R. Co., 286, 483 Mechanics' Bank v. Merchants' Bank, 641 Merchants' Bank v. State Bank, 328 Merchants' Bank of Alexandria v. Bank of Columbia, 142, 146, 185 Mechanics' Bkg. Assn. v. New York, etc , White Lead Company, 78, 106, 223, 362 Mechanics & Farmers' Bank v. Smith, 662 Mechanics & Workingmen's Mut. Sav. Bk.. etc., v. Meriden Agency Co.. 77, 517 Medberry v. Short, 220 Medomak Bank v. Curtis, 571 Meeker v. Winthrop Iron Co., 267 Meier v. Railway Company, 1126 Meinzer v. Racine, 42 Melledge v. Boston Iron Company, 152, 234 Mellen v. Iron Works, 1140, 1142 Mellen Pipe Lines v. Allegheny County, 1279 Melvin v. Lisenby, 825 Memphis City v. Dean, 29 Memphis v. Ensley. 1303 Memphis v. Home Insurance Co., 1307 Memphis v. Phoenix, etc., Ins. Co., 1307 Memphis v. Union & Planters' Bank, 1307 Memphis & C. R. R. Co. v. Hoechner, 1232 Memphis Grain & Elevator Co. v. Memphis ^T. Metropolitan Nat. Hunk \ 1. lo\d, 506, 400 5i::. ill 1. (ilii .Merchants' Bank of C:in;i(l:i v. Union Metropolitan R. K. Co. v District ! K. R. & Transp. Co., 696 Columbia Merchants A: Fanners' I'.ank v. Austin. Metropolitan Trust Co. v New York. I. K vV U K H. Co.. lloj Merchants A: Farmers' Bank v. IIer\ey Metropolitan T. & T. Co. v. Domestic Plow Company. 163 T. A: T. Co.. Mircliants A: Fan'ners' Nat. Bank of Meyer v. City of Museatine, 897, 909. Charlotte v. Myers. 529 941 Mi Tenants' Insurance Co. v. Chaiivin. Meyer v. Utah & Pleasant Valley K. 176 H. Co.. 117-J Merchants' Nat. Bank v. Bailey Mf?. Mezger v. Can-, 881 Co., *ss Michoud v. Girod. 275. :!15. 326 Men-liants' Nat. Hank v. Chattanooga Michigan Slate Co. v. Iron Range &, Construction Co., 1140 Huron Bay H. K. Co.. 283 M- Tenants' Nat. Bank v. Hanson. 500, Middlehury v. Hood. l:;c, 515 Merchants' National Bank v. Manufg. Company, 1123 Merchants' Nat. Bank v. Rit/iir/er. 641, 644, 645 Merchants' Nat. Bank v. Tracy, 239 .Merchants' Nat. Hank of Chicago v. Middlesex Countv liank v. Hirsch Bros. Veneer Mfir. Co., 363 Middlesex H. K. Co. v. Boston & Chel- sea H. H. Co.. 466 Middleton v. Allegheny County, 954 Millmnk v. New York," L. E. & W. R. H. Co., 517 Detroit Knitting & Corset Works. Millmnk v. Welch, 200 156 -v Treasurer, v. Ray, 1271 Merchants' Nat. Bank of Gardner v. Milhau v. Sharp, 29 Citizens' Gas Light Co. of Quiney, Millard v. St. Francis Xavier Acad- JvT., 239 emy, 487 Merchants' Nat. Bank of Gardiir-r v. Mill Co. v. Kampe, 25-1 Clark, 361 Merchants' Nat. Bank of St. Paul v. McNeir. 587 Mill Dam Foundery v. Hovey, 395, 414 Miller v. Barber. 291 Merchants & Planters' Line v. Waga- Miller v. Bradish, 385 ncr, 317 Merchants' Union Barb Wire Co. v. Kiee. 142, 146 Meriden Tool Co. v. Morgan, 390 Meri wether v. Muhlenburg County. 900 Merriam v. Moodv's Execre. . 4 Miller v. Chavec, 169 M'.ller v. Embrec, 122 Miller v. Ewer, 1075 MilLr v. New York & Erie R. R Co., 97, y07, 1013 Miller v. Kace. 625 Miller v. Roach, 809 Merrick v. Inhabitants of Amherst. 37 Miller v. Rutland fc Washington R. Merrick v. Peru Coal Co.. 279. 356, ! R. Co., 1047. 1055, 1073 1108 i Miller v. Washington Southern Ry. Merrick v. Trustees of the Bank of the Co.. 402 Metropolis, 162, 1SH Miller v. White. 394. 396. 398, 399, 415 Merrill v. Consumers' Coal Company. Millikin v. Shapleigh, 702 155. 170 Mills v. Bellmer. 119 Merrill v. Florida Land Imp. Co. . 5(56, 717 Merrill v. Plainflcld, 790 Merrill v. Town of Monticello, Iv; IJV 884, 999, 1004 Merritt v. Goixlrich. 381 Merville v. American Tract Society. 787 Merz v. Interior Conduit & Insulation Co., 1031 Meserole v. Mayor, etc., of Brooklyn. 121 Metropolitan Elevated Ry. Co. v. Man- hattan Ry. Co., 167, 264, 265, 308 Mills v. Gleason. 24. 41, 42 Mills v. Jefferson, 946, 955 Mills v. State Bank, 653 Millsaps v. City of Terrell, 869 Milne v. Davidson, 798 Miltenberger v. Cook, 787 .Miltenberirer v. Logansport Railway ll'.M, 1202. 1220. 1222. 1240 Milwaukee. fc Illinois Northern R. R. Co. v. Field. 163 Milwaukee ^ Minnesota R. R. Co. v. Soutter. 11<2 Miner v. Belle Isle Ire Co.. ?r,:; Miners' Bank Estate, 508 Ixxiv TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Miners' Ditch Co. v. Zellerbuch, 491 Mining Company v. Anglo- Calif oruian Bank, 93, 184, 222, 226 Mining Company v. Mason, 1164 Minneapolis Times Co. v. Nimcocks, 260 Minnesota Central K. K. Co. v. Donald- son, 1282 Minnesota Thresher Mfg. Co. v. Lang don. 1188 Minor v. Mechanics' Bank, 563, 567 Minot v. Paine, 815 Minot v. Phil., Wilm. & Bait, R. R. Co., 1294 Minot v. West Roxbury, 34 Minturn v. Lame, 4, 29 Miranda v. City Bank, 681 Mish v. Main, 1124 Mississippi R. R. Co. v. Scott, 625 Missouri, K. & J. Ry. Co. of Kansas, v. Chilton, 1231 Missouri Lead Mine & Smelting Co. v. Reinhard, 1070 Missouri Pac. Ry. Co. v. Texas & Pac. Ry. Co., 1204, 1210, 1225, 1229 Missouri River, etc., R. R. Co. v. Morris, 871 Missouri Valley & B. Ry. & B. Co. v. Harrison County, 1301, 1302 Mitchell v. Beckman, 604, 756 Mitchell v. Burlington, 12, 909 Mitchell v. Deeds, 194 Mitchell v. Harris. 1152 Mitchell v. McCabe, 608 Mitchell v. Rockland, 446 Mitchell v. Walker, 716 Mixer v. Manistee County Supervisors, 128 Mobile & Cedar Point Ry. Co. v. Tal- man, 91, 1055, 1096 Mobile & M. Ry. Co. v. Gilmer. 234 Mobile & Ohio R. R. Co. v. Tennessee, 1281 Mobley v. Clark, 688 Moers v. City of Reading, 49 Moffat v. Winslow. 294 Mofflt v. State ex rel., 122 Mohawk Bank v. Broderick, 658, 707 Mohawk Bridge Co. v. Utica & Schen- ectady Railroad, 1097 Mokeluinne Hill Canal & Mining Co. v. Woodbury, 756 Montclair v. Ramsdell, 1001, 1002 Montelius v. Charles, 702 Montgomery v. Township of St. Mary's, 971 Montgomery County v. Barber, 32 Montgomery County Bank v. Albany City Bank, 703 Montillet v. Bank of the United States, 681 Monument National Bank v. Globe Works, 93, 106, 226, 227, 465 Moody v. Mack, 661 Mooera v. Swedley, 121 Moon v. Board, etc., 123 Moore v. Butler, 1108 Moore v. Davis, 665 Moore v. City of Walla Walla, 14 Moore v. H. Gano :\ Noble v. Andrew-;. 742 Noble v. City of Vincennea, 951 Nolan County v. State, 14, 67, 828, 830, 833, 834 Noland v. Busby, 1272 Nolle v. Fcnwick, 446 Nolton v. Railroad Co., 348 Nonotuck Silk Co. v. Flanders, 73*, 750 Norcross v. Benton, 721 Norfolk & Western R. H. Co. v. Penn sylvania. 1298 Norfolk & Western R. R. Co. v. Ship pers' Compress Co., 458 Norris v. Despard, 657 Norris v. Hall, 522 North America Bank v. Bangs, 668 Northampton Bank v. Pepoon, L'ui;, 548 Northampton County v. Easton I'.i- sengcr Railway Co., 1266 North Brookneld Sav. Bank v. Flanders, 580 Northern Bank of Toledo v. Porter Township Trustees, 872, 885, 897 Northern Central Ry. Co. v. Bastian. 145 Northern Railroad v. Concord Rail- road, 1111 North Hudson Mut. B. & L. Assn. v. Childs, 352 North Pa. R. R. Co. v. Adam- 1047 Northern Puc. R. R. Co. v. Clark, 1279 Northern Pacific R. R. Co. v. Ray- mond. 1800 North River Bank v. Aymar, 2'J. :;:'.! North Side Ry. Co. v. Worthington, 89, 1031 North Ward National Bank v. Citv of Newark, 1296 Northwestern Coal Co. v. Bowman & Co., 707 Northwestern Union Packet Co. v. Shaw, 497 Norton v. Alabama National Hank. 285 Ixxviii TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.] Norton v. Derry Nat. Bank, 508 Norton v. Dyersburg, 17, 1000 Norton v. Peck, 795 Norton v. Taxing Dist, of Browns- ville, 954 Norwich Gas Light Co. v. Norwich City Gas Co., 29 Norwich & W. II. R. Co. v. County Comrs., 1282 Norwood & Butterfield Co. v. Andrews, 92 Nosser v. Seeley, 55, 917 Nougue v. Clapp. 1137 Nougues v. Douglass, 63 Noyes v. Marsh, 1152 Noves v. Rutland & Burlington R. R. Co., 153, 489 Nugent v. The Supervisors, 935, 949 Nunnemaker v. Lanier, 702 o. Oakcs v. Cattaraugus Water Co., 155, 500 Oakland v. Carpenter, 59 Oakland Bank of Savings v. Wilcox, 563 Oakland Paving Co. v. Rier, 190 Oakland Township v. Martin, 136 Oakley v. Valley County. 117 Oates v. National Bank, 583, 983 O'Bear Jewelry Co. v. Volfer, 1111 O'Brien v. C., R. I. & P. R. Co., 166 Ocean Co. v. Ophelia, 656 Odd Fellows v. First Nat. Bank of Sturgis, 219 Odd Fellows' Bank v. Guillen, 847 Odd Fellows' Hall Assn. of Portland v. Hegele, 470 Oddie v. National City Bank, 600, 639, 1213 Odiorne v Maxcy, 150, 152 Oelbermann v. New York & N. Ry. Co., 470 Ogden v. County of Daviess, 866, 872, 922 Ogden v. Murray, 260, 280, 283 Ogilvie v. Knox Insurance Co., 1133 O'Hare v. Second Nat. Bank of Titus- ville, 520 Ohio Central R. R. Co. v. Central Trust Co. of New York, 1181 Ohio Life & Trust Co. v. Debolt, 957 Ohio & M. R. R. Co. v. McCarthy, 1089 Ohio & Mississippi Ry. Co. v. Com- missioners, 1271 Ohio & Mississippi Ry. Co. v. Davis, 1228 Ohio & Mississippi Ry. Co. v. People. 1031 Ohio Valley Nat. Bank v. Walton Architectural Iron Co., 1081 Oil Co. v. Densmore, 275 Oil Creek, etc., R. R. Co. v. Pennsyl- vania Transportation Co., 1079 Olcott v. The Supervisors. 902, 957 Olcott v. Tioga Railroad Co., 142. r>.>, 198, 232, 233 Oldham v. Bank, 510, 529 O'Leary v. Board, etc., 793 Oliphant v. Woodburn C. & Mining Co., 165, 316 Oliver v. Piatt, 263 Olmstead v. Distilling & Cattle Feed- ing Co., 1192 Olney v. Chadsey, 193, 562 Olney v. Land Company, 1087, 1111 Olson v. State Bank, 759, 1135 Omaha Bridge Cases, 895 Omaha & St. Louis Ry. Co. v. Wabash, St. Louis & Pac. Ry. Co., 1095, 1097 O. & N. R. R. Co. v. McPhcrson, 365 Oneida Bank v. Ontario Bank, 65, 653, 858 O'Neil v. Battie, 139 O'Neill v. Bradford, 628 Onstott v. People, 907. 920 Opdyke v. Pacific R. R. Co., 1052 Opinion of the Justices (Me.), 21 Orchard v. School District, 883 Ore Company v. Bird, 298 Oregon v. Jennings, 897 Oregon R. R. & Nav. Co. v. Oregonian Co., 465, 473 Oregon Railway v. Oregon Ry. & Nav. Co., 73, 236 Oregon Short Line Ry. Co. v. Yeates, 1301 Oriental Bank v. Tremont Ins. Co., 522 Oriental Vienna Bakery, Coffee & Natatorium Co. v. Heissler, 1123, 1224 Ornn v. Merchants' Nat. Bank, 510 Oro Mining & Milling Co. v. Kaiser, 155 Oroville, etc., R. R. Co. v. Super- visors, etc., 801 Orphan Society of Lexington v. Fay- ette County, 127 Osage Valley & So. Kansas R. R. Co. v. Morgan Co. Court, 46 Osborn v. Bank of the United States, 845 Osborn v. Moncure, 641 Osborne v. County of Adams, 54, 917 Osgood v. King, 166 Osgood v. McConnell, 627 Otis v. Gross, 643 Otoe County v. Baldwin, 998 TABU i \.\i\ [The reference* are to pages: TO|. I contaius pp. 1-707; yol. II, pp. 706-1807. j Ottawa v. Carey. 70. Ottawa v. National Bank of Forts- i mouth, 7i> Otter v. Brevoort I'. ('.. 455 Ouacliita Packet Co. v. Aiken, P^.ll Out. re v I>uiiald Overseers of Norwich v. Overseers. ..I' N.-w Berlin. Jiti <>\i.ut v . Hughes. 396 wrn,l)i>ro iV N. Ry. Co. \. County of Davie-s. 1301 Owensboro & N. Ry. Co. v. Logan County. l.'ic-J Owings v.Grubbs' Admr., 359 Ownings v. Hall, 172 Oxfordlron Co. v. Spradley, 100, 102 Pacific Coast Ry. Co. v. Ramage, 1300 Pai-ific Kx press Co. v Scibert. 1268 I'acilic Insurance Co. v. Soule. 1274 Pai-ilic Nat. Bank v. Eaton, 519, 756 Par. Postal Telegraph Cable Co. v. Western Union Telegraph Co., 464 Pa.-. R. R. Co. v. Seely, 493 Paeilic Rolling Mill Co. v. Dayton, S. A: (J R. Ky. Co., 220, 236 Pack v. Thomas, 645, 660 Packard v. Jefferson County, 46 Packard v. Society, 227 Packet Co. v. Catlettsburg, 1293 Packet Co. v. Keokuk, 1293 Packet Co. v. St. IxMiis, 1293 Paducnh Laud, Coal & Iron Co. v. Hays. 261 Paducah Laud, Coal & Iron Co. v. Mulholland. 263 Putrr v Fall River, W. & P. R. Co., MM Pnire v Supreme Lodge K. & L. of Protection, 1118, 1120 Pahlman v. Taylor, 152 Palii|iiioque Bank v. Bethel Bank. .V,l Paine v. Guardians of Strand I'nion, H Paine v. IjikeErie* L. R. Co., 250, 1220 Pairpont Mauufg. Co. v. PhUa. Opti- cal & Watch Co., 1115 Palmer v. Forbes, 1096 Palmer v. Nassau Bank, 191 Palmer v. Railway Co., 465 Palmer v. Stumph, 870 Palmer v. Whitney, 691 Pana v. Bowler, 897. 980, 981 Pangburn v. Westlake, 520 Paola A; Fall River Railroad v. Andcr son County Comra., 889, 800, 899 Papc v. Capitol Bank of Topeka, 513. 515 Parish v. Wheel, r, 153, 496, 1096 Park v. Grant Locomotive Works. !;.', 815 Park v. New York. L. K. & W. R. R. Co., I'M I. 1-,'nj Parker v. Commonwealth, 48 Parker v. Hartley, 649 I*arkcr v. Jones, 758 Parker v. McKenna. 259 Parker v. Nickerson, 248, 259, 275, 310 Parker v. Scogin, 49 Parker v. Smith, 977 Parker v. Supervisors of Dakota County, 798 I*arker v. Supervisors of Saratoga, 130 Parkersburg v. Brown, 44, 788, 880 Parkhurst v. Northern Central R. R. Co.. 1096 Parks v. Boston, 19 Parr v. Attorney-General. 121 Parrot t v. Byere, 311 Parry v. Highley. 509 Panel v. Barnes & Bro., Ill Parsons v. Goshen. 33, 34 Parsons v. Monmouth, 18 Partridge v. Badger. 72, 75, 102, 217 Pasley v. Freeman, 294 Passaic Water Co. v. City of Paterson, 1279 Patriotic Bank v. Farmers' Bank of Alexandria, 692 Patteson v. Ongley Electric Co., 155 Patterson v. Bank, 609, 610 Patterson v. Robinson, 154, 183, 187, 400, 401, 402 Patterson v. Stewart, 388 Pattison v. Yuba, 49 Paul v. City of Kenosha, 857 Pauling v. London Ry. Co., 284 Pauly v. Coronado Beach Co., 470, 477 Pauly v. Pauly, 491 IViuly v. State Loan & Trust Co., 717, 765 Paxson v. Brown, 895 Paxton Cattle Co. v. First Nat. Bank, 234 Payne v. Bullard, 857 Peabody v. Flint, 806, 826 Peak v. Ellicott, 621, 781, 747 Pearce v. Madison, etc., R. R. Co., 94, 450. 471. 473,478. 498 Pearson v. Concord R. R. Corporation, Pearson's Case, 428 Peck v. Doran Wright Co. (Lim.), 492 Peck v. First National Bank, 624, 706 Ixxx TABLE OF CASES. [The references are to pages: vol. J contains pp. 1-707; vol. n, pp.*708-1307.] Peck v. School District, 139 Peddicord v. Connard, 639 Peek v. Deny, 292 Peek v. Detroit Novelty Works, 162 Pelton v. Bank, 1273, 1297 Pemigewassett Bank v. Rogers, 583 Pendleton v. Bank of Kentucky, 575 Pendleton Co. v. Amy, 897 Peninsular Bauk v. Hanmer, 209, 573 Penley v. City of Auburn, 4:J.S Penobscot R. Co. v. Dunn, 258 Penn v. Calhoun, 1179, 1193 Pennell v. Deffell, 626, 742 Pennock v. Coe, 1055, 1095 Pennsylvania Bank Assignees' Ac- count, 713 Pennsylvania Co. for Insurance of Lives and for Granting Annuities v. Jacksonville, T. & K. Ry. Co., 1157 Pennsylvania, Del. & Md. St. Nav. Co. \ v. Daudridge, 145, 234, 439, 452, j 496 Penn. N. Gas Co. v. Cook, 1079 Pennsylvania Railroad v. St. Louis. etc., R. R. Co., 473, 488 Pennsylvania R. R. Co. v. Allegheny Valley R. Co., 1163, 1172 Pennsylvania R. R. Co. v. City of Philadelphia, 46 Pensacola Telegraph Co. v. Western Telegraph Co., 1293 Pent/, v. Stan ton, 360 People v. American Bell Telephone Co., 1289 People v. Argucllo, 69 People v. Assessor, 1301 People v. Baker, 130 People v. Ballard, 465 People v. Bank of Dansvllle, 622 People v. Bank of North America, 667 People v. Barker, 1288, 1290, 1299 People v. Baraga Township, 446 People v. Batchellor, 994, 1007 People v. Board of Supervisors of Logan County, 910 People v. Board of Supervisors of Ford County, 910 People v. Brinckerhoff, 130 People v. Cass County, 904, 918 People v. Central Pacific R. R. Co., 871, 1304 People v. Chapman, 972 People v. Cheetham, 1302 People v. Chicago Gas Trust Co., 517 People v. City Bank of Rochester, 622, 731 People v. Commrs. of Taxes, 1301 People v. Common Council of Detroit, 29 People v. Davenport, 1306 People v. Demarest, 131 People v. Dutcher, 977 People v. Eel River & E. R. Co., 286 People v. Flagg, 114 People v. Gage, 1269 People v. Garner, 979 People v. Glaun, 918 People v. Hamill, 67 People v. Haren, 1302 People v. Hicks, 1301 People v. Holden. 918, 919, 953, 977 People v. Home Insurance Co., 1305 People v. Horn Silver Mining Co., 1290 People v. Johnson, 63, 802 People v. Lawrence, 132 People v. Logan County, 905 People v. May, 445 People v. Maynard, 880 People v. Mayor, 1269 People v. Mavor of Brooklyn, 901 People v. Meach, 131 People v. Mead, 111 People v. Merchants & Mechanics' Bank of Troy, 650 People v. M. & T. S. Inst,, 466 People v. Mitchell, 994, 1007 People v. Myers, 852 People v. New England Mut. Life Ins. Co., 1289 People v. North River Sugar Refining Co., 498, 500, 501 People v. Overyssel Township Board, 243 People v. Pacheco, 68, 69 People v. Pueblo Countv, 46 People v. Remington, 1144 People v. River Raisin & Lake Erie R. R. Co., 463 People v. Ryan, 1289 People v. St. Clair County Officers, 128 People v. Salomon, 1269 People v. Stephens, 793 People v. Supervisors, 857 People v. Supervisors of Cortland, 130 People v. Supervisors of Delaware County, 131 People v. Supervisors of Dutches* County, 131 People v. 'Supervisors of New York, 57, 130 People v. Supervisors of Renssclaer, 130 People v. Supervisors of Warren County, 131 People v. Tazewell Countv. 898 People v. Town of Bishop', 97", 976 People v. Town of Clayton. 974 Pepple v. Town of Harp, 975 People v. Town of Loenna, 970, 982 People v. Town of Oldtown, 904 People v. Town of Santa Anna, 976, 982 TABLE OF CASES. [The references ore to pases: vol. I contains pp. 1-707; vol. n, pp. 708-1807.] People v. Town of Waynesville, 977 People v. 'i rustces of Schools, 70 People v. t'tica Insurant e Co., 1058 People v. Van Vulkenburg, 976 Peoplr v. Vi'hire of Crotty, 4, 5 People v. Warlield. 979 People v. \\';i\nc Auditors, 128 People v. Weaver, r,".7. 08 People v. Wiaut. 979 People, etc., v. Reliance Marine Ins. Co. (I.iin.). 1307 People, etc., v. Wcinple. 12.H8 People ex rcl. v. Canithers School District, 880 People ex rel. v. Commissioners, 1306 People ex rel. v. Draper, 871 People ex rel. v. Mead. 999 People ex rel. v. Jackson County, 971 People ex rel. v. Johnson, 424 People ex rel. v. Kingsbury, 424 People ex rel. v. La Salle County, 424 People ex rel., etc., v. Mayor of Chicago. 1005 People ex rel. v. Supervisors of Broome County, 181 People ex* rel. v. Supervisors of St. Lawrence County, 131 People ex rel. v. Tazewell County, 944 People ex rel. American Bible Society v. Comrs. of Taxes and Assess- ments, 1239 People ex rel. American Contracting, etc., Co. v. Wemple, 1289 People ex rel. American Surety Co. v. Campbell, 1289 People ex rel. Bay State Shoe & Leather Co. v. McLean, 1287 People ex rel. Brooklyn Traction Co. v. Board of Assessors, 1288 People ex rel. Chase v. County Court of Macoupiu County, 120 People ex rel. Content v. Metropolitan Elevated Ry. Co.. 165 People ex rel.' Dunkirk, Alleghany Valley, etc., R. R. Co. v. Camp- bell, 1805 People ex rel. Edison Electric Illumi- nating Co. of New York v. Wem- ple. 12K8 People ex rel. Edison General Electric Co. v. Barker. 12KS People e\ rel. ( Jeneva Looking Glass Plate Co. v. Barker, 1288 People ex rel. Kilmer v. McDonald, MM IV<. pie e\ rel. McCagg v. Mayor, etc.. of City of Chicago, 54 People ex rel. McCauley v. Brooks, t'.s People ex rel. McCulloiigh v. 1'acheco, XI People ex rel. Peabody v. Chicago Gas Trust Co., 508 People ex rel. Pennsylvania R. li < v. Wemple, 1305 People ex rel. Postal Telegraph Co. v. Campl>cll, 1289 People ex rel. Pratt Institute v. Board of Assessors of Brooklyn, 1289 People e\ rel. Pn-ttyman v. Board of Supervisors of Logan County, 910 People ex rel. Second Avenue R. R. Co. v. Barker, 1289 People ex rel. Seth Thomas Clock Co. v. Wemple, 1290 People ex rel. Sheldon v. Praser, 1299- People ex rel. Southern Cotton Oil Co. v. Wemple. 1289, 1805 People ex rel. Stockwell v. Earle. 180 People ex rel. Singer Manufacturing Co. v. Wemple, 1289 People ex rel. Thurber-Whyland Co. v. Barker, 1287 People ex rel. Tiffany & Co. v. Camp- bell, 1290 People ex rel. Union Trust Co. v. Cole- man, 1288 People ex rel. Western Electric Co. v. Campbell, 1290 People ex rel. W. & J. Sloane v. Bar- ker, 1289 People ex rel. Wood, Collector, v. Smith. 1271 People's Bank v. Manufacturers' Nat. Bank. 179, 508 People's Bank v. St. Anthony's Roman Catholic Church, 168 People's Gas, etc., Co. v. Chicago Gas etc., Co., 494 People's Home Sav. Bank v. Court, 1123 Peoria, Decatur& Evansville Railway Co. v. Commissioners, 1271 Peoria & Springfield R. R. Co. v. Thompson, 487, 1013, 1028 Percy v. Millandon, 247, 553 Perkins v. Bradley, 219 Perkins v. Hurt, 676 Perkins v. Lewis, 901, 953 Perkins v. Portland, Saco & Ports- mouth IJailro.nl. !.">:} Perkinson v. St. Louis, 445 Perley v. Miii-ke-on County. 597 Perpetual Ins. Co v. Cohen, 629 Perrin v. Citv of New London. '.i.":> Perrine v. (In -:ipi ake A: Del. Canal Co., 95, 471, 47s Perrv v. Council Bluffs Water \\ Co.. Perry v. Phelip- Perrv v. Simpson Waterproof Manufg. Co.. i. Perry v. Superior City, 446 Ixxxii TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.] Perry v. Tuskaloosa Cotton Seed Oil Mill Co., 262 Peterborough Railroad v. Wood, 218 Peters v. Bain, 626, 736, 737, 750, 752, 1114 Petersburg v. Metzker. 4 Petersburgh v. Mappin, 799 Peterson v. Homan, 358 Peterson v. Mayor, etc., 36, 103, 114, 170 Peterson v. Mille Lacs Lumber Co. , 809 Peterson v. Union Nat. Bank, 601 Petrie v. Myers, 523 Pettibone v. Toledo, C. & St. Louis R. R. Co., 1018 Pfhol v. Simpson. 380 Pfister v. Milwaukee Electric Ry. Co., 1018 Pharis v. Leachman, 742 Phelps v. Town, 627 Philadelphia v. Barber, 1265, 1266 Philadelphia v. Fox, 29 Philadelphia v. Masonic Home of Pennsylvania, 1265 Philadelphia v. Pennsylvania Hospital, 1266 Philadelphia v. Philadelphia & Gray's Ferry Pass. Ry. Co., 104 Philadelphia v. Ridge Avenue Ry. Co., 104 Philadelphia, etc., Railroad v. Mary- land, 1282 Philadelphia Loan Co. v. Towner, 90, 463 Phil. & Read. R. R. Co. v. Fidelity Ins. ek v. I/i Favette Building Assn., 496 P(X)1 v. Farmers' Loan & Trust Co., Poole v. Jackson & Whyte's Case, 1108 Poole v. West P. int Butter & Cheese Assn., 816, 831 Pope v. Hank. ' Pope v. Bank of Albion, 576 Pope v. Hoard of Comre. of Lake County, 685 Port v. RoMoll, -J14. 263, 816 Porter v. Bessemer Steel Co., 868, 1095 Port IT v. Industrial Information Co., 1198 Porter v. Pittsburg Bessemer Steel Co., 1241 Porter v. Railroad Company, 1082 Portland k (). ('. H. R. Co. v. In- habitants, etc. . of Hartford, 962 Portland Stone Ware Co. v. Taylor, 800 Portsmouth Savings Bank v. Village of Ashley. &57 Post v. Kendall County, 446 Post v. Pulaski County, 933, 940, 941, 868 Postal Telegraph Cable Co. v. Charles- ton, 1268 Potter v. Douglas County, 67 Potter v. Merchants' Bank, 574 Potter v. New York Infant Asylum, 170 Potter v. Stevens' Machine Co., 887 Potter v. Town of Greenwich, 984 r v. I'nited States, 782, 788 Potts v. Bennett, 26 Potts v. Wallace. 192, 198, 1112 Pottsville v. Norwegian Township, 135 Powder River Live Stock Co. v. Lamb, [|0 Powell v. Hlain. 1090 P,.wel| v. City of Madison, 14, 850 Powell v. Supervisors of Brunswick County. Powell v. Willamette Valley R. R. Co., 261 Powers v. Briggs. 857, 859 Powers v. Dougherty County, 49 Prather v. Kean. 587 Pratt v. Beaupre, 858 Pratt v. Brown, 957 Pratt v. Jewett, 818 Pratt v. Luther, 24 Pratt v. Short, 441. 497 Pratt v. Taunton Copper Mfg. Co.. 885 Prentice v. Tn/ & Central Am. St. Ship Co., 156 Presbyterian Church v. City of New Vork. 488 tt Nat. Bank v. Butler, 516 President, etc., v. Railway Co., 268 Piv-'t, etc., of Springfield Bank v. Merrick, 456 Mining & Milling Co. v. Co- quard, 170 Pres't i Tru-tees of Town of Peters- burg v. Mappin, l',M Press Printing Co. v. State Board of Assessors, K".i."> Preston v. Grand Collier Dock Co., 324 Preston v. Prather, 537. 558 Preston v. Loughran, 278 Preston National Bank of Detroit v. Emerson, 1129 Preston Nat. Bank of Detroit v. George T. Smith Middlings Puri- fier Co., 207 Prettyman v. Supervisors, etc., 49 Prettyman v. Tazewell County, 905, 964 Price v. Abbott, 715 Price v. G. R. & I. R. Co., 158 Price v. Neale, 669, 673 Price v. Price's Heirs, 1169 Prideaux v. Criddle, 658 Priest v. Way, 655 Prince v. City of Quincy, 40, 68, 69 Prince Manufg. Co. v. Prince's Me- tallic Paint Co., 263 Prindle v. Washington Life Ins. Co., 156 Printing Co. v. Green. 297, 298 Pritchard v. Louisiana State Bank, 681 Protestant Foster Home Soc. v. Mayor, etc., of New York, 1280 Prouty v. Mich. So. & No. Ind. R. R. Co., 484 Providence Tool Co. v. Norris, 268 Provident Institution v. Massachu- setts. 1274 Puget Sound National Bank v. King County, 1297 Pugh v. City of Little Rock, 487 Pullau v. Cin. & Ckic. Air Line R. R. Co., 1054. 1096 Pullman v. Ellis. 1141 Pullman's Palace Car Co. v. Common- wealth, 1892 Pullman Pahce Car Co. v. Pennsyl- vania. 1274. 1294. 1803 Pulman v. Upton, 1028 Pumphrey v. Threadgill, 1098 Punlv v. Lansing, 976 Purifier Co. v. McGroarty, 1087, 1114 Ixxxiv TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.] Pusey v. Meade County Court, 127 Pusey v. New Jersey West Line R. R. Co., 95 Putnam v. City of Grand Rapids, 66 Putnam v. Jacksonville, Louisville & St. Louis Ry. Co., 1187 Putnam v. Ruch, 318 Putnam v. Sullivan, 608 Q. Quaker City Nat. Bank v. Nolan County, 832 Quarry Co. v. Bliss, 384, 390 Queen v. Second Avenue R. R. Co., 146 Queenan v. Palmer, 403 Quigley v. Walter, 394 Quill v. City of Indianapolis, 22, 874 Quincy v. Cook, 959, 962, 964 Quincy v. Jackson, 932 Quincy, Missouri & Pacific R. R. Co. v. Morris, 71. 959, 962, 964 Quincy, etc. , R. R. Co. v. Humphreys, 1200, 1202 Quincy, O. & K. C. Ry. Co. v. People, 1305 R. Racine & Mississippi R. R. Co. v. Farmers' Loan & Trust Co., 1055 Rahm v. King Wrought Iron Bridge Manufactory of Topeka, 205 Railroad v. Cleghorn, 1108 Railroad v. Davidson County, 979 Railroad v. McGee, 1098 Railroad Bank v. Douglas, 506 Railroad Co. v. Bank, 655 Railroad Co. v. Brown, 465 Railroad Co. v. Cheatham, 93 Railroad Company v. Closser, 1177 Railroad Co. v. Collins, 479 Railroad Company v. Collector, 1275 Railroad Co. v. County of Otoe, 16, 904, 923 Railroad Company v. Cowdrey, 1186, 1222 Railroad Co. v. Crane, 465 Railroad Co. v. Derby, 546 Railroad Co. v. Durant, 263, 269 Railroad Company v. Elizabethtown, 1169, 1170 Railroad Company v. Falconer, 988 Railroad Co. v. Hamblen County, 1307 Railroad Co. v. Hicks, 1307 Railroad Co. v. Hinsdale, 480 Railroad Co. v. Howard, 79, 80, 91, 2-54. 1158 Railroad Company v. Humphreys, 1190 Railroad Company v. Husen, 1293 Railroad Co. v. Lockwood, 473 Railroad Co. v. Maine, 1282 Railroad Company v. Marion County, 971 Railroad Co. v. Mississippi, 720 Railroad Company v. National Bank, 983, 1003 Railroad Company v. Orr, 1156 Railroad Company v. Pettus, 1183 Railroad Company v. Priex County, 1282 Railroad Co. v. Quigley, 321, 546 Railroad Co. v. Railroad Co., 479, 1241 Railroad Co. v. Schutte, 1050 Railroad Co. v. Sloan, 1191 Railroad Co. v. Wilson, 1251, 1259 Railroad National Bank v. City of Lowell, 133, 231 Railway Co. v. Allerton, 166 Railway Company v. Dey, 1237 Railway Co. v. Harris, 321 Railway Co. v. Iron Co., 480 Railway Co. v. Johnson, 1224, 1228 Railway Co. v. McCarthy, 107, 488 Railway Company v. People, 1302 Railway Company v. Schuyler, 1050 Railway Co. v. Stark, 1247 Railway Company v. Whitton, 1148 Railway Company v. Wilkes, 937 Railway Frog v. Haven, 296 Ralph v. Shiawassee Circuit Judge, 1123 Rails County Court v. United States, 72, 847, 932 Ralston v. Washington & C. R. Ry Co., 1192 Ramsey v. Erie Ry. Co., 495, 1043 Ramson v. Mayor, etc. , of New York, 59 Ranger v. Champion Cotton-Press Co., 312, 1124 Rapp v. Bank, 601 Rasmusson v. County of Clay, 436 Ratcliff v. Teters, 806 Rathbone v. Parkersburg Gas Co., 316 Rathbone v. Sanders, 525 Rathbun v. Snow, 103, 183 Ratterman v. Western Union Tele- graph Co., 1268, 1293 Raub v. Blairstown Creamery Assn., 203 Ray v. Bank of Kentucky, 636 Raymond v. Clark, 1096 Raymond v. S:m Gabriel Val. Land & Water Co., 263 Re, Asiatic Banking Co., 76 Re, Barned's Banking Co., 76 Re, Bates, 1144 Re New York Catholic Protectory, 1288 Reagan v. Aiken, 720 TABLE OF CASES. Ixxxv [The references are to pages: rol. I contains pp. 1-707; TO!. II, pp. 706-1807.] Recamier Manufg. Co. v. Lyman, 817 Redingtou v. Woods, 674 Redmond v. Dickerson, 250, 258 Redmond v. Ifciilway Company, 1250 Red NVillow County v. Chicago, B. & L. R. R. Co., 1302 Ri-f.1 v. Buffum, 155 Reed v. I'lattsmouth, 859, 925 Reed v. Powell, 175 Ri-iil v. Bank of Mobile, 952 Reese v. Mitchell. 641 Reeve v. Bank, 155 Reeve School Township v. Dodson, 133, 427 Rehmke v. Goodwin, 67 Reichwald v. Commercial Bank, 97 Reichwald v. Hotel Company, 1084, 1112 Reincman v. Coviugton, Columbus & Black Hills Railroad, 928 Relfe v. Rundle, 466 Removal Cases. 720, 1150 Reno Water Co. v. Leete, 191 Resor v. Ohio & Mississippi R. R. Co., 1096 Rew v. Pettet, 98 Reynes v. Dumont, 528, 544, 1273 Reynolds v. Commissioners of Stark County, 1055, 1058 Reynolds v. Continental Insurance Co., 152, 193 Reynolds v. Crawfordsville Bank, 512 Reynolds v. Shreveport. 857 Reynolds & Henry Construction Co. v. Police Jury. 151 Rhodes v. McDonald, 265 Rhodes, Assignee, v. Webb, 175, 249 Rice v. Plymouth County, 124 Rice's Appeal, 275 Rich v. Errol, 134 Rjrh v. Town of Mentz, 976 Richards v. Crocker. 407 Richards v. Insurance Company, 1108 Richards v. Merrhnnck & Connecticut River Railroad, 1054, 1055, 1158 Richards v. New Hampshire Ins. Co., M R : dmrds v. Railroad, 98 Richardson v. Green. 268 Richardson v. Lawrence County, 904 Richardson v. Massachusetts Chari- table Mechanics' Assn., 4.~>7 Richardson v. St. Joseph Iron Co., 144 Richardson v. Sibley, 466. 471. 1068 Richardson v. Vermont & Mass. R. R. Co., 485 Richardson's Executor v. Green, 266, UW.-I. 10S5. 111I5 Richelieu Hotel Co. v. International Military Encampment Co., -ITu. 478 Richmond v. Irons, 175, 758, 768, 768, 769, 770. 772 Richmond County Gas Light Co. r. Town of Middlctown, 29 Richmond, etc., R. R. Co. v. Snead, 210, 859 Richt.-r v. Jerome. 1158, 1162 Rickets v. Spraker, ! Rickford v. Ridge, 658 Ricord v. Railroad Co., 92 Riddle v. County of Bedford, 161 Rider Life Raft Co. v. Roach, 170 Ridgley Nat. Bank v. Patton, 687, 644 Ridgeway v. Farmers' Bank of Buck* County, 75, 102 Riley v. Pettis County, 129 Ring v. County of Johnson, 971 Ringling v. Conn, 504, 572 Rings T. Binns, 251 Rings v. Biscoe, 1112 Ring & Reil v. Foster, 608 Rio Grande Cattle Co. v. Burns, 821 Ripley v. Sampson, 387, 769 Risk v. Banking Company, 1129 Risley v. Ind., B. & W. R R. Co., 242, 278 Risley v. Phenix Bank, 653, 666 Ritchie v. Franklin County, 880 Rittenhouse v. Mayor, etc., of Balti- more, 29 Roan v. Winn, 254, 550, 1119 Robbins v. Bacon, 665 Robbins v. Board of Comrs. of Morgan County, 81 Robbins v." Railroad Company, 957 Robbins v. Shelby Taxing District, 1267 Robbins v. Shelby County, 1293 Roberts v. Austin Corbin & Co., 662 Roberts v. Breed love, 14 Roberts v. Broome, 742 Roberts v. Hill, 544 Roberts v. Pottawatomie County, 28, 126 Roberts & Co. v. Iron Car Equipment Co., 1048 Robertson v. Breedlove, 828 Robertson v. Buffalo County Nat. Bank, 566 Robertson v. City of Rockfonl, 49, 958 Robinson v. Alabama & Georgia Manufg. Co., 1234 Robinson v. Ames. 702 Robinson v. Atlantic & Great Western Ry. Co., 1059 Robinson v. Hawksfprd, 658 Robinson v. Iron Railway Co., 1172 Robinson v. I .and Company, 1057 Robinson v. Nat. Bank of 'Newberne, BM Ixxxvi TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1S07.] "Robinson v. Smith, 282, 801, 302, 306, 348, 349, 554, 556, 557, 560 Robinson v. Thompson, 402 Robinson v. Turrentine, 772 Robison v. McCracken, 268 Roby v. City of Chicago, 793 Rochester Bank v. Harris, 506, 649 Rochester Printing Co. v. Loomis, 621 Rochester Savings Bank v. Averill, 1061, 1066 Rock County Nat. Bank v. Hollister, 681 Rock Creek Township v. Strong, 1011, 1012 Rockford, R. I. & St. L. R. R. Co. v. Sage, 279, 356 Rock River Bank v. Sherwood, 527 Rockwell v. Elkhorn Bank, 75, 102, 574 Rockwell v. Farmers' Nat. Bank of Longmont, 531 Rodman v. Justices of Larue County, 127 Rogan v. City of Watertown, 13 Rogers v. Board of Comrs. Le Sueur County, 67, 428 Rogers v. Burlington, 12, 49, 56, 328, 949, 954, 1000 Rogers v. Durant, 657 Rogers v. Keokuk. 955 Rogers v. La Fayette Agr. Works, 306, 315 Rogers v. Lee County, 955 Rogers v. Stevens, 994 Rogers Locomotive & Machine Works v. Southern R. R. Assn., 1049 Roll v. City of Indianapolis, 29 Rolland v. Hart, 338 Rolling Stock Co. v. Railroad, 282 Rollins v. Clay, 258, 325 Rollins v. Shaver Wagon & Carriage Co., 470, 1073, 1074, 1087, 1112 Rolseth v. Smith, 349 Root v. Olcott, 170 Roper v. Town of Laurinburg, 60 Rorke v. Thomas, 394, 399 Rosborough v. Shasta River Canal Co., 233 Roseboom v. Whitaker, 253 Rosenberg v. First Nat. Bank of Tex- arkana, 524 Rosenblatt v. Habermann, 661 Rosenthal v. Martin Bank, 665 Ross v. City of Philadelphia, 198 Rothrock v. Carr, 27, 122, 431 Rounds v. Smith, 652 Rouse v. Bank. 1087, 1111, 1113, 1114 Rouse v. Harry, 1232 Rowe v. Table Mountain Water Com- pany, 205 Rowe v. Tipper, 693 Rowley v. Fair, 375 Roy & Co. v. Scott, Hartley & Co.. 491 Royal Bank of India's Case, 164 Royal Bank of Liverpool v. Grand Junction R. R. & Depot Co.. 1014 Royal British Bank v. Turquand, 980 Ruby v. Shain, 46 Ruby v. Abyssinian Society, 312 Rudd v. Robinson, 261 Ruffner v. Coal Co., 809 Ruggles v. Collier, 59, 114 Rumbough v. Southern Improvement Co., 218 Rumford v. Wood, 795 Rumford School District v. Wood, 34 Runyan v. Coster's Lessee, 478 Runyon v. Montfort, 686 Rushville Gas Co. v. City of Rush- ville, 864 Russell v. Cage, 14, 834 Russell v. Cook, 121 Russell v. Hadduck, 649, 743 Russell v. Railway Co., 490 Russell v. Southard, 982 Russell v. Tate, 44 Rutherford v. Davis, 1272 Rutland & Burlington R. R. Co. v. Proctor, 489 Rutland R. R. Co. v. Haven, 287 Rutland R. R. Co. v. Thrall, 484 Ryall v. Rolle, 623, 626 Ryan v. L. A. & N. W. Ry. Co., 258, 261, 275 Ryan v. Lynch, 851, 852, 1004 Ryder v. Alton & Sangamon River R. R. Co., 49 S. Sabin v. Columbia River Lumber & Fuel Co., 1035 Sackett v. City of New Albany, 68, 69 Sackett's Harbor Bank v. Lewis County, 460 Safford v. Wyckoff, 102, 469 Sage v. Culver, 318 Sage v. Heller, 1118 Sage v. Memphis & Little Rock R. R. Co., 1159, 1222 Sagory v. Dubois, 521 St. John v. Homans, 660 St. John v. O'Connell, 681 St. Joseph & Denver City R. R. Co. v. Buchanan County, 46, 49, 964 St. Joseph, etc., R. R. Co. v. Humph- reys, 1202 St. Joseph Fire & M. Ins. Co. v. Hauck, 493 St. Joseph Township v. Rogers, 71. 911, 980 St. Louis Bridge & Tunnel R. R. Co., 1302 TAI1I.K OF CASES. Ixxxvii [The references are to pages: vol. I contains pp. 1-707; vol. H, pp. 708-1307.] St. Louis Car Co. v. Stillwater Street Sampson v. Bowdoinham Steam Mill Ry. Co., 1188 Corporation. 159 St. Louis Drug Co. v. Robinson, 4'.i:> SHI Antonio \. .Jones. 49 St. I.ouU etc H. R. Co. v. Cleveland, San Antonio v. Ijinc, 955 etc.. R. R. Co , 1239, 1241 St. Louis, etc., H. R. Co. v. Johnston, tijl. 750 St. Ix>uis. Ft. Scott & W. R. Co. v. Grove, 156 St. Louis, Ft. Scott & Wichita R. R. Co. v. Tiernnn, 276 St. Louis, Iron Mountain & So. Ry. Co. v. Anthony, 129 8t. Louis, Iron Mountain, etc., R. R. Co. v. Berry, 1282 St. Louis & Sandoval Coal & Mining Co. v. Sandoval Coal & Mining Co.. 856 St. Louis & 8. F. Ry. Co. v. Apper- St. son. 1802 Louis & Gracy, 1263 Santa Fe Ry. Co. v. St. Louis & 8. F. Railway Co. v. Johnston, 612, 613. 614, 619 St. Louis & S. F. R. Co. v. Kirkpat- rk-k, 239 St. Louis 8. W. Rv. Co. v. Graham, Intervener, 12J7 St. Louis 8. W. Ry. Co. v. Stark, 1 175 St. Louis, Vandalia & T. H. R. R. ( o. v. Terre Haute & Ind. R. R. Co., 486 St. Mary's Industrial School for Boys v. Brown, 30 St. Nicholas Insurance Co. v. Howe, 198 St. Nicholas Nat. Bank v. Bank of the State of New York, 654 St. Paul. M. & M. Ry. Co. v. City of St. Paul. 1282 St. Paul & Sioux City R. R. Co. v. Robinson. 1802 St. Paul & Sioux City R. R. Co. v. Shanks, 1802 St. R. Co. v. Morrow, 1807 Salem Bank v. Gloucester Bank, 567 San Antonio v. Lewis, 108 San Antonio v. Mchaffy, 328, 488, 990 San Antonio & G. S.' H. H. Co. v. Davis, 1123 Sanborn v. Decrfleld, 134 San Dici^o County v. California Nat Bank, 7*5. 788 San Diego, 8. D. & L. A. R R. Co., I'.Hi San Diego Water Co. v. City of San Diego, 44, 118 Sands v. Matthews, 665 Sandy River Bank v. Merchants & Mechanics' Bank, 578 Sand ford v. Prentice, 808 San Francisco Gas Co. v. City of Sao Francisco, 29 San Francisco Water Co. v. Pattee, vra Sang v. City of Duluth, 438 Sangamon, etc., R. R. Co. v. County of Morgan, 871 Sanger v. Upton, 1028 San Joaquin Valley Bank v. Bours, 580 Sankey v. Terre Haute & S. W. R. R. Co., 949 San Luis Obispo County v. Pettit, 374 Santa Cruz Co. v. Spreckels, 263 Sargent v. Franklin Ins. Co.. 768 Sargent v. Kansas Midland R. R. Co., 262 Sargent v. Webster. 1074, 1084, Sartwell v. North, 337 Satterlee v. Strider, 901 Sauer v. Town of Nevadaville, 876 Savage v. Rix, 359 Savage Mfg. Co. v. Worthington. 78 Savannah & Memphis R. R. Co. v. Lancaster, 93 Savings Bank v. Hamlin, 571 Salem Land Co. v. Montgomery Land ; Savings Bank v. Holt, 562 Co., 198 Sali-m Turnpike v. County of Essex, 871 Salem Water Co. v. City of Salem, 68 Saline County v. Anderson, 798 Saline County v. Wilson. 128 Salmon v. Richardson, 289, 847 Salmon Falls Bank v. Leyser, 514 Salomons v. Laing, 77, 452 Salt Company v. Guthrie, 1178 Salt Lake City v. Hollister, 821, 478 Salt marsh v. Spaulding, 273, 809, 1073, 1075 Sammis v. Clark, 603 Savings Bank of New Haven v. Davis, 143 Sawyer v. Hoag. 255, 1028. 1108 Sawyer v. Manchester & Keene R. R. Co., 976 Sayers v. First Nat. Bank, 155 Saylor v. Bushong, 648 Sayles v. Bates, 774 Sayre v. Association, 1178 Scanlan v. Ki-ith. :r>7, 858, 859 Schacffcr v. linnham. 971, 977 Schalltinl v. Kd River Steam Nav. Co.; i.vi Schanck v. Mayor, 42 Schenck v. Andrews, 164 Ixxxviii TABLE OF CASES. [The referenees are to pages: vol. I contains pp. 1-707; vol. IL, pp. 70&-1307.] Schenck v. Bandmann, 884 Schetter v. Southern Oregon Improve- ment Co., 263 Schierenberg v. Stephens, 712 Schindelholz v. Collum, 1118 Schneider v. Irving Bank, 602, 646 Schneitman v. Noble, 176 Schoff v. Bloomfield, 137 Schofield v. Henderson, 416 Scholey v. Rew, 1275 School District v. Padder, 139 .School District v. Snell, 40 School District v. Stone, 842, 844, 876, 968 School District 2 of Township of Buckeye v. Clark, 794 School District No. 3, etc. , v. Western Tube Company, 40 School District No. 39, etc., v. Sulli- van, 115 School Town of Monticello v. Kendall, 20 Scott v. People, 4, 5 Schrader v. Manufrs. Nat. Bank of Chicago, 175 Schuler v. Laclede Bank, 662 Schultz v. Jerrard, 1129 Schum v. Seymour. 443, 445 Schurr v. Investment Co., 458 -Schuyler County v. The People, 898, 1004 'Schuylkill County v. Citizens' Gas Company, 1267 Scipio v. Wright, 15, 915 Scobey v. Decatur County, 123 Scofield v. Parlin & Orendorff Co., 810 Scofield v. State Nat. Bank, 511 Scotland County v. Hill, 858, 1021 Scott v. Armstrong, 525, 733, 734 Scott v. Avery, 1152 Scott v. Clinton & S. R. R. Co., 1055 Scott v. Depeyster, 248, 302, 306, 364 Scott v. Independent District of Har- din County, 139 Scott v. Johnson, 187 Scott v. Nat. Bank of Chester Valley, 366, 636 Scott v. Noely, 1139 Scott v. Ocean Bank, 688 Scott v. Shirk, 638 Scott v. W., etc., R. R. Co., 234 Scott v. City of Davenport, 66, 69 Scott's Excrs. v. Shreveport, 17, 114 Scottish North Eastern Ry. v. Stew- art, 447 Scudder v. Anderson, 181 Scudder v. Trenton Delaware Falls Co., 917 Sc-idder v. Union National Bank, 1021 Seal v. Puget Sound Loan & Invest- ment Co., 236, 1078 Seale v. Baker, 288 Seaman v. Baughman, 22 Search v. Ellicott, 1119 Searight v. Payne, 76, 819 Sears v. Hotchkiss, 306 Sears v. Trustees Illinois Wesleyan University, 211 Sears v. Waters, 390 Seaver v. Coburn, 359 Second Nat. Bank v. Pettier & Sty- mus Mfg. Co., 235, 362 Second Nat. Bank of Albany v. Wil- liams, 647 Second Nat. Bank of Baltimore v. Western Nat. Bank of Baltimore, 690 Second Nat. Bank of Baltimore v. Wrightson, 630 Second Nat. Bank of Louisville v. Nat. State Bank of New Jersey, 527 Second National Bank of New Albany v. Town of Danville, 38, 39 Second & Third St. Pass. Ry. Co. v. Philadelphia, 104 Security Bank v. Cushman, 549 Security Bank of Minnesota v. North- western Fuel Co., 616 Security Bank of New York v. National Bank of the Republic, 654 Security Co. v. Ball, 605 Security Sav. & Trust Co. v. Piper, 1123 Sedgwick v. Lewis, 152 Seeley v. Bridges, 55, 917 Seeley v. San Jose Independent Mill & Lumber Co., 154, 196 Seibert v. Minneapolis & St. Louis Ry. Co., 1080, 1102, 11^0, 1153, 1159, 1204 Seibrecht v. City of New Orleans, 121 Seiser v. Mali, 287 Selby v. McCullough, 661 Seiser v. Brock, 608 Seneca County Bank v. Neass, 550 Senter v. Continental Bank, 661 Settle v. Van Evrea, 838 Seventh Nat. Bank v. Cook, 645 Seventh National Bank v. Shenandoah Iron Co., 1255, 1256 Sewage Co. v. Hartmont, 298 Sewauee Mining Co. v. McCall, 152 Seward County v. Cattle, 597 Sewell v. Beach Company, 1122 Sewickley Borough v. Tholes, 1265 Seybert v. City of Pittsburg, 16, 954 Seymour v. Canandaigua & Niagara Falls R. R. Co., 1096 Sevmour v. Spring Forest Cemetery Assn., 236, 457, 470 Shaffer v. Hahn, 809 TABLE OF CASES. Ix.XXLX [The references are to pages: ToL 1 contain* pp. 1-707; voL II, pp. 708-1107.* Shaffner v. Edgerton, 655 Shamokin Valley R. R. Co. v. Liver- more, 1096 iShainl v. Du Buisson, 665 Miiirik v. Shoemaker, 121 Shannon v. Portsmouth, 798 Shapley v. Abboct, 995 Sharpless v. Mayor, 44, 48, 49, 964 Sli.-i\ . r v. Ik-ar Kiv.-r. etc., Co., 190, 198 Shaver v. Hardin. 236 Shaw v. Bill. 1055 Shaw v. Campbell Turnpike Road Co., 820 Shaw v. County of Pina, 798 Shaw v. Clark," 549 Shaw v. Dennis, 49, 901 Shaw v. Independent School Dist. of Riverside, 896 Shaw v. Port Phillip & Colonial Gold Mining Co., 834, 335, 344, 1148 Shaw v. Railroad Company, 1001, 1080, 1158. 1162 Shaw v. Spencer, 589 Shawmut Bank v Plattsburg & Montreal R. Co., 819 Shea v. Mabrv, 568, 1108 Shear v. K. & K. R R. Co., 563 Sheboygan Count}' v. Parker, 1000 Sheffield School Township v. Andress, 20, 89 Shelby v. Chicago & Eastern 111. R. R. Co., 493 Shelby County v. Tennessee & T. Ry. Co., 1302 Shelby County Court v. C. & O. R. R. Co., 46, 908 Shelbyville, etc., Turnpike Co. v. B'arnes, 471 Shelbyville Trustees v. S. & E. T. Co., 46 Sheldon v. Mann, 1081 Sheldon, etc. Co. v. Eickeymeyer Hat Blocking Machine Co., 490 Shepaug Voting Trust Cases, 500 Sheppard v Township, 136 Sheridan Electric Light Co. v. Chat- ham JSat. Bank, 169. 368 Sherlock v. Village of Winnetka, 849, 878, 879 Sherman v Carr, 60 Sherman v Fitch. 197, 288 Sherman v. Slcytmrk, 897 Sherman Center Town Co. v. Fletcher, 490, 821 Shrrman Center Town Co. v. Morris, 103, 821 Sherman Center Town Co. v. Russell, 461. 821 Slierman Center Town Co. v. Swignrt, 198 Sherwood v Milford State Bank, 748, 752 xii Shields v. Ohio, 1282 Shi.-l.is v. Thomas, 788 Shinf>one v. Randolph County, 948, '.Ml Shiiikle v. First Nat. I'a:ik of Riplcv, 505,536 Shipman v. Bank of the State of New York, 878. 590 Shipman v. State, 446 Shiji^-v v liow.-ry Nat. Bank, 708 Shirk v. Pulaski County, 487 Shtx-kley v. Fisher, 111 Shorb v. Beaudry, 25* Shotwell v. Mali. 286, 287 Sho waiter v. Improvement Co., 1123, 1129 Shrewsbury & Birmingham Ry. v. Northwestern Ry., 448 Shrewsbury v Blount, 294 Shrieve v. Duckham, 657 Shunk v. Bank, 539 Sicardi v. Oil Company, 111 Sice v. Cunningham, 702 Sickels v. Richardson, 266 Siebricht v. New Orleans. 446 Sieby v. Joshua Hendy Machine Works, 210 Silliman v. Fredericksburg, O. & C. R. R. Co., 152 Silva v. Metropolitan Drug Co., 183 Silver Lake Bank v. North, 65, 459, 1059 Simmes v. Chicot County, 63 Simmons v. Troy Iron Works, 820 Simms v. Hervey, 857 Simons v. Fisher, 565 Simons v. Patchett, 372 Simons v. Vulcan Oil & Mining Co . 260, 275. 291, 298, 299 Simpson v. Dennison, 491 Simpson v. Turney, 698 Simpson v. Waldby, 702 Simpson Centenary College v. Bryan, 455 Sims v. Board of Comrs., etc., 122 Singer Manufg. Co. v. Holdfodt, 153 Sioux City v. Weare, 446, 851 Sioux City & St. Paul R. R. Co. v. King, 1302 Sioux City & St. Paul R. R Co. v. ad, 145 Smith v. Ossipee Savings Bank, 617 Smith v. Poor, 560 Smith v. Pratt ville Manufg. Co., 348 Smith v. Prior. 1135 Smith v. Rathbun, 551 Smith v. Sac County, 980 Smith v. Sage, 394 Smith v. Shawnee County, 28 Smith v. Skeary, 1084, 1108, 1112 Smith v. Smith, 192, 194, 210, 263 Smith v. Tracy, 172 Smith v. White, 470, 495 Smith Bridge Co. v. Louisville, N. A, & St. L. R. R. Co., 1251 Smith Canal or Ditch Co. v. City of Denver, 444 Snelling v. Soffrion, Prest. of Police Jury, 18 Snyder's Sons Co. v. Armstrong, 720 Snyder Township v. Bovaird, 136 Societe des Mines D' Argent et Fon- deries de Bingham v. Mackintesh, 264 Society for Savings v. Coite, 1274 Soens v. Racine, 957 Solomon v. Penoyar, 350 Sombrero Phosphate Co. v. Erlanger, 297, 299 Southern California Colony Assn. v. Bustamente, 155, 204 Southern Development Co. v. Houston & Texas Central Ry. Co., 560 Southern Kansas & P. R. R. Co. v. Towner, 900 Southern White Lead Co. v. Haas, 1087 Southgate v. Railroad, 145, 150, 169 South Joplin Land Co. v. Case, 298 South Ottawa v. Perkins, 446, 872 Southwestern A. & I. T. Ry. Co. v. Martin, 811 South Yorkshire Ry. v. Great Northern Ry., 447 Sower v. Philadelphia, 890 Sowles v. Bank, 735 Sowles v. Witters, 720, 734, 735 Spafford v. First National Bank of Toma City, 506 Spann v. Webster County, 67 Sparhawk v. Serkcs, 1203 Sparks v. Dispatch Transfer Co., 183, 184 Sparrow v. Evans ville, etc., R. R. Co., 471 Spaulding v. Lowell. 33, 35, 41, 42 Spear v. Crawford, 756 Spear v. Ladd, 577 Speidel v. Henrici, 263 Spence v. Mobile & Montgomery R, R. Co., 1238 TAIII.K OF CASES. \ci [The reference* are to page*: vol. I ooaudns pp. 1-707; vol. H, pp. 706-1807.] Sperinjr's Appeal. 241. 347. Spies v. Chieairo A: Kastern Iowa Hy. CM., ID If, Spiliniiii v. City of Parkcreburg, 67 Spilman v. Meixleniiall, 1186 Spokane County v. Clark, 786 Spring A: Axle Oo.'l Appeal, 534 Spriniri -r v. t'nitcil States, 1275 Springfield & I. S. E. Ry. Co. v. Cold 8prin.tr Township, 975 Sprin'_'ii. Id Marine & Fire Ins. Co. v. I'eck, 610, 629 Spykcr v. Spcnce, 193 Squire v. ( 'art wright, 86 Squire v. I'iv-ton, 86, 57 Stafford v. Harris, 490 Stair v. Bank, 7-M Stallcup v. National Hank of the Re- public. 198 Stamp v. Cass County, 127 Stanley v. Sheffield, L. I. & C. Co., 156 Stanton v. Allen, 1178 Stanton v. NN'ilkeson, 715, 772 Staples v. Franklin Bank, 641 Staples v. Schulenberg & Boeckler Lumber Co., 1117 Star Printing Co. v. Andrews, 1083 Starin v. Genoa, 49, 111 Starin v. Edson, 490, 821 Stark Bank v. U. S. Pottery Co., 144, 172, 205, 220 Star Line v. Van Vliet, 209 State v. Allen, 929 State v. Babcock, 883 State v. Baltimore & Ohio Railroad, 816 State v. Bank of Commerce, 1800 State v. Bank of Louisiana, 521 State v. Bank of New England, 1128, 1135 Stat.- v. Bell, 59 State v. Bevers, 446 State v. Board of Assessors, 1280 Htate v. Brobston. 1144 State v. Branin, 1298 State v. Buck, 1146 State v. Carroll, 55 State v. Cassidy. 1270 State v. Catron, 1299 State v. Cent nil Pac. R. R. Co., 1302 State v. Cincinnati Gas Light & Coke Co., 29 State v City of Bayonne, 438 State v. City Council, 850 State v. City of Omaha, 1288 State v. Clark. 798 State v. Commcn -i:il Bank of Man- chester, 530, 548, 578 State T. Commercial State Bank, 723 State v. Commissioners of Clinton County, 49 State v. Commissioners of Hancock, 49 Stale v. Common Council. 41 State v. District Court, 1306 State v. Echolo, State v. Kstahrook. IS State v. Farmers A: Drovers' Bunk of Battle Creek, 740 State v. Fields, 1146 State v. Hannibal & St. Jos. H. R. Co., 975, 1264, 1282, 1801, 1302 - ,' . llarrN. 907 State v. Haskell, 446 State v. Hastings, 446 State v. Hausen. 59, 864 State v. Hoff, 1263 State v. Jersey City, 112, 890, 1282 State v. Keim, 597 State v. Kcokuk & W. R. R. Co.. 1282 State v. Linn County Court, 49 State v. McCauley. 68, 69 State v. Macon County Court, 915 State v. Mayor, 68 State v. Mayor, etc., City of New York, 29 State v. Medberry, 68 State v. Milwaukee Gas Light Co.. 29 State v. Missouri Pac. Ry. Co., 1300 State v. Morris & Essex R. R. Co., 321, 1282 State v. Myers, 1146 State v. Nashville, C. & St. L. R. R. Co., 1301, 1307 State v. Nebraska Distilling Co., 501 State v. Northern Pac. R. R. Co., 1282, 1301 State v. Pierce, 126 State v. Powers, 1298 State v. Rice, 1055 State v. Roggen, 924 State v. Saline County Court, 46 State v. Second Jud. Dist. Court of Silver Bow County, 1123 State v. Shortridge, 128 State v. Smith, 296 State v. Standard Oil Co., 1178 State v. Stone, 1804 State v. The Mayor, 969 State v. Thome, 917 State v. Trustees of Union, 49 State v. Union Trust Co., 1801 State v. Van Home, 49 State v. Wabash, St. L. & Pac. Ry. Co., 1801 State v. Washington Social Library Co., 50 State v. Webber, 1282 State v. Winterbottom, 803 State v. Worth, 1262 State Bank v. Andrews. 381 State Bank v. Comegvs, 144 State Bank v. Fox, 76, 455 XC11 TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.] State Bank v. Holcomb, 172, 200 State Bank v. Kain, 599 State Bank of Troy v. Bank of the Capitol, 687 State Board of Agriculture v. Citizens' St. Ry. Co., 29, 65, 441 State Board of Assessors v. Paterson &R. R. R. Co., 1301 State, Bradley, v. Hammonton, 62 State of California v. Central Pac. R. R. Co., 1302 State, De Baun, Prosecutor, v. Smith, Collector, etc., 1296 State, Edison Phonograph Co., Prose- cutor, v. State Board of Assessors, 1286 State, Hoxsey, v. Mayor, etc., of the City of Paterson, 59 State, Padney, Prosecutor, v. Passaic, 1269, 1270 State, Smith, Prosecutor, v. Ramsey, Collector, 1298 State, Walls, Prosecutor, v. Mayor & Aldermen of Jersey City, 1270 State ex rel. v. Ai.en, 125 State ex rel. v. Board, etc., 800 State ex rel. v. Davis, 801 State ex rel. v. Yoxall, 844 State ex rel. v. Hannibal, etc., R. R. Co., 73 State ex rel. v. Marion County, 125 State ex rel. v. Nevada County, 907 State ex rel. v. Osawakee Township, 877 State ex rel. Quincy, Mo. & Pac. Ry. Co. v. Harris State ex rel. v. Reitz, 870 State ex rel. v. Schaack, 801 State ex rel. v. Sliek, 801 State ex rel. v. Standard Oil Co., 501 State ex rel. v. Trustees, 800 State ex rel. Attorney-General v. Ne- braska Savings Bank, 1143 State ex reL Bowen v. Adams County, 55 State ex rel. Bermadez v. Heath, 58 State ex rel. Carpenter v. Beloit, 49 State ex rel. C., C. & C. R. Co. v. Whitesides, 1008, 1010 State ex rel. Clinton County v. Hanni- bal & St. Joseph R. R. Co., 129 State ex rel. Copes v. Charleston, 49, 964 State ex rel. Dean v. City of Madison, 48 Stute ex rel. Dickinson v. Neely, 1009 State ex rel. Girardez v. Southern Bank, 643 State ex rel. Greeley County v. Milne, 797 State ex rel. Mavor, etc., v. Kirkley, 111 State ex rel. Page v. Smith, 144, 204 State ex rel. Phillips v. School Dist. No. 9, 883 State ex rel. Stow v. City Council of Montgomery, 953 State ex rel. Treadwell v. Commission- ers, 949 State ex rel. Vandiver v. Tolly, 68 State Freight Tax, 1268 State Railroad Tax Cases, 1278, 1303 State Savings Assn. v. Boatmen's Sav- ings Bank, 528, 641, 650, 661 State Sav. Assn. v. Nixon-Jones Printing Co., 583 State Tax on Foreign Held Bonds. 1291 State Tax on Railway Gross Receipts. 1294 State of Tennessee v. Davis, 575 Steamboat Co. v. Brockett, 321 Steamboat Co. v. Locke, 752 Steam Engine Co. v. Hubbard. 398 Steckcl v. Bank, 628 Steel Edge Stamping & Retinning Co. v. Manchester Savings Bank, 1141 Steele v. Russell, 682 Stein v. Mayor, etc., of Mobile, 47, 48, 909 Stein v. Mobile, 964 Steyer v. Davis, 490 Stephens v. Benton, 1018 Stephens v. Follett, 758 Stephens v. Fox, 394, 399 Stephens v. McNeill, 658 Stephens v. Monongahela Bank, 520, 528 Stephens v. Overstoln, 558 Stephens v. Railroad, 1228 Stephens, Receiver, v. Schuchmann, 711, 712 Sterling v. Parish of West Feliciana, 18 Sterrett v. Rosencrantz, 661 Stetson v. Kempton, 20, 2., 33, 34, 50 Steubenville & Ind. R. R. Co. v. North Township, 49 Steubenville v. Culp, 798 Stevens v. Anson, 46 Stevens v. Buffalo & New York City R. R. Co., 1082 Stevens v. Carp River Iron Company, 203 Stevens v. New York & Oswego Mid. R. R. Co., 1047, 1236 Stevens v. Rutland R. Co., 326 Stevens v. St. Mary's Training School, 445 Stevens v. Williams, 1146 Stevenson v. Bay City, 112, 571 Stewart's Appea'l, 471, 1173 TABLE OF CASES. XC111 [The references arete pages: vol. I contains pp. 1-707; rol. n, pp. 706-1907.] Stewart v. Board of Supervisors of Polk County, 49 Stewart v. City of Council Bluffs, 110 Stewart v. Dunham, 1150 Stewart v. Lansing. 980, 1002 Stewart v. Lchigh Valley It. R. Co., .Ml. -JI'J Stewart v. Otoe County, 786 Stewart v. St. Louis, Ft. S. & W. R. Co.. 167, 2.19.275 Stewart v. Smith, 697 Stewart v. Wyoming Rancbe Co., 294 Stidger v. Red Oak. 446 Stillwell v. Mayor, etc., of New York, 60 Stiz v. City of Indianapolis, 1271 Stobie v. Dills. 357. 889 Stockdale v. Wayland School District, 929 Stockholders of Bank of Abingdon v. Supervisors of Washington County, 1296 Stocking v. The State, 26 Stockle v. Silsbee, 128 Stockton v. Mechanics' Bank, 618 Stockton v. Mechanics & Labor. 8. Bank, 366 Stockton &. Visalia R. R. Co. v. Stockton, 49 Stockwell v. State ex rel., 792 Stokes v. Jersey Pottery Company, 150, 184, 198, 200, 201, 209 Stokes v. Stickney. 398 Stoller v. Coates, 643, 731 Stone v. Bank, 761 Stone v. Chisholm, 418, 557 Stone v. Hayes, 342 Stone v. Trust Company, 1105 Stoney v. American Life Ins. Co., 106 Stookey v. Hughes. 359 Storrs v. City of Utica, 121 Story v. Furman, 400 Stoudingcr v. City of Newark, 42 Stout v.Yaeger Milling Company, 102, 250 Stoutenburgh v. Hennick, 1267 Stover v Mitchell. 121 Stow v. Wyse, 98, 150 Stowe v. Bank of Cape Fear. 681 Stoystown & Greensburg Turnpike Road Co. v. Craver, 159 Straman v. North Baltimore Water Works Co., 1122 Strang v. Cook. 976 Stratton v. Allen, 263, 569, 1084, 1108, 1112 Straus v. Trotter, 880, 894 Strauss v. Eagle Ins. Co., 73, 74, 90. IT'.i Strauss v. Sage, 894 Street v. Maryland Cent. Ry. Co., 1192,1211 Strr.-t Ry. Co. v. Morrow, 1307 Strerterv. First Nat. Bank, 511,686 Stni-ht v. Junk, 818 Stri.-l, v. Cox, 22,874 Stringer's Case, 815 Strong v. Southworth, 772 Strong v. Spmul Strough v. Supervisors, 997 Stuart v. Boulware, 1232, 1233 Stuart v. Supervisors, 928 Sturdivant v. Hull. *59 Sturgeon v. Hampton, 128 Sturges v. Keith, 635 Sturges v. Knapp, 489 Sturges v. Stetson, 166 Sturtevant v. Liberty, 857 Stutz v. Handler , 1140 Stuy vesant Bank v. National Mechan- ics' Bkg. Assn.. 672 Succession of Kercheval, 657 Sugden v. Crossland, 259 Suit v. Woodhall, 337 Sullivan v. Lewiston Institution for Savings. 618 Sullivan v. Mitchell, 690 Sullivan v. Murphy, 74, 99 Sullivan v. School District, 140 Sullivan v. Triunfo Gold & Silver Mining Co., 168 Sumner v. Marcy, 92, 478, 517 Sunflower Oil Co. v. Wilson, 1198, 1200 Sun Mutual Ins. Co. v. Mayor, etc., of New York, 1306 Supervisors v. Bowen, 995 Supervisors v. Deyoe, 1051 Supervisors v. Schenck, 362, 980 Supervisors v. Stanley, 1298 Supervisors v. United States, 795 Supervisors, etc., of Hensley Town- ship v. The People, 71 Supervisors of Orleans v. Bowen, 121, 131 Supervisors of Marshall County v. Cook, 825, 904 Supervisors of Richmond County v. Ellis, 131 Supervisors of Schuyler County v. Bank of Havana, 609 Supervisors of Schuyler County v. Farwell. 824 Supreme Sitting of the Order of Iron Hull v. Baker, 1123 Susquehanna Bridge & Bank Co. v. General Ins. Co.. 102. 808 SutclilTe A: Bird v. McDowell. 657 Sutliff v. Hoard. He.. I^ike County, 835. 842. 869. 897, 927 SutlitT v. ( Me\ eland & Mahonins R. R. Co., I'M:: Sutro v. Pettit. 445 Sutro Tunnel Co. v. Segregated Belcher Mining Co., 76, 818 XC1V TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; v<*. II, pp. 708-1807.] Swan v. City of Arkansas City, 858 Swan v. North British Australasian Co.. 344 Swan Land & Cattle Co. v. Frank, 1139 Swan v. Clark, 1215 Swartwout v. Mechanics' Bank of New York, 599 S\v:i/.i'y v. Union Manufacturing Co., 210 Sweeney v. Easter, 682. 706, 744 Sweet v. City of Syracuse, 857 Sweet v. County Comrs. of Carver County, 376 Swentzel v. Penn Bank, 347, 367, 368 Swift v. Jewsbury, 547 Swift v. Smith, 1001 Swift v. Tyson, 982 Swift v. Whitney, 627 Symmes v. Union Trust Co., 263 Syracuse Savings Bank v. Town of Seneca, 993 T. Taft v. Brewster, 300 Tafft v. Pittsford, 446 Tagg v. Tennessee Nat. Bank, 521 Talbot v. Dent. 49, 901, 979 Talcott v. First Nat. Bank of Lamed, 600 Taliaferro v. Bank, 539 Talladega Ins. Co. v. Landers, 98 Talladega Ins. Co. v. Peacock, 91 Tallman v. Treasurer of Butler County, 1298 Tallmadge v. Fishkill Iron Co., 102, 166 Talmage v. Pell, 469 Talman v. Rochester City Bank, 96, 506 Tappau v. Bailey, 151 Tappan v. Bank, 227 Tappan v. Merchants' National Bank, 1296 Tash v. Adams, 33 Tatlock v. Louisa County, 124 Tatten v. Tisou, 484 Taxing District of Brownsville v. League, 954 Taylor v. Board of Supervisors, 898 Taylor v. Burlington, Cedar Rapids & Minn. Ry. Co., 1096 Taylor v. Callaway, 495 Taylor v. Chichester Ry. Co. 325 Taylor v. Henry & Bruscup, 630 Taylor v. Holmes, 316 Taylor v. Insurance Company, 1118 Taylor v. Miami Export Co., 76, 258 Taylor v. Newberne, 49 Taylor v. Philadelphia & Reading R. R. Co., 94 Taylor v. Plumer, 625, 626, 742, 751 Taylor v. Thompson, 35, 70, 964 Taylor v. Wilson, 658 Taylor v. Ypsilanti, 45 Taymouth v. Koehler, 144, 806 Tazewell Co. v. Farmers' Loan & Trust Co., 315 Tehan v. Bank, 734 Teitig v. Boesman. 151, 809 Telegraph Co. v. Texas, 1268 Templin v. Chicago, B. & P. R. Co., 156 Tennessee v. Davis, 720 Tennessee v. Whitworth, 1282, 1285, 1307 Terhune v. Bank of Bergen County, 711 Terhune v. Mayor, 798 Terrell v. Bank, 569 Terry v. Tubman, 1134 Texas & Pac. Ry. Co. v. Goay, 1232 Texas & Pac. Ry. Co. v. Marlor, 1049 Texas & P. Ry. 'Co. v. Southern Pac. Ry. Co., 1178 Thacher v. Comrs. of Jefferson County, 27, 57 Thacher v. King, 386, 387 Thayer v. Butler, 519, 756 Thayer v. Montgomery County, 824, 826, 946 Thayer v. Union Tool Co., 387 The Banks v. Poitiaux, 494 The Charitable Corporation v. Button, 301, 348, 364, 554 The Distilled Spirits, 337 The Floyd Acceptances, 152, 936 The Liquidators of Western Bank v. Baird, 364 The People v. Dupuyt, 70 The People v. Utica Insurance Co., 50 The State Freight Tax, 1293 The State, Muller, Prosecutor, v. Mayor & Council of City of Bayonne, 1269 The State, Raymond, Prosecutor, v. Mayor & Council of Borough of Rutherford, 1269 The State, Simmons, Prosecutor, v. City of Passaic, 1270 The State, Singer Mfg. Co. Prosecu- tors, v. Heppenheimer, 1292 Thew v. Porcelain Manufg. Co., 201 Third Nat. Bank v. Allen, 521 Third Nat. Bank v. Boyd, 537 Third National Bank v. Clark, 681 Thomas v. Brownville, etc., R. R. Co., 93, 263, 268, 278, 284, 451, 467, 478, 497 Thomas v. Cincinnati, N. O. & T. P. Ry. Co., 1210 Thomas v. Citizens' Horse Ry. Co., 487, 1054 TAliLE OF CASES. XCV [The reference* are to pages: vol. I contain* pp. 1-707; vol. II, pp. 708-1807.] Thomas v. Citv National Bank of Batting*, MS, 5o7 Thomas v < 'it y of Port Huron, 5 '1'h .mas v. City of Richmond, 4, 787 Thomas \. Ka>t TI-I,III-.V<-C. V. & 8. Kv. Co. (Cook, Intervener), U'lo Tli Unas v. I.dand, 901 Thomas v. .Minot, 1241 :aa.s v. .Morgan County, 899 Thomas v. 1'ioria A H. 1. Ry. Co. (West i rii Car Co., Intervener), l-Jl'.t. L222, 1240 Tli .is v. Railroad Co., 820 Thomas v. Railway Co., 1220 Thomas v. S \\cirt, 261 Thorns v. Western Car Co., 1240 Thomas Kane & Co. v. School District of Calhoiin, 11.1 Thompson v. Charnock, 1152 Thompson v. City of Peru, 39, 951 Thompson v. Giles, 615 Thompson v. Lambert, 77, 102, 469 Thompson v. Lumber Company, 1111, 1129 Thompson v. McKee, 193 Th impson v. New York & Harlem Hail road, 1050 Thompson v. Perrine, 1007 Thompson v. Rigps, 597, 598 Thompson v. St. Nicholas Nat. Bank, 540, 542 Thompson v. School District, 169 Thompson v. Sioux Falls Nat. Bank, 616 Thompson v. Stanley, 151, 351 Thompson v. Valley R. R. Co.. 1095 Thompson's Appeal, 623, 752 Thomson v. Bank of British No. America, 672 Thomson v. Harris, 1263 Thomson-Houston Electric Co. v. Capitol Electric Co. (Read, Inter- vener), 1044 Thomson v. Lee County, 4, 49, 71, 909, 946 Thomson v. Madison Building & Aid Assn., 497 Thorington v. Gould, 204 Thome v. Deas, 348 Thornton v. National Exchange Bank, 493, 511 Thornton v. St. Paul, etc., R. R. Co., 167 Thorp v. Wegefarth, 713 Thrasher v. Greene County, 129 Thurber v. Cecil Nat. Bank, 538 Ticonic Bank v. Johnson, 527, 640 Tiffany v. Nat. Bank of Missouri, 528, MB Tifft v. Bank, 562 Tifft v. City of Buffalo, 994 Tilden v. Sacramento Co., 118 TUlinghut v. Troy & Boston R. R. llti-j Tillotson v. City of Sagiuaw, 859 Tinlt-v v. Mclliiifrham Bay Boom Co., 236 Titus v. Cairo, etc.. R. R. Co., 182, 199 Titus v. Great Western Turnpike Co., 888, 884. :::{'; Titus v. Mabee, 1096 Tobey v. County of Mi-land, 1152 Tohin Canning Co. v. Frasrr, 272 Tod v. Kentucky I'nion Land Co., 79, 81, 83 Tod v. Kentucky Union Ry. Co. (Ros- serct al., brtervenero), r,'."ii. 1253 Todd County v. St. Paul, .M. A: M. Ry. Co., 1301 Toledo, Delphos & Burlington R. R. Co. v. Hamilton, 1247, 1248 Toledo, etc. R. R. Co. v. Hamilton, 1095, 1096 Tombigbee R. R. Co. v. Kneeland, 47* Tome v. Parkersburg Branch, 334 Tompkins v. Snltmarsh, 366 Tomlinson v. Branch, 12*2 Tomlinson v. Jessup, 1283 Tootle v. First Nat. Bank of Port An- geles, 490 Topeka Primary Assn. v. Martin, 156, 210 Toppan v. Cleveland, Col. & Cin. R. R. Co., 1052 Topping v. Bickford, 159 Torbett v. Eaton, 401 Torbett v. Goodwin, 408 Torrey v. Bank of Orleans, 251, 326 Torrey v. Dustin Monument Assn., 98, 150, 227 Tovey v. Culver, 894 Towle v. American Buildg., Loan & Inv. Society, 1123, 1126 Town v. Bank, 1115 Town Co. v. Morris, 490 Town Co. v. Swigart, 490 Town of Andes v. Ely, 1012 Town of Big Grove v. Wells, 852, 972 Town of Brewton v. Spira, 1012 Town of Bruce v. Dickey, 58 Town of Cabot v. Britt, 137 Town of Cherry Creek v. Becker, 978 Town of Cicero v. Clifford, 945 Town of Colona v. Eaves, 897, 972, 982 Town of Concord v. Robinson, 974 Town of Darlington v. Atlantic Trust Co., 1012 Town of Douglas v. Ariantic Savings Bank. 850 Town of Duancsburgh v. Jenkins, 094, 1007 XCV1 TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. H, pp. 708-1307.] Town of Durango v. Pennington, 113 Town of Eagle v. Kohn, 977, 978 Town of East Lincoln v. Davenport, '.:;:, Town of Enfield v. Jordan, 974 Town of Guilford v. Supervisors of Chenango County, 923 Town of Hackensack v. Swackhamer, 8 Town of Harwood v. Hamilton, 8 Town of Keithsburg v. Frick, 1005 Town of Lyons v. Chamberlain, 985 Town of Lyons v. Cooledge, 795, 796 Town of Middleport v. ^Itna Life Ins. Co., 973 Town of Alt. Vernon v. Patton, 58, 59 Town of Newport v. Batesville & B. Ry. Co., 438 Town of Odell v. Schroeder, 795 Town of Pana v. Lippincott, 879, 971, 974. 976 Town of Reading v. Wedder, 974 Town of Solon v. Williamsburgh Sav- ings Bank, 983, 985, 987, 990, 992, 993 Town of Springport v. Teutonia Sav- ings Bank, 992 Town of Venice v. Murdock, 56 Town of Weyanwega v. Ayling, 971 Town of Winamac v. Huddleston, 22, 874 Township v. County, 132 Township v. Gibboney, 135 Township of Bernards v. Morrison, 913 Township of Burlington v. Beasley, 54, 55, 917 Township of Pine Grove v. Talcott, 471 Township of Rock Creek v. Strong, 27 Township of Washington v. Coler, 972, 999 Tracy v. Talmage, 65, 514, 527 Traders' Nat. Bank v. Manufacturing Co., 1021 Traders' Nat. Bank of San Antonio v. Cresson, 523, 525 Tradesman's Bank v. Merritt, 639 Tradesmen's Bank v. Astor, 608 Tradesmen's Nat. Bank v. Lumber Co., 151 Trammell v. Pennington, 906 Transportation Co. v. Parkersburg, 1293 Travelers' Ins. Co. v. Township of Oswego, 974 Traver v. Board, etc., of Merrick County, 55, 917 Treadway v. Schnauber, 446 Treadwell v. Commissioners, 111 Tread well v. Salisbury Manufg. Co., 278, 305, 456, 473, 491, 1063 Treiciiler v. Berks County, 132 Trenton Mut. Life & Fire Ins. Co. v. McKelway, 91, 481 Trimmer v. City of Rochester, 1288 Tripp v. Swanzey Paper Co., 147, 152, 162 Trisconi v. Winship, 349 Trott v. City Insurance Co., 1152 Trott v. Warren, 158 Trowbridge v. Seaman, 627 Trust Company v. City, 955 Trust Co. v. Floyd, 368, 373 Trust Co. v. Morrison, 1222 Trust Company v. Shepherd, 1222 Trust Co. v. Souther, 1220, 1222 Trust Company v. Thomason, 1229 Trustees v. Greenough, 1183, 1232 Trustees, etc., v. Shoemaker, 49 Trustees of Belleview v. Holm, 446 Trustees of First Presbyterian Church in Newark v. National State Bank of Newark, 511 Trustees of Paris v. Cherry, 49, 446 Trustees of Schools v. Rautenberg, 357, 359 Trustees of Smith Charities v. Con- nolly, 580 Trustees of University v. Moody, 98 Try on v. White & Corbin Co., 234 Tucker Manufg. Co. v. Fairbanks, 359 Tuller v. Arnold, 151 Tunno v. Lague, 681 Turnbull v. Lumber Company, 1115 Turnbull v. Payson, 772 Turner v. Bank of Fox Lake, 648 Turner v. Chillicothe & Des Moines R. R. Co., 217 Turner v. Cruzen, 440 Turner v. First Nat. Bank, 511, 636, 711 Turner v. Richardson, 1203 Turner v. Woodson County, 54 Tuscaloosa Manufg. Co. v. Cox, 317 Tuskaloosa Cotton Seed Oil Co. v. Perry, 234 Tuttle v. Frelinghuysen, 711 Tutt v. Sand Hills Hotel Co., 1233 Twin-Lick Oil Co. v. Marbury, 168, 214, 254, 268, 270, 278, 2a5,'l084 Twiss v. Guaranty Life Assn. of Iowa, 469 Tyler v. E. & P. R. R. Company, 46 Tyler v. Hamilton, 1176, 1237 Tyler v. Savage, 291 Tyng v. Clark, 394 Tyson v. State Bank, 686 u. Underbill v. Gibson, 135 Underbill v. Santa Barbara Land, Building & Improvement Co., 99, 382 TABLE OF CASES. XCVll [The references are to pages: vol. I contain* pp. 1-707; vol. II, pp. 708-lWf.] rixli-rhill v. Sonora, 846 Union Bank v. Bagley, 176 Union Bank v. Board of Corare. of Town of Oxford, 1012 Union Bank v. Cochran, 689 Union "Bank v. Corcoran, 527 I ni. .n B.mk v. Jacobs, 75, 102 Union Hank v. Jones, 176 Union Bank v. Kansas City Bank, 1114 Union Bank v. Laird, 526 I'nion Bank v. Hidgely, 145 Union Bank v. State. 1307 Union Bank v. Tutt. 597 Union Bank v. United States Bank, 657 Union Bank v. Wando Mining & Mfg. Co., 562 Union Bank of Georgetown v. Mac-kail, 595, 596 Union Bank of Quincy v. Tutt, 638 Union Bridge Co. v. Troy & Lansing- burgh R. R. Co., 285 Union Gold Mining Co. v. Rocky Mt. Nat. Bank, 73, 102, 152, 191, 193, 648 Union Insurance Co. v. Keyser, 158 Union Loan & Trust Co. v. Southern California Motor Road Co., 1015, 1038, 1077, 1222, 1233 Union Mut. Life Ins. Co. v. Frear Stone Mfg. Co., 258 Union Mut. Life Ins. Co. v. White, 154, 194, 263 Union Nat. Bank v. Hunt, 493, 517 Union Nat. Bank v. Oceana County Bank, 645 Union Nat. Bank v. Rowan, 506 Union Nat. Bank of Chicago v. Goctz. 750 Union Pacific Railroad v. Commis- sioners, 917 Union Pacific Railroad v. Lincoln, 55 Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., 82, 458 Union Pac. R. R. Co. v. United States, 432, 815 Union School Furniture Co. v. School District No. 60, etc., 115, 440 Union School Township v. First Nat. Bank of Crawfordsville 133, 427, 698 Union Stock Yards Bank v. Gillespie, 808 Union Stock Yards Nat. Bank v. Duinond, 607 I'nion Township v. Gibboney, 24 Union Trust Co. v. Illinois Midland Hy. Co., 1207, 1212, 1222 In ion" Trust Co. v. Missouri. Kansas, etc., Ry. Co., 1103 Union Trust Co. v. Souther, 1239 xiii Union Trust Co. of New York v Nevada & O. R R. Co., 1044 Union Turnpike Co. v. Jenkins, 163 Union Water Co. v. Murphy's Flat Flaming Co., 478, 494 United Electric Securities Co. v. Louisiana Electric Light Co., 1123 United Lines Tel. Co. v. Boston Safe Deposit & Trust Co., 470 United Lines Telegraph Co. v. Safe Deposit & Trust Co., 458 United Society of Shakers v. Under- wood, 241, 553, 685 United States v. Allen, 776 United States v. Babbit, 1058 United States v. Bank, 674 United States v. Britton, 778, 777. 778 United States v. City Bank of Colum- bus, 111, 177, 570, 578, 588 United States v. Dandridge, 233, 80& United States v. Dodge County, 917 United States v. Eno, 778 United States v. Eque, 776, 778 Uiflted States v. French, 779 United States T. Graves, 779, 781 United States v. Hughitt, 776 United States v. Linn, 990 United States v. Means, 553, 776 United States v. Mooney, 715 United States v. National Exchange Bank, 673 United States v. New Orleans. 795 United States v. New Orleans & O. R. R. Co., 1102 United States v. Northway, 773, 774, 778 United States v. Potter, 777. 778, 782 United States v. Railroad Co., 1276, 1277 United States v. Shaw, 715 United States v. Trans-Missouri Freight Assn., 1178 United States v. Union Pac. R. R. ( '< . . 301 United States v. Western Union T I Co , 475 United States Bank v. Caracal, 61 United States Bank v. Dunn, 177 United States ex rel. v. Board, etc., 800 United States ex rel. Huidekoper v. Macon County Court, 808 United States ex rel. Portsmouth Sav- ings Bank v. Board of Auditors of the Town of Ottawa, 795, 796 United States Electric Power & Light Co. v. State, 1800 United States Express Co. v. Ellyson, lays United States Rolling Stock Co. v. Atlantic & G. W. R Co., 233, 250 XCV111 TABLE OF CASES. [The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 70&-1807.] United States Trust Co. of New York v Wabash, St. Louis & Pac. Ry. Co., 1097 United States Trust Co. v. Mayor, etc., of New York, 1288, 1290 Upton v. South Heading Bank, 512 Upton v. Tribilcock, 1028, 1108 Upton v. Vail, 294 Usher v. Raymond Skate Co., 78 Utica Water Works Co. v. City of Utica, 66 V. Vaglino v. Bank of England, 344 Vafi v. Hamilton, 1067 Vail v. Newark Savings Institution, 711 Vairin v. Hobson, 643 Van Allen v. Assessors, 1274. 1296 Van Brocklin v. Tennessee, 1277 Van Cott v. Van Brunt, 275, 1031, 1033 Van Courtlandt v. Underbill, 348 Vandall v. Dock Company, 88 Vandegrift v. Delaware R. R. Co., 805 Vanderpoel v. Gorman, 1112, 1290 Vanderwerken v. Glenn, 772 Van Dresser v. Navigation Co., 465 Vane v. City of Evanston, 1269 Vane v. Newcombe. 1251 Van Epps v. Van Epps, 251, 263 Van Etten v. Van Eaton, 416 Van Hoffman v. City of Quincy, 909 Van Leuven v. First Nat. Bank of Kingston, 634 Van Slyke v. Wisconsin, 1296, 1299 Van Vechten v. Terry, 1158 Van Vleet v. Jones, 410 Van Weel v. Winston, 1142 Van Wagoner v. Gas Ligbt Co., 712 Van Wart v. Wooley, 681 Van Weel v. Winston, 290 Vaughn v. School Dist. No. 3, etc., 1264 Veazie Bank v. Fenno, 1274 Ve&zie Bank v. Nims, 702 Veazie Bank v. Winn, 659 Veeder v. Baker, 398 Veeder v. Mudgett, 400 Venango Nat. Bank v. Taylor, 713, 720 Vermilye v. Adams Express Com- pany, 1043 Vermont & Canada R. R. Co. v. Ver- mont Central R. R. Co., 487 Vermont Mining Co. v. Windham County Bank, 583 Verplanck v. Mercantile Insurance Co., 76, 305 Verzan v. McGregor, 205 Vicksburg & Meridian R. R. Co. v. Bradfey, J282 Vicksburg 8. & T. R. R. Co. v. Ouachita, 49 Victory Webb Printing Co. v. Beecher, 390, 396 Vidal v. Girard'sExcrs., 494 Viets v. Union Nat. Bank of Troy, 610 Vigers v. Pike, 168 Vilas v. Milwaukee, etc., Railway, 1.73 Vilas v. Page, 1212, 1215 Village of Oneida v. Board of Super- visors of Madison County, 996 Vincent v. Chapman, 350 Vincent v. Inhabitants of Nantucket, 33. 790 Vincent v. Lincoln County, 847 Vincent v. Mecosta County Supervis- ors, 128 Vincent v. Snoqualmie Mill Co., 1081 Vining v. Bricker, 520 Vionet v. Municipality No. 1, 30 Virginia v. Chesapeake & Ohio Canal Co., 1014, 1047 Virginia Development Co. v. Crozer Iron Co., 1244 Virginia, Tenn. & Carolina Steel & Iron Co. v. Wilder, 1123 Volger v. Siddner, 1271 Von Roun v. Superior Court, 726 Von Schmidt v. Widber, City Treas- urer, 32 Voris v. Renshaw, 210 Vosburgh v. Diefendorf, 620 w. Wabash, St. Louis & Pac. Ry. Co. v. Ham, 1109 Wabash, St. Louis & Pac. Ry. Co. v. Illinois, 1293 Wabash, St. Louis & Pac. Ry. Co. v. McKissock, 1100 Wachob v. Bingham School District, 138 Waco Water & Light Co. v. City of Waco, 442 Wade v. Am. Colonization Society, 494 Wade v. Chicago, Springfield & St. Louis R. R. Co., 1040, 1095 Wade v. Donau Brewing Co., 1100 Wagner v. Cleveland & Toledo Rail- road, 1221 Wahl v. Milwaukee, 109 Wahlig v. Standard Pump Manufg. Co., 78, 223 Wait v. Nashua Armory Assn., 182 Waite v. Dowley, 733 Waite v. Mining Company, 162, 247 TAKI.K . M MX [The references are to paged: vol. I contains pp. 1-707; vol. II, pp. 708-1807.] Wakefleld Bank v. Truesdell, 571 Wakeman v. Dalley, 410, 558 Waltmni \. [ngilby, 294 Waldo v. Chicago, St. P. & Fond du Lac H. II Co., 95. 468 Walk. TV. Hunk of State of New York, 696 \Valk.-r v. Bin-hard, 885 Walker v. City of Cincinnati, 58, 877, 964 Walk.-r %-. D.-troit Transit H. Co., 148, 162 Walk, i v. Linn County, 129 Walker v. Miller, 1120 Walker v. Oswald, 808 Walker v. Richards, 734 Walker v. St. Louis Nat. Bank, 596 Wall v. Monroe County, 1004 Wall v. Spurlock, 597 Wallace v. Agry. 702 Wallace v. Exchange Bank of Spencer, ris-j Wallace v. Loomis, 1093, 1212 Wallace v. Mayor, etc., of San Jose, 5, 63, 445 Wallace & Sons v. Walsh, 391 Walling v. Miller, 726, 1120 Wallis v. Johnston School Township, i:::i, 134. 426, 427 Walnut v. Wade, 946 Walsh v. Barton, 1096 Walsh v. Dart, 702 Walter v. Kirk, 641 Walt era v. Anglo-American Mortgage & Trust Co., 1191 Walters v. Town of Lake, 1269 Wul t lu-r v. Seven Corners' Bank, 1123 Walton v. Godwin, 408, 411 Walton v. Hake, 249 Walton v. Oliver, 872 Walton v. Rilcy, 54 Wai worth County Bank v. Farmers' Loan & Trust Co., 180, 182, 236 Ward v. Allen, 670 Ward v. Davidson, 245, 262, 278 Ward v. Johnston, 488 Wardcll v. Railroad Co., 242, 243, 259, 268, 275, 284 Warden of St. James v. Rector, etc., Church of the Redeemer, 288 Warder, Bushnell & Glesner Co. v. Jock. 470 Ware v. Grand Junction Water Works Co.. 300, 348 Wartield v. Canning Company, 1074 Warner v. De Witt County Nat. Bank, BOB Warner v. Littlefleld, 1081 Warner v. Martin, 589 Wnrnerv. Mower, 1112 Warren v. First Nat. Bank of Colum- bus, 1115, 1117 Warren v. Cilinan. 571 Warren v. Ocean Insurance Co., 144 Warren Count}' v. Marcy, 1037 Warren County Agr. Joint Stock Co. v. Barr. -J ; Warrensburg Co-op. Building v. Zoll, 650 Wasatch Mining Co. v. Jennings, '.2U3 Washburn v. Hlake, 580 Washburn v. Board, etc., 81 Washington v. Lewis, 571 Washington County Court v. Thomp- son, 127 Washington Mut. Fire Ins. Co. v. Seminary. 45. 184 Washington "National Bank of Tacoma v. Eckels, 714 Washington, Ohio & W. R. R. Co. v. Lewis, 1176 Washington Savings Bank v. Butch- ers', etc.. Bank, 198 Wasson v. Hawkins, 023, 624 Waterbury v. City of Laredo, 64 Waterhouse v. Comer, 1208 Waters v. Ouimby, 417 Waters v. Trovillo, 57 Watertown v. Cady, 48 Waterworks v. Yeomans, 1051 Watson v. Bennet, 575 Watson v. New Jersey Chemical Co., 1144 Watson v. Sutherland, 874 Watson v. Tarpley, 982 Watt's Appeal, 88, 244, 245, 283, 802, 817 Watts v. Shipman, 636 Watts- Campbell Co. v. Yucngling, 490, 822 Waverly Company v. Worthlngton Company, 1123 Waxahachie Nat. Bank v. Vickery, 567 Waymirc v. Powell, 122 Wayne County v. Benoit, 798 Wayne Pike Co. v. Hammons, 279, 281, 315 Wear v. Lee, 660 Weatherford, M. W. & N. W. R. Co. v. Granger, 234, 300 Webb v. Spokane County, 283 Webber v. Williams College, 146, 227 Weber v. Ohio & Mississippi Ry. Co., 1271 Weber v. Spokane Nat. Bank, 509 Webster v. Howe Machine Co., 464 Webster v. School District, 139 Webster v. Upton, 763. 1O Webster ('. unity v. Taylor, -IT.' Weckler v. First Nat. Bunk of 1 lagers- town, 508 Weeks v. Love. 880 TAJiLJi OF CASES. [Tire references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.) Weeks v. Silver Islet Consolidated i "Western Union Telegraph Co. v. Mas- Mining Co., 193 Weeks v. Texarkana, 799 Weiner v. Sturgis, 1131 Weirick v. Manoning County Bank, 608 Weismer v. Village of Douglas, 43, 44 Wejsser v. Denison, 604, 673, 679 Welch v. Sage, 1014 "Weld v. Gorham, 690 Welles v. Graves, 557, 558 Welles v. Stout, 772 Welhesburg, etc., Co. v. Young, 74 Wells v. Jewett, 287 Wells v. Morrow. 569 Wells v. Supervisors, 71, 872, 920, 1000 Wells v. Town of Salina, 8 Welsh v. Ferd Heim Brewing Co., 470 Welsh T. German- American Bank, 667, 668, 679 Welsh v. St. Paul & Pac. R. R. Co., 1047, 1048 Welton v. Missouri, 1267 Wentworth v. Lloyd, 168 Wentworth v. Whittemore, 69 Werk v. Mad River Valley Back, 697 Werner v. Murphy, 1204 Wesley Church v. Moore, 198 West v. Caroden, 268 West v. City of Utica, 112 West v. Errol, 135 West v. First Nat. Bank of Elmira, 628 West v. Menard County Agr. Board. 488 West v. St. Paul National Bank, 682 Westburg v. City of Kansas, 798 Westchester Bank v. Donner, 521 Westchester Gas Co. v. County of Chester, 1266 Westchester, etc., R. R. Co. v. Jack- son, 485 Westerfield v. Radde, 103, 182, 192, 223, 392 Western Bank of Missouri v. Gilstrap, 169 Western College of Medicine v Cleve- land, 446 Western M. R. Co. v. Franklin Bank, 334 Western Organ Co. v. Reddish, 489 Western R. R. Co. v. Bayne, 167, 182, 193, 260 Western Saving Fund Society of Phila- delphia v. City of Philadelphia, 29 Western Union v. Smith, 359 Western Union Telegraph Co. v. Alabama 1268 Western Union Tel, Co. v. American Union Tel. Co., 1178 sachusetts, 1294 Western Union Telegraph Co. v. Pen- dleton, 1293 Wescern Union Telegraph Co. v. Texas, 1293 Western Union Telegraph Co. v. Yopst, 155 Weston. v. City of Syracuse, 30, 69 Weston v. Charleston, 1276 West Salem Land Co. v. Land Co., 234 West St, Louis Sav. Bank v. Shawnee Co. Bank, 250, 568, 571, 576, S79, 588 West School District v. Merrills, 790 West Virginia Transportation Co. v. Ohio River Pipe Line Co., 1178 Wetherbee v. Fitch, 146, 190, 191 Wetmore v. Railroad Company, 1158 Whaley, etc., Co. v. Green, 299 Wheeler v. Alton, 140 Wheeler v. County of Wayi^e, 5 Wheelei v. Northwestern Sleigh Co., 816 Wheeler v. Reed, 359 Wheeler v San Francisco & A R. Co., 819 WheelocK v. Kost, 709, 757, 772 Wheelwright v. 8t. Louis, N. O. & O. Transportation Co., 1042, 10TO, 1 A 56 Whelan v. McCreary, 569 Whelen's Appeal, 955 Whelpdale v. Cookson, 243 Wherry v. Hale, 512 Whetstone v. Ottawa University, 88, 461 Whilden v. Bank, 655 WYiita'Ker v. Grummqnd, 162 Whitaker v. Hartford, Prov. & F. R. R. Co., 1048 Whitaker v. Kilroy, 156, 210, 233 WhiiaKer v. Masterton, 393, 415 Whitbecfc v. Mercantile Bank, 757 White v. City of Rahway, 114 White v. Hosford, 385 White v. Knox, 727, 729, 759 White v. Madison, 369, 372 White v. Mechanics' Nat. Bank, 667 White v. National Bank, 706, 744 White v. People, 1268 White v. Syracuse & Utica R. R. Co., 76 White v. Vermont & Massachusetts Railroad, 1000, 1014, 1043 White v. Westport Cotton Manufg. Co., 150, 152, 157, 193 White, etc., Manufg. Co. v. Pette Im- porting Co., 254, 274, 1087 Whitchead v. Vineyard, 1098 White Mountains Railroad v. White Mountains (N. H.) Railroad, 245 TABLE OF CASES. Cl [The reference* nra to page*? ToL I contains pp. 1-707: vol. II, pp. 704-1387.] White-side v. United States, 448 White Water Valley Canal Co. v. Val- k-tte, 1014, 1008 Whiting v. Railroad Co., 49 Whiting v. Town of Weot Point, 1264 Whiting v. Wellington, 180, 827 Whitman Mowing Co. v. Baker, 494 Whitiiey v. Butle.-, 766, 768 W ' itnev T. Cammnnn, 392 Whitney v. Fairbanks. 808, 818 Whitney v. National Bank of Brattle- boro, 684, 686 Whitney v. South Paris Manufg. Co., 148 Whitney T. Union Trust Co.. 1071 Whituey Arms Co. v. Barlow, 894. 3!!6, 898, 899, 415, 467, 469, 489, 495, 497, 942 WlUtaker v. Amwell Nat. Bank, 1085, 1086, llfiO WhiUenton Mills v. Upton, 499, 501 Whitwell v. Johnson, 685 Whitwell v. Warner. 150 180 1084, 1108, 1112 Whyte v. Mayor, etc., 59 Wi.-hita Nat. Bank v. Maltby, 607 Wickens v. Foster, 413 Wirkersham v. Chicago Zinc Co., 570 Wk-kham v. Hull. 769 Wiggins v. Burkham, 673, 676 Wiggins Ferry Co. v. East St. Louis, 1293 Wiggins Ferry Co. v. Ohio & Missis- sippi Ry. Co., 1174, 1221 Wilbur v. Lynde. 196 Wilcombe v. Dodge, 641 Wil.-ox v. Bickel. 316 Wild v. Bank of Passamaquaddy, 176 Wild v. New York, etc., M. Co.. 234, 188 Wile & Brickner Co. v. Rochester & K. F. Land Co., 157, 167, 260 Wiles v. Suydam, 898, 400 Wiley v. Silliman, 972 Wiley v. Starbuck, 530, 534 Wilhelm v. Cedar County, 124 Wilkins v. State, 1272 ' Wilkinsburgh Borough v. Home for Aged Women, 1266 Wilkinson v. Albany, 135 Wilkinson v. Babbitt, 858 Wilkinson v. Bauerle, 272, 356, 1084, li W8, 1112, 1114 Wilkinson v. City of Peru, 950 Wilkinson v. Johnson, 670 Willamette, etc., Co.v. Bank of British Columbia, 478 Willard v. D.-nise, 239 Willard v. Killiugworth, 5 Willard v. NY\vh'ur\ port, 88, 85 Willeta v. 1'hu-iiix Bank. 051 Wilk-tts v. Paine. 605, 648, 659 Williams v. American Bank, 1241 Williams v. Cheney, 296 Williams v. I)..rri-r, 676 Williams v. Hood, 661 Williams v. Jackson County Patrouj of Husbandry, 247 Williams v. Jones, 254 ".Villlams v. McKay. 554 Williams v. Manufacturing Co., 296 Williams v. Miami Powder Co., 857 Williams v. Morgan, 1184 Williams v. People, 911, 940 Williams v. Riley, 865 Williams v. Town of Albion, 22 Williams v. Town of Roberts, 876, 963 Williams v. Town of Duanesburgh, 1007 Williams v. State Board of Assessors, 1302 Williams v. Uncompahgre Canal Co., LSI Williams v. Western Union Tel. Co., 815, 1289 Willluns v. Wood. 294 Williamsburg City Fire Ins. Co. T. Frothingham, 1071 Williamsburprh Sav. Bank v. Town of Solon, 987 Williamson v. Keokuk, 852 Williamson v. Wash. City. Va. Mid. & Great Southern R. R. Co., 1239 Williamson. Trustee, v. New Jersey Southern Railroad, 1082, 1248 Willim v. Bernheimer, 857 Willink v. Morris Canal & Bkg. Co., 1054, 1096, 1097 Wilmington & Weldon Railroad v. Alsbrook, 1282 Willis v. Philadelphia & Darby R. R. Co., 338, 1079 Willis v. St. Paul Sanitation Co., 114, 236 Williston v. Mich. So. & No. Ind. R. R. Co., 485 Willmarth v. Crawford, 74 Willoughby v. Chicago Junction Rys. & Union Stock-Yards Co., 456, 503 Wilmer v. Railroad Company, 1195 Wilmington, O. & E. C. R. R. Co. v. Board of Comrs, Of Onslow County, 948 Wilson v. Bank, 588 Wilson v. Bcckwith. 1098 Wilson v. Boyce, 1098 Wilson v. Brett. 348 Wilson v. City Council, 1012 Wilson v. Coburn, 622 Wilson v. Dawson, 636 WiUou v. Gaines. 1807 Cll TABLE OF CASES. [The references are to pages: vol. I Wilson v. Kings County Elevated R. R Co., 238 Wilson v. M. E. R. Co., 342 Wilson v. Rocke, 620 Wilson v. Salamanca, 880, 935, 938 Wilson v. Supervisors. l',VH Wilson v. Union Savings Assn., 973 Wilson v. Williman, 641 Wilson Mfg. Co. v. Schwincl, 394 Wilson Sewing Machine Co. v. Boy- ington. 153, 195 Winchester v. Baltimore & Susque- hannaR. R. Co., 154 Winchester v. Railroad Co., 570 Wind v. Fifth Nat. Bank, 671 Windham Provident Inst. v. Sprague, 387 Winn v. City Council of Macon, 53 Winona v. Minnesota Ry. Constr. Co., 961 Winsor v. La Fayette County Bank, 153 Winter v. Bank of New York, 602 Winter v. City Council of Mont- gomery, 48, 51, 52, 950 Winters v. Hub Mining Co., 300 Winton v. Little, 509 Wisconsin v. Pelican Insurance Co., 413 Wisconsin Central R. R. Co. v. Corn- stock, 1282 Wiser v. Blachly, 991 Witherow v. Slayback, 397 Witter v. Grand 'Rapids Flouring Mill Co., 821 Witters v. Bowles, 558, 771 Wolf v. Aroninus Copper Mine Co., 470 Wolff v. Walter, 681 Wood v. Commissioners of Oxford, 906, 974 Wood v. Dummer, 1106, 1113, 1133 Wood v. Guarantee Trust & Safe De- posit Co., 1046, 1246, 1256, 1260 Wood v. Holly Manufacturing Co., 1100 Wood v. Oregon Development Co. 1126 Wood v. Whelen, 163, 236, 1075, 1100 Wood v. Wiley Construction Com- pany, 151 Woodbridge v. City of Duluth, 862 Woodhall v. Rosenthal, 1101 Wood Hydraulic Hose Mining Co. v. King, 92 Woodin v. Frazee, 656 Woodley v. Town Council of Clio, 1012 Woodroof v. Howes, 273 Woodruff v. Comrs. of Noble Countv 123, 442 Woodruff v. Merchants' Bank, 656 contains pp. 1-707; vol. II, pp. 706-1807.] Woodruff v. Plant, 658 Woodruff v. Okalona, 1001 Woods v. Board of Supervisors of Madison County, 995 Woods v. Lawrence County, 904 Woods v. Louisiana, 857 Woods v. People's Bank, 509 W. & Mt. St. T. R. Co. v. Clark County Court, 46, 899 Woodstock Iron Co. v. Richmond & Danville Extension Co., 268 Woodward v. Reynolds, 874 Woolverton v. Taylor, 403, 1124 Worcester v. Railroad Company, 958 Worcester Nat. Bank v. Cheeney, 510 Workhouse v. Moore, 157, 166 Worthern v. Griffith, 1111 Wray v. Insurance Company, 754 Wright v. Bundy, 471 Wright v. First National Bank, 1081 Wright v. Hughes, 89, 97, 1075 Wright v. Pipe Line Co., 1079 Wright v. Oroville Gold, Silver . Moody 's Exrs., 25 Iowa, 163; Nichol v. Mayor, etc., 9 Humph. 252; Leonard v. Canton, 35 Miss. 189; 2] PUBLIC CORPORATIONS. has no general authority to exchange promises with other cor- porations or persons ; its contracts to be valid, must be within the scope of the authority conferred upon it by law and for munici- pal purposes. 1 A municipal corporation, as a general rule, can- not incur any liability not authorized by the statute or charter by which it is created. 3 Counties, in the absence of legislative authority, have no power to borrow money and execute their obligations for the loan, notwithstanding a purpose to apply the money to the use of the public. 8 The statutory grant in Kansas to county commissioners to borrow money to meet current expenses, when a deficit exists in the county revenue, only author- izes a borrowing when the deficit has actually occurred. 4 2. Distinction between public and private corporations. Political corporations, in their organization and purposes, are essentially different from private corporations. The former are created to aid in the government of the people, the latter to pro- mote trade, manufactures and a variety of other interests. Pri- vate corporations are usually endowed with all the powers and rights of an individual, so far as they can be conferred. And the power to contract debts and to issue evidences of the same is an incident equally attending their creation. When authorized to perform an act, unless restricted by the charter, they may employ the means and perform the act in the same manner that might be done by a private individual. This is necessarily so to effectuate the purpose of their foundation with most private corporations. Municipal corporations, however, being created for purposes of government, and authorized as it were to exercise, to a limited extent, a portion of the power of the state government, have Douglass r. Placerville, 18 Cal. 643; Argenti . San Francisco, 16 Cal. 255, 282; Wallace r. San Jose, 29 Cal. 180; City of Lafayette . Cox, 5 Ind. 88; Bank t>. Chillicothe, 7 Ohio, 31, pt. II; Collins r. Hatch, 18 Ohio, 523; Kylet. Malin, 8 Ind. 34; Willard t>. Killing- worth, 8 Conn. 247; Brady c. Mayor, etc., 20 N. Y. 812; Hodges e. Buffalo, ii DC nio, 110; Halstead r. Mayor, etc., 8 N. Y. 480; Boom t>. Utica, 2 Barb. 104. COOLEY, J., in Thomas r. City of Port Huron, (1878) 27 Mich. 820 Wheeler r. County of Wayne, (1890) 132 111. 599; s. c.,24 N. E. Hep. 625, affg. 31 111. App. 299; Cook County t>. McCrea, 93 111. 236; City of Cham- paign v.Harmon, 98 111. 491; Schott t>. People, 89 111. 195; People . Vil- lage of Crotty, 93 111. 180. * Crittcnden County Court r. Shanks, (1888) 88 Ey. 475; 8. c., 11 8. W. Rep. 468. 4 Lewis c. Comanche County, 35 Fed. Rep. 843. 6 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 3 always been held to act strictly within their charter. It is to them their fundamental law, and their power is only co-extensive with the power granted. Not being essential to the purposes and object of their creation, without an express grant of power for the purpose, they have no authority to contract debts, binding upon the body or individual residing within their limits. Such a power being unusual when they are created, and usually being conferred, if at all, by special enactment, and all persons familiar with the fact, it is but natural that those who deal with them, or in their obligations, should see to it that the body possesses the power to bind itself for their payment. On the other hand, the object of private corporations usually renders it necessary that they should transact such business as may involve the necessity of incurring debt. 3. Borrowing money. In a case arising in Ohio, frequently cited as authority, the Supreme Court of that state held that a town corporation, invested with the powers usually conferred upon such bodies, could enter into a contract for a loan of money to be used by the town, which would bind the corporation for repayment, although no express power to borrow money be given in the law incorporating the town. 1 The court upheld the 4 1 President, etc., Bank of Chillicothe be, as is insisted by counsel, a substan- ce. Mayor, etc., Town of Cbillicothe, tial legislative power, or, according to (1836) 7 Ohio (Pt. II) 31. It was said my apprehension of tbe subject, an in- by HITCHCOCK, J., delivering tbeopin- cident to legislative power, and, if it ion for the court, after referring to became necessary for the safety and certain provisions in the charter of the convenience of the town, or to carry town: "From these extracts it will be into effect the power granted to pur- seen that this corporation, as by that chase real or personal estate, or to law constituted, had legislative power; erect or repair public buildings, to bor- this power, it is true was restricted to row money, there could be no objec- such powers as should seem necessary tion to passing a law or ordinance to for the internal safety and convenience that effect. When passed, it would be of said town of Chillicothe, and re- obligatory on the corporation, and the stricted, too, so far that the laws made money procured would constitute a and published should not be contrary debt which the corporation must dis- to the laws of the state or of the United charge. Such law would contravene States. It had the power further ' to no principle of the Constitution or laws purchase, receive, possess and convey of the state or of the United States, or any real or personal estate for the use any principle contained in the charter of the town, to erect and repair public of incorporation. To effect other sub- buildings for the benefit of said town,' jects [objects?] than those specified in etc. If the power to borrow money the charter, money could not with pro- 4] PUBLIC CORPORATIONS. 7 power of the corporation to borrow money as incident to the powers expressly granted in the charter of the town. But a municipal corporation in Ohio lias no power to borrow money except in conformity with the statute of that state, which pro- vides that "all bonds issued under authority of this chapter shall express upon their face the purpose for which they were issued, ;m. Swack- hamer, (1874) 37 N. J. Law, 191. BEAS- LEY, Ch. J., in an elaborate opinion, discussed the question in the follow- ing language: " At the present time it seems to be generally conceded that a private corporation, constructed with a view to pecuniary profit, has, by implication, when not in this particu- lar specially restricted, the power in question. The law was so held in this state, in the case of Lucas v. Pit- ney, 27 N. J. Law, 221, and the same rule has been repeatedly recognized in other decisions. And this result is the appropriate product of the princi- ple that corporate powers which are the necessary accompaniments of pow- ers conferred, will be implied. In these instances the ability to borrow money is so essential that without it the business authorized could not be conducted with reasonable efficiency, and as it cannot be supposed that it was the legislative intent to leave the company in so imperfect a condition, the inference is properly drawn that the power to raise money in this mode is inherent in the very constitution of such corporate bodies. Such a deduc- tion is simply, in effect, a conclusion that the lawmaker designed to author- ize the use of the means fitted to ac- complish the purpose in view. It has been often said that the means which can be thus raised up by implication must be necessary to the successful prosecution of the enterprise, and that the circumstance that they are conven- ient will not deputize their introduc- tion. But the necessity here spoken of does not denote absolute indispen- sableness, but that the power in ques- tion is so essential that its non-existence would render the privileges granted practically inoperative or incomplete. PUBLIC CORPORATIONS. 6. Issue of negotiable securities. A majority of the Supreme Court of the United States, while conceding that vouchers for money due, certificates of indebtedness for services rendered or for property furnished for the uses of a municipality, orders or drafts drawn by one city officer upon another, or any other device of the kind used for liquidating the amounts legiti- mately due to public creditors, are, of course, necessary instru- ments for carrying on the machinery of municipal administration and for anticipating the collection of taxes, looked upon the investing of such documents with the character and incidents of commercial paper so as to render them in the hands of lona fide holders absolute obligations to pay, however irregularly or fraud- It is consequently obvious that a pre- sumption, resting on such a basis as this, must spring up in favor of al- most the entire mass of commercial and manufacturing corporations, for without the franchise to effect loans the chartered business could be but imperfectly transacted. And, yet, even in such instances, the usual in- ference that such an implied power exists may be repelled by the language of the particular charter or the pecu- liar circumstances of the case. In a word, the rule of law in question is nothing but the discovery, by the courts, of the legislative intent, such intent having been ascertained by a construction of charters, as applied to the subject-matters. Taking this as the ground of our reasoning I am at a loss to perceive how it can be inferred that a power to borrow money is an appendage to the usual franchises given to municipal corporations. Such a right cannot, in any reasonable sense, be said to be necessary within the meaning of that term as already defined. Under ordinary circum- stances it is not certainly indispensable as common experience demonstrates. In the great majority of instances the municipal affairs are, with case and completeness, transacted without it. I do not wish to be understood as indi- 2 eating that under certain special con- ditions an opposite deduction may not be legitimately drawn. It is plain that it is practicable to impose a duty on a municipality requiring the imme- diate use of sums of money, and in such a situation the inference may be- come irresistible that it was intended that funds were to be provided by loans. My remarks are to be restricted to that class of cases where charters arc granted containing nothing more than the usual franchises incident to municipal corporations, and under such conditions it seems clear to me that the power to borrow money is not to be deduced. I have already said that it does not appear to be a necessary incident to the powers granted, for such powers can be readily and efficiently executed in its absence. It would be to fly in the face of all experience to claim that the ordinary municipal operations cannot be efficiently carried on except with the assistance of borrowed capital. Without any help of this kind, it is well known that our towns and cities have long been, and arc now being, improved and governed. For the at- tainment of these ends it has not gen- erally been found necessary to resort to loans of money. The supplies de- rivnl annually from taxation have 10 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ ulently issued, as an abuse of their true character and purpose ; as having the eftect of converting a municipal organization into a trading company and putting it in the power of corrupt officials to involve a political community in irretrievable bankruptcy. They held that no such power legally existed, unless conferred by legislative enactment, either express or clearly implied. 1 The been found amply sufficient for these purposes. Consequently I am unable to perceive any necessity to borrow money, under these conditions, from which the gift of such power to bor- row is to be implied. It undoubtedly is clear that if, as has been asserted, the ends of the municipal charter can be conveniently reached, without a re- sort to the device of raising money by loan, there is not the least legal basis for a claim of the power to obtain funds in that way. Granted the fact that the charter can be executed with reasonable ease and with completeness, the conclusion is inevitable that the power in question cannot be called into existence by intendment, and, as I claim the fact to exist, I must, of necessity, reject the right of implica- tion in question." 1 Mayor v. Ray, (1873) 19 Wall. 468. Mr. Justice BRADLEY, in the opinion delivered by him, said: " There are cases, undoubtedly, in which it is proper and desirable that a limited power of this kind should be conferred, as where some extensive public work is to be performed, the expense of which is beyond the immediate re- sources of reasonable taxation, and ca- pable of being fairly and justly spread over an extended period of time. Such cases, however, belong to the exercise of legislative discretion, and are to be governed and regulated thereby. Where the power is clearly given, and securities have been issued in con- formity therewith, they will stand on the same basis and be entitled to the same privileges as public securities and commercial paper generally. But where the power has not been given, parties must take municipal orders, drafts, certificates and other documents of this sort at their peril. Custom and usage may have so far assimilated them to regular commercial paper as to make them negotiable; that is, transferable by delivery or indorsement. This quality renders them more convenient for the purposes of the holder, and has undoubtedly led to the idea subse- quently, but, we think, erroneously, entertained, that they are invested with that other characteristic of commercial paper freedom from all legal and equitable defenses in the hands of a bonafide holder. But every holder of a city order or certificate knows that to be valid and genuine at all it must have been issued as a voucher for city indebtedness. It could not be law- fully issued for any other purpose. He must take it, therefore, subject to the risk that it has been lawfully and properly issued. His claim to be a bonafide holder will always be subject to this qualification. The face of the paper is notice to him that its validity depends upon the regularity of its is- sue. The officers of the city have no authority to issue it for any illegal or improper purpose; another's acts can- not create an estoppel against the city itself, its taxpayers, or people. Per- sons receiving it from them know whether it is issued and whether they receive it for a proper purpose and a proper consideration. Of course, they are affected by the absence of these es- sential ingredients, and all subsequent 6] PUBLIC CORPORA! I 11 Supreme Court of Louisiana has held that, in the absence of express legislative authority, a municipal corporation lias no power to titter unconditional obligations to pay money. Such a corpo- ration may, however, issue evidences of liability for consideration received for ultimate payment, depending upon contingencies which must have happened before any right of action can accrue. 1 huh It-re take cumonere and are affected by the same defect. Much less can any precedent be found (except of modern dute and in this country) for the issue, by local civil authorities, of promissory notes, bills of exchange and ofher commercial paper. At a period within the memory of man the proposal of such a thing would have been met with astonishment. The making of such paper was originilly confined to merchants. But its great convenience; was the means of extend- ing its use, first, to all individuals, and afterwards to private corporations hav- ing occasion to make promises to pay money. Beiug only themselves re- sponsible for the paper they issue, no evil consequences can follow sufficient to counterbalance the conveniences and benefits derived from its use. They know its immunity in the hands of a bona fide holder from all defenses and equities. Knowing this, if they choose to issue it, no one is injured but them- selves. But if city and town officials should have the power thus to bind their constituencies it is easy to see what abuses might and probably would ensue. We know from experience what abuses have been practiced where the power has been conferred. Fraud- ulent issues, peculations and embezzle- ments and the accumulation of vast amounts of indebtedness without any corresponding public benefit have been rendered easy and secure from merited punishment. The purpose and object of a municipal corporation do not or- dinarily require the exercise of any uch power. They are not trading corporations and ought not to become such. They are invested with public trusts of n governmental and adminis- trative character; they are the local governments of the people, established by them as their representatives in the management and administration of municipal affairs affecting the peace, good order and general well-being of the community as a political society and district, and invested with power by taxation to raise the revenues nec- essary for those purposes. The idea that they have the incidental power to issue an unlimited amount of obliga- tions of such a character as to be irre- trievably binding on the people, with- out a shadow of consideration in re- turn, is the growth of u modern mis- conception of their true object and character. If, in the exercise of their important trusts, the power to borrow money and ,o issue bonds or other com- mercial securities is needed, the legis- lature can easily confer it under the proper limitations and restraints, and with proper provision for future re- payment. Without such authority it cannot be legally exercised. It is too dangerous a power to be exercised by all municipal bodies indiscriminately, managed as they are by persons whose individual responsibility is not at stake." 1 Newgass t. City of New Orleans, (1890) 42 La. Ann. 168; 8. c., 7 So. Rep. 565. That a municipal corpora- tion has not an incidental or implied power to make or issue negotiable pa- per, see New Orleans, M. & C. R. R. Co. '. Dunn, 51 Ala. 128; Blackman r. L.-IUIKIII. 68 Ala. 547. 12 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 7, 8 7. Power of Indiana cities to issue bonds. A city in Indiana has power, under a charter authorizing it "to borrow money for the use of the city," to issue bonds for money so borrowed. 1 8. Miscellaneous rules as to issuing bonds. Municipal corporations in which power is vested by legislative grant to make expenditures for purposes of a certain kind, unless prohibited by law, may make contracts for the accomplishment of those pur- poses, thereby incur indebtedness and issue proper evidences of indebtedness in payment for the same. 3 A county in Kansas has power to borrow money for the erection of county buildings, and to issue its bonds for the money borrowed. 8 The officials of a municipal corporation, which is vested with the usual power of such bodies, are authorized to issue bonds or promissory notes to "City of Evansville . Woodbury, note that the Supreme Court of the (1894) 60 Fed. Rep. 718; s. c., 9 C. C. United States held directly the same A. 244, following Railroad Co. v. Ev- construction upon a grant of power ansville, 15 Ind. 395, which adopted the 'to borrow money for any public following from Slack v. Railroad Co., purpose' in Rogers n. Burlington, 3 13 B. Mon. (Ky.)l, to wit: "Moreover, Wall. 654, and Mitchell v. Burlington, the first act under which the debt was 4 Wall. 270. These decisions were created gave full power to the County five and six years after that in Indiana; Court to provide for its payment either and although they appear to have been by taxation or by borrowing the overruled in recent years, they would money, which, of course, implied the constitute some justification, if any power, as it did the necessity, of fur- were needed, for reliance by pur- nishing some evidence of indebtedness, chasers upon the Indiana interpreta- another court might doubtless have tiou. The federal courts have main- issued the bonds of the county in tained a rule from their organization some form to the lender." In City of that in all cases depending upon a Evansville v. Woodbury, supra, the state statute, they will adopt and fol- Uni ted States Circuit Court of Appeals, low the adjudications of the court of speaking through SEAMAN, D. J., had last resort in its construction, when this to say as to the rule declared in that construction is well settled, and the text: "The borrowing of money without in jury as to its original sound- to pay outstanding indebtedness of the ness. * * * Therefore, the recent city was clearly a borrowing for the decisions in Merrill v. Monticello, 138 use of the city; and if this ruling (in U. S. 673; s. c., 11 Sup. Ct. Rep. 441, Railroad Co. v. Evansville, supra) must and Brenham v. Bank, 144 U. S. 173; govern here, the power to issue the s. c., 12 Sup. Ct. Rep. 559, * * * bonds is well shown. That decision are not applicable." appears to have remained undisturbed, 8 Police Jury v. Britton, 15 Wall. 566. and is in accord with the doctrine con- 8 Comanche County v. Lewis, 133 stantly held by that court. Dill, on U. S. 198. Mun. Corp. 119. It is worthy of 8] PUBLIC CORPORATIONS. 18 evidence the credit price of any works for which they are authorized to contract, which in the hands of a bona fide holder, will be protected by the law mercliant. 1 A city, by the issue of its bonds according to law, having created a debt against itself, has power, like any other debtor, to enter into negotiations con- cerning such bonds, and to have them delivered up for cancella- ation and new bonds issued in exchange for them, without any special grant of authority therefor. 3 The charter of a city empowering it " to borrow, on the credit of the city, a sum of money not exceeding [a sum named] ; to issue bonds, scrip, or certificates of indebtedness therefor," etc., with a provision that " with the money so borrowed the city council shall first liqui- date and discharge all legal indebtedness of the city," may issue such bonds as they deem proper within the terms of the charter, and with the proceeds take up the floating indebtedness of the corporation. 8 Towns in Maine must be expressly or implied ly authorized by statute, or they cannot borrow money and issue notes of a commercial character for the execution of their ordi- nary business. 4 The governing powers of counties are not authorized by the statutes of Illinois which empower them " to make all contracts and do all other acts necessary to the exercise of its corporate powers," and " to manage the coun ty funds and county business, except as otherwise specifically provided," to issue bonds without a vote of the people. 5 A grant of authority to a municipal corporation to issue " refunding bonds " or original bonds to procure money for use in the " legitimate exercise of the corporate powers," and for the payment of legitimate cor- porate debts does not carry with it power to issue bonds to replace in the treasury money already used in paying prior bonds. 8 A municipal corporation having statutory power to issue bonds for loans lawfully made has, by necessary implication, also 1 Holmes t>. City of Shreveport, (1887) Rogan . City of Watertown, (1872) 81 Fed. Rep. 113, in which case the 80 Wis. 259. bonds sued upon were issued for pub- * City of East St. Louis r. Maxwell, lie improvements. As to authority of (1881) 99 111. 439. corporations to give notes to evidence 4 Parsons t>. Monmoutb, 70 Me. 262. indebtedness, see Brode v. Firemen's ' Locke c. Davison, 111 111. 19. As to Ins. Co.. 8 Rob. (La.) 244; Edey o. authority to issue bonds, see Bannock City of Shreveport. 26 La. Ann 636; County t>. Bunting. (Idaho) 87 Pac. Rep. City of Shreveport v. Flournoy. 26 La. 277; Hotchkisst. Marion, 12 Mont. 218. Ann. 709; Desmond v. Jefferson, 19 'Coffin r. City of Indianapolis, Fed. Rep. 483. (1894) 59 Fed. Rep. 221. 14 GENERAL POWEB TO INCUB PECUNIARY LIABILITY. [ 8 the power to make the bonds negotiable. 1 A County Court in. Missouri with statutory authority to make bonds issued for the purpose of improving public roads transferable in such manner as by its order it might direct, may issue negotiable bonds ; and this may be done by the issue of such bonds, without an order prescribing their form. 2 And under the statutory authority to issue bonds to pay for improving public roads, and " building culverts and bridges to secure permanent and good roads," the county may issue bonds to pay for riprapping around the abut- ment of a bridge to prevent its becoming a wreck. 3 Under the laws of Washington giving municipal corporations authority to provide means for constructing works of public utility by issuing and selling negotiable bonds there is authority to make such bonds payable in gold coin of the present standard weight and fineness. 4 Municipal corporations may issue new bonds with coupons for future interest for the purpose of funding debts, with accrued interest existing prior to the adoption of the amendment of the State Constitution of Indiana prohibiting municipal cor- porations from becoming indebted to an amount in the aggregate exceeding two per centum on the value of their taxable property, and providing that all obligations in excess of such amount shall be void, as the amendment is only prospective in its operation. 5 1 City of Cadillac v. Woonsocket of bonds, see Francis v. Howard Inst. for Savings, (1893) 58 Fed. Rep. County, 50 Fed. Rep. 44, following 935; s. C., 7 C. C. A. 574; LtmTON, Russell v. Cage, 66 Tex. 428; 8. c., 1 Ch. J., said: "The case of Brenham v. S. W. Rep. 270. Bank, 144 U. 8. 173; s. c., 12 Sup. Ct. 4 Moore . City of Walla Walla, Rep. 559, has no bearing upon this (1894) 60 Fed. Rep. 961. question. Nothing more is there de- s Powell v. City of Madison, (1886) cided than that an act empowering a 107 Ind. 106. The court said: ' The city to " borrow for general purposes issuing of new bonds to provide, at not exceeding 15,000 on the credit of their par value, for the payment of an the city " did not authorize the issu- old debt or the substitution of new ance of negotiable obligations for the evidences of a pre-existing debt, is money so borrowed. not, in any legal or proper sense, the 8 Catron v. LaFayette County, 106 creation, of a new indebtedness. Nor Mo. 659; s. c., 17 S. W. Rep. 577. is the funding of interest already due, Ibid. As to the power of counties or the execution of coupons for the to issue negotiable securities, see payment of interest which will there- Francis . Howard County, 50 Fed. after accrue upon a pre-existing in- Rep. 44, following Nolan County v. debtedness, either the creation of a State, 83 Tex. 182; 8. c., 17 8. W. Rep. new debt, or, in legal contemplation. 823 ; Robertson . Breedlove, 61 Tex. an increase of such pre-existing ia 816. As to a limitation upon the issue debtedness." 9] PUBLIC CORPORATIONS. 15 9. Bonds issued for the erection of a county court house. A statute authorizing the electors of a county to empower the commissioners of such county to "borrow money" for the erection of a court house does not authorize them to empower such commissioners to issue bonds for that purpose. 1 The authority to issue bonds as an evidence of indebtedness might perhaps follow as an incident of the right to borrow money, but in that case the amount of money borrowed should equal the amount for which the bonds call. There is no right to issue them and sell them for what they will bring." County warrants issued for the purpose of erecting a county court house in Nebraska have been held void where their issue was not author- ized by a vote of the qualified electors of the county, and no benefit whatever resulted to the county from the issuing of such warrants. 8 10. Funding county indebtedness by issuing interest- bearing bonds. There is no authority of law for a county board in Illinois to fund county indebtedness or issue ihterest- bearing bonds for money with which to take up outstanding county orders and obligations without a vote of a majority of the legal voters of the county ; and such a vote having been obtained, the interest on the bonds is limited to eight per cent. Such boards are not given by the statute which provides that they shall have power " to manage county funds and county business, except as otherwise specially provided," an absolute and unlim- 1 Lewis v. Board of County Comrais- that they were issued conformably to sinners of Sherman County, (1881) 2 law, were, however, held valid in the McCrary, 464, holding certain bonds hands of an innocent purchaser for issued by the commissioners for erect- value in open market, the bridges ing a court house invalid, on the fol- having been built in the county by lowing grounds: Because of the lack direction of the county, for the county, of statutory authority to vote for such and having been paid for by such bonds bonds; because no bonds had ever or their proceeds, although they were been voted for any such purposes; be- not in fact authorized by the vote of cause none of the bonds or the pro- the people as the law required, ceeds thereof were ever used to build * Lewis v. Board of County Commis- a court house or were ever used for sinners of Sherman County, (1881) 2 any other purpose by the county; and McCrary, 464, supported by Scipio r. because the bonds contained no recitals Wright, 101 U. 8. 665. showing that they had been issued ' Brown r. Board of County Commis conformably to law. Certain bridge sinners of Sherman County, (1881) 2 bonds Issued by the county, reciting McCrary, 469. 16 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 11 ited power of management of county funds, there being an absence of any specific provision of law to the contrary. 1 ii. Issue of bonds to pay subscriptions to stock of rail- road corporations. There has not been uniformity in the decisions of the state and federal courts as to whether or not the grant of legislative authority to subscribe carried with it as an incident the power to issue bonds in payment of the subscriptions. The Supreme Court of Connecticut, at an early date, held that a city empowered to subscribe to the stock of a railroad corpora- tion and to effect loans of money as a means of paying its sub- scriptions, upon the proper vote of its tax-paying citizens, had authority to issue its bonds to the railroad corporation in payment of such subscriptions; 8 this upon the established principle in the law of corporations, that they may exercise all the powers within the fair intent and purpose of their creation which are reasonably proper to give effect to powers expressly granted. 8 The following are the views entertained by the Supreme Court of Pennsylvania : The power given a municipal corporation to 1 Locke v. Davison, (1884) 111 El. 19, They further said; "It was held in affirming a decree granting an in June- Commissioners of Highways v. Newell, tion against the payment of ten per 80 111. 587, that more was said in that cent interest on the funding bonds case than the subject justified, and issued by this county board; follow- that it needed modification confining ing County of Hardin v. McFarlan, it to cases where the charter of the (1876) 82 111. 138, holding that under corporation expressly grants a power, the act which enabled counties to for a corporation cannot exercise any liquidate their debts, providing that powers save those granted or neces- the County Courts or boards of super- sarily implied in order to carry into visors might levy a special county tax effect a granted power." Upon the for that purpose, those debts could be subject of contracting for interest on discharged by the levy of such tax, the part of counties, see also Madison and the county board had no authority County t>. Bartlett, 1 Scam. (Ill) 67; to take up its outstanding orders and County of Pike v. Hosford, 11 11L 170; give bonds in lieu thereof, bearing Hall t. Jackson County, 95 111. 352; interest, as such obligations could not County of Jackson v. Rendleman, 100 be issued in the absence of statutory 111. 379. authority. The court in this case dis- s City of Bridgeport r. Housatonuc tinguished City of Galena v. Corwith, R. R. Co., (1843) 15 Conn. 475. 48 111.423, in that "the decision in "Seybert v. City of Pittsburg, 1 that case was based upon the ground Wall. 272; R. R. Co. v. County of that the city, by its charter, had power Otoe, 16 Wall. 667; Evansville, etc., to borrow money, and not having been R. R. Co. r>. City of Evansville, 15 restricted as to the means of exercis- Ind. 395. ing this power, could issue the bonds." 11] PUBLIC CORPORATIONS. 17 subscribe for stock of a railroad company gives the power to create a debt, and to give an evidence of it. The power to exe- cute and issue bonds, contracts or other certificates of indebted- ness belongs to all corporations, public as well as private, and is inseparable from their existence. For a legal and authorized debt a municipal corporation may give its bond under its general corporate powers. A municipal bond in payment of a subscrip- tion to stock of a railroad company, if invalid, is so, not because the corporation has no power to issue bonds, but because the sub- scription to the stock is outside of the power of the corporation ; and when a city has been authorized to make such a subscription by the legislature it becomes a debt like any other, and may be evidenced in the same way. Bonds issued in payment of the debt are valid obligations of the corporation. 1 The Supreme Court of the United States has held to the doctrine that grants of power to municipal corporations to subscribe for stock in rail- ways should be construed strictly and not be extended beyond the terms of the statute ; and as there is no power in a municipal corporation to become a stockholder in a railroad corporation unless expressly conferred by the legislature, the power to issue negotiable bonds to pay such a subscription must be expressly, or by reasonable implication, conferred by statute. 2 Neither is the issuing of negotiable bonds authorized by a grant to a municipal corporation of power to appropriate moneys in aid of construction of a railroad, directing levy and collections of taxes to meet suoh appropriation, and prescribing no other mode of payment. 3 Con- sidering the difference of opinion existing in these two jurisdic- tions upon this question, it seems that it would be well for the legislature hereafter in granting powers to municipal corporations to aid in the construction of public works by subscription to the stock of the corporations organized for the purpose, to expressly include the power to issue negotiable bonds for the payment of snch subscriptions. 1 Commonwealth ex rel. Reinboth e. 'Concord r. Robinson, 121 U. 8. Councils of Pittsburgh, (1861) 41 Pa. 165. See, also, Scott's Exrs .. Shreve- 8t. 278. port, 20 Fed. Rep. 714; Katzenberger 1 Kelley t>. Milan, 127 U. 8. 189, af- . City of Aberdeen, 16 Fed. Rep. 745; firming Kelk-y . Town of Milan, 21 Board of Comrs. of Delaware County Fed. Rep. 842; Norton . Dyersburg, v. McClintock, Auditor, (1875)51 Ind. 127 U. 8. 160; Young t> . Clarendon, 825; La Fayette, M. & B. R. R Co. t. 182 U. 8. 840; Hill t>. Memphis, 184 Geiger, 84 Ind. 185; Harney v. Indian- U. 8. 198. apolis, C. & D. R R. Co., 83 Ind. 244. 8 18 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 12, 13 12. Notes or warrants to cover funds to be set aside in future taxation. The Supreme Court of Louisiana has held that the police juries, the governing boards of the parishes in that state, have the undoubted authority to construct bridges, repair the same and to open roads and to keep the same in order. But they have no power to contract an indebtedness for this pur- pose in advance and to issue promissory notes or warrants to cover funds which may be set aside for this purpose in future taxation without express authority from the supreme political power of the state. 1 13. The issue of scrip. Under a statute authorizing the city council to issue scrip to a certain amount, bearing interest at a rate not exceeding six per cent per annum, and providing that the statute should be void unless approved by a majority of the voters of the city present and voting at meetings held on a cer- tain day, the council issued and sold scrip with principal and interest payable in coin. A statute enacted afterwards author- ized the city to contract for the payment in coin of the principal and interest of this scrip and ratified all acts of the city or any officer in the matter of making payment in coin of this scrip, not providing for any new submission of the matter to the voters of the city. The issue of the scrip as it had been issued payable in coin was held to be legal. 2 And a city authorized, for the pur- 1 Snellingfl. Joffrion, President Police promissory note, draft or warrant in Jury, (1890) 43 La. Ann. 886; s. c., 8 advance to cover this amount which So. Rep. 609, in which case the court may go into the treasury. It must be affirmed the judgment in favor of the there before the warrant issues, unless taxpayers who brought the action to by legislative authority they are auth- annul the ordinance of the police orized to issue the same in advance, jury authorizing the giving of ten Sterling v. Parish of West Feliciana, notes of equal amounts payable one 26 La. Ann. 59." in each of the ten years to come from 2 Foote r. City of Salem, (1867) 14 the date, to a bridge company which Allen, 87, BIOELOW, Ch. J., said : "It had contracted to build the bridge, was clearly competent for the legisla- The court said, however: " We do not ture to grant such power and to give mean to say that police juries cannot validity to contracts into which the contract for improvements which they city had entered without the requisite are authorized to make, to be paid out legislative authority. No legal or of the taxes which they are authorized constitutional right, either public to levy for parochial expenses, and or private, was violated by such which are set apart for this special im- enactment." provement, but they cannot issue any 14] PUBLIC CORPORATIONS. 19 pose of defraying the expense of a public work, to issue scrip may lawfully issue the same all at once, and invest the money not required for immediate use upon the work in United States securities. 1 The issue of change bills or promises in tiie simili- tude of currency are prohibited in Georgia by statute, and no recovery can be had upon such change bills issued by a city. 8 14. Purchase of real estate for erection of public build- ings on time. The statutes of Indiana * conferring on cities the general power, with restrictions, to purchase real estate, for the purpose of constructing public buildings thereon, by implication, gives the exclusive right to determine the expediency of the pur- chase, the power to purchase on credit and to issue negotiable bonds of the city for the purchase money. 4 And the purchase of real estate by a city for construction of public buildings thereon on a credit of ten years is not a loan within the meaning of the Indiana statute, 5 prescribing that " loans may be made by a vote of two-thirds of the council, in anticipation of the revenue of the current and following year, and payable within that period ; but the aggregate amount of such loan in any fiscal year shall not exceed the levy and tax authorized by this act for municipal expenses," and is not prohibited by that statute. 8 1 Foote v. City of Salem, (1867) 14 Allen, 87. Cothran r. City of Rome, 77 Ga. 882. Ind. R. 8. 1881. 3106, clause 4. 4 City of Richmond v. McGirr, (1881) 78 Ind. 192. That courts can- not interfere with the exercise by gov- erning authorities of their discretion in such matters, as a general rule, see Kelley . City of Milwaukee, 18 Wis. 88; Baker v. Boston, 12 Pick. 184; Ex partc Fay, 15 Pick. 243; Parks v. Boston, 8 Pick. 218; Benjamin r. Wheeler, 8 Gray, 409; Evansville, etc., R R. Co. r. City of Evansville, 15 Ind. 395; Macy v. City of Indianapolis, 17 Ind. 267; City of Greencastlc t. Hazelett, 23 Ind. 186; Brinkmeyer . City of Evansville, 29 Ind. 187. Ind. R. 8. 1881, 3159. City of Richmond v. McGirr, (1881) 78 Ind. 192. As to the distinction be- tween a transaction like this and bor- rowing money, the court referred to Gelpcke v. City of Dubuque, 1 WalL 175, 221, where it was held that the ex- ecution of bonds to pay an existing in- debtedness of the city was not within the prohibition of the charter against the borrowing of money, and distin- guished Mayor, etc., of Baltimore t>. Gill, 81 Md. 375, and Jonas t>. City of Cincinnati, 18 Ohio, 818. There was a limitation in the charter of this city upon the borrowing of money, but no restriction upon the creation of indebt- edness. The court said: "The charter expressly grants to the council the power to purchase the real estate; * * * and in the absence of any statutory mode being pointed out for the exercise of such power, it may tontract with reference to such power as a natural person; and such power is implied from the general unlimited 20 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 15 15. Erection of town buildings. As incident to its power to build a town house, a town has a right, in its discretion, to make additional compensation to a person for labor done by him in building it as a contractor under another person with whom the town had contracted to build it for a tixed sum. 1 The Massachusetts statute authorizing towns and cities to estab- lish public libraries and in so doing to "appropriate money for suitable buildings or rooms " and for " the foundation of a library a sum not exceeding one dollar for each of its votable polls " has been construed, and the court determined that the words " not exceeding " did not necessarily qualify and limit the entire first clause ; that on the contrary they were intended to restrict the latter provision with which they were immediately connected ; that the intention of the legislature was to put a precise limit on the sum to be expended for books, and not on that to be appropriated for buildings or rooms. 2 power granted. This rule, we think, of towns to raise and appropriate arises from the necessity of the case, money is derived wholly from statutes, and is in harmony with the general The statutes do not attempt to rule of the law as established by the enumerate all the purposes for which authorities. Citing Ketchum v. City money may be raised, but after of Buffalo, 14 N. Y. 356; Brady v. specifying some of the more promi- Mayor, etc., Brooklyn, 1 Barb. 584; nent ones provide that towns may Ilalstead v. Mayor, etc., New York, 5 grant and vote such sums as may be Barb. 218; JVIott v. Hicks, 1 Cow. 513; required " for all other necessary Moss v. Oakley, 2 Hill, 265; Kelley v. charges arising therein." Gen. St. Mayor, etc., Brooklyn, 4 Hill, 263; Mass. chap. 18, 10. It is under this Field on Corp. 271; City of Galena general provision that towns have the v. Corwith, 48 111. 423; City of Wil- power to vote money for the erection liamsport v. Commonwealth, 84 Pa. of town houses. Stetson v. Kempton, St. 487; City of Lafayette v. Cox, 5 13 Mass. 272. The right to build car- Ind. 38; Hardy v. Merriweather, 14 ries with it by implication the power Ind. 203; Daily t>. City of Columbus, to make contracts, to waive or alter 49 Ind. 169; Kyle v. Malin, 8 Ind. 34; them and to make arrangements for Dill, on Mun. Corp. 55, note 1, and the payment of those who furnish 81-85. As to the kind and form of labor and materials." evidences and obligations to be exe- 9 Dearborn v. Brookline, (1867) 97 cuted in such contracts by the authori- Mass. 466. In Inhabitants of West- ties, see Sheffield School T'p T. An- brook v. Inhabitants of Deering, dress, 56 Ind. 157; School Town of (1874) 63 Me. 231, the words "neces- Monticello v. Kendall, 72 Ind. 91; sary charges" in the statute as to Bicknell t>. Widner School T'p, 73 the powers of towns to incur expense Ind. 501. received a full discussion from the 1 Friend t>. Gilbert, (1871) 108 Mass, court in these words : " The construc- 408, MOKTON, J., said: "The power tion of this clause came before this 16] PUBLIC CORPORATIONS. 21 16. Purchase of sites for, erection of, and the repairs of school buildings. The school trustees of an incorporated town, under the general law of Indiana, having filed with the board of trustees of such town a verified report, showing that they have contracted for the purchase of real estate on which to erect school buildings, and showing the amount of the debt incurred for such realty, and other estimated cost of the buildings, and asking tho issue of bonds, the board of trustees under the statute relating to such bodies may, by ordinance, authorize the issue and sale of the bonds of the town equal in amount to the cost of the real estate and the estimated cost of the projected school buildings, not court three years after the separation clearly have not. * * * The gen- in Bussey r. Gilmore, 3 Me. 191, by erality of this phrase has received in which a tux for the discharge of a con- the case above referred to a reasonable tract between a town and a toll bridge limitation. Without enumerating the corporation for the free passage of objects which this term may be under- the bridge by the citizens of the town stood to embrace, it may in general be was held illegal upon the ground that considered as extending to such ex- the power to niise money for ' neces- pensea as are clearly incident to the sary charges' extends only to those execution of the power granted or expenses which arc incident to which necessarily arise in the fulfil- the discharge of corporate duties. " ment of the duties imposed by law." WESTON, J., says : "The construction The Maine Supreme Court of Judica- of the statutes in relation to the au- ture in 1863 in answer to questions tbority of towns to raise, assess and submitted by the governor said : collect money is so clearly stated and ' ' The words ' other necessary town so fully illustrated in Stetson v. Kemp- charges' do not constitute a new and ton, 13 Mass. 272, that we have little distinct grant of indefinite and un- occasion to say more than that we are limited power to raise money for any entirely satisfied with the principles purpose whatsoever, at the will and of that case and the deductions there pleasure of the majority. They em- drawn. The court remark that ' it is brace only all incidental expenses important that it should be known arising directly or indirectly in the that the power of the majority over due and legitimate exercise of the the property and even the persons of various powers conferred by statute, the minority is limited by law to such While towns may raise money to dis- eases as are clearly provided for and charge all liabilities in the performance denned by the statute which describes of their multiplied duties, they can- the powers of these corporations.' By not (unless new powers are conferred, that decision this principle did become or an excess of power receives a sub- known ; and believing that it is justi- sequent legal ratification) transcend fled, as wel\ from considerations of their authority and incur expenses in public policy as from & sound con- no way arising in its exercise." struct ion of the law, we have no dis- Opinion of the Justices, 52 Me. 595, position to modify or change it if wo 598. had tho power to do so, which we 22 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 17 exceeding a limit specified in the statute. 1 The general power given a common council of a city by its charter to purchase land for the necessary purposes of the corporation, would be qualified by another provision that the board of education shall have power, with the consent of the common council, to buy sites for school- houses in such city, and a valid purchase of a site for a school- house could be made only by the concurrent action of the two bodies. 8 And these two bodies cannot delegate the power of purchasing a schoolhouse site to a board of commissioners of such city without an express grant from the legislature of authority to do so. 8 A tax for the erection of a new schoolhouse may be voted by the electors of a school district before any site for the house has been selected. 4 And the electors of such a district have been held to have been warranted in voting a tax for the erection of a new schoolhouse at the center of the district in a case where the district, two miles wide from east to west, had one school- house situated one-half mile east of the center, which was about thirty years old, but in reasonably good condition, yet too remote for some of the children of the district to attend school. 5 Under the constitutional limitation of Indiana upon municipal corpora- tions, a town cannot issue bonds to obtain funds with which to rebuild a schoolhouse, should the issuance of the bonds create a debt in excess of two per centum of the taxable value of the prop- erty within the limits of the town. 6 Petitions from property owners are not necessary to authorize the board of trustees of incorporated towns in Indiana to issue bonds or procure money with which to build schoolhouses. 7 17. The same subject continued. A statute conferring express authority upon a municipal corporation " to aid in the 1 Williams v. Town of Albion, (1877) lie corporation is not an obligation pay- 58 Ind. 329. able out of specific funds, but is a con- * Lauenstein t. City of Fond du Lac, tract to pay money generally, and (1871) 28 Wis. 336. hence this case is not within the doc- 1 Ibid trine of such cases as Quill v. City of 4 Seaman e. Baughman, (1891) 82 Indianapolis, 124 Ind. 292; s. c., 23 N. Iowa, 216; s. c., 47 N. W. Rep. 1091. E. Rep. 788; Strieb v. Cox, 111 Ind. 5 Ibid. 299; s. c., 12 N. E. Rep. 481; and Town of Winamac v. Huddleston, Board, etc., . Hill, 115 Ind. 316; s. c., (1882) 132 Ind. 217; s. c., 31 N. E. 16 N. E. Rep. 156. Rep. 561 . The court said : ' ' The debt ' Clark v. Town of Noblesville, (1873) created by a bond executed by a pub- 44 Ind. 83. 17] PUBLIC CORPORATIONS. 28 building up of such schools and institutions of learning as they may think proper," clearly implies the power to build a house for that purpose. 1 Unless there is something in the charter of a municipal corporation, such as a city or town, which forbids it, such a corporation, without express authority, may incur liability for the building of a school house, it being clearly within the scope of the general power of such corporations. 3 The applica- tion of corporate funds, or creating a corporate debt, for the purchase of the interest in a building to be used as a public school or college for the accommodation of the people of a town is within the purposes and scope of the corporation. 3 And should it appear that the enterprise is not for any private gain, and that a board of trustees not elected by the municipal cor- poration contract to keep up in the building a public school, the fact that the superintendence of the school is left in the hands of such trustees would not render the appropriation of the cor- porate funds or the debt created illegal. 4 The charter of a board of public schools in Missouri gave the board power " to purchase, receive and hold property real and personal ; to lease, sell or dis- pose of the same, and do all other acts as natural persons" and also " generally to do all lawful acts which may be proper and convenient to carry into effect the objects of the corporation." These provisions, taken in connection with the whole charter, have been construed not to authorize the board to create a debt for building a school house and to issue bonds to pay the debt. 5 Besides the provision in the charter of the board authorizing it to make an annual estimate of the amount of money to be raised for the purpose of building, repairing and furnishing school houses and requiring the County Court to cause the same to be levied and collected upon all taxable property in the school dis- trict was a limitation upon the power of the board regarding the building of school houses, and did not authorize the board to cre- ate a debt for that purpose and issue bonds for the payment of the debt. 6 'Mayor, etc., of Carteraville c. 4 Ibid. Baker, (1884) 73 Ga. 686. Erwin c. St. Joseph Board of Pub- 1 Ibid; citing Frederick v. City Coun- lie Schools, (1880) 2 McCrary, 608. oil of Augusta (1848) 5 Ga. 561; Dan- 'Ibid; approving the reasoning in icily v. Cabaniss, (1874) 52 Ga. 211. Guuse c. Clarkaville, 19 Alb. L. J. * Danlelly c. Cabanias, (1874) 52 Ga. 253. 211. 24 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 18-19 18. Purchasing on credit. The trustees of towns in Indi- ana being prohibited by statute from borrowing money or con- tracting a debt except upon the petition of five-eighths of the citizen taxpayers of the town, in the absence of such a petition cannot purchase cemetery grounds on credit. 1 19. Building and repair of bridges and roads. Where the statute not only authorizes the supervisors of a township to repair the roads and build the bridges, but makes it their impera- tive duty to do so, and subjects them to fine and imprisonment for neglecting to keep the roads and bridges in a safe and pass- able condition, money is a necessary means to execute this power and perform this duty, and where it can only be obtained by borrowing it the power to do so is necessarily implied and passes as an incident to the execution of. the general powers given and the performance of the duties required. 2 An incorporated town charged with the control of its streets and the duty to improve them may legitimately contract for the construction of free bridges over a stream dividing its streets, and by an issue of war- rants or bonds raise the money necessary for the purpose. 3 But a municipal corporation cannot erect a toll bridge unless qxpressly authorized by law ; nor has it power to lend its credit or make its accommodation paper for the benefit of citizens to enable them 1 Pratt T. Luther, (1873) 45 Ind. 250. * Maneval v. Jackson Township, See Ketchum v. City of Buffalo, 14 N. (1889) 9 Pa. Co. Ct. Rep. 28. The Y. 356, holding that if the charter of court distinguished Union Township the city or the general law of the state v. Gibboney, 94 Pa. St. 534, and Gib- did not forbid the purchase of ground son v. Poor District, 122 Pa. St. 557. for a market place to be made on In Mills v. Gleason, 11 Wis. 470, the credit the city could purchase such Wisconsin Supreme Court held that grounds on credit. The court said: "where the charter of a municipal "A municipal corporation, therefore, corporation confers the power to pur- may at common law, unless restrained chase fire apparatus, cemetery grounds, by some statute, purchase and hold all to establish markets and to do many such real estate as may be necessary other things for the execution of which to the proper exercise of any power money would be a necessary means, it specifically conferred," etc. And af- also, in the absence of any positive re- terwards: "I think it must be con- striction, confers the power to borrow ceded that the city had power to pur- money as an incident to the execution chase ground for a public market. If of these general powers." 0o there is nothing in the charter or z Mullarky v. Town of Cedar Falls, general law of the state forbidding the (1865) 19 Iowa, 21. purchase to be made on credit." 20] PUBLIC CORPORATIONS. 25 to execute private enterprises. 1 Authority being given by a charter of a city to its common council " to appropriate in any one year, over and above the ordinary expenses needed on the bridges in said city, an expenditure not to exceed ten thousand dollars, for the building of a new bridge in said city, or for any extraordinary repairs on any bridge, and for the payment of the eame in whole or in part," and the charter declaring further that " the council, instead of collecting the same in the next tax roll, may issue its bonds," etc., these provisions would not prevent the council letting by a single contract the work of constructing a bridge at a greater price than $10,000. The provisions merely limit the amount to be raised by taxation, or the amount of the bonds to be issued, in any one year to pay for such work. 8 A statute authorizing two of the counties of Alabama to erect a bridge, which might be either a free foot and wagon bridge for the traveling public, or a railroad bridge, or both combined, has been held to contravene the constitutional provision which deni&s to the legislature power to authorize any county to lend its credit or to grant public money or a thing of value in aid of or to any individual, association or corporation. 3 The governing authori- ties of a county, having, under authority from the legislature, purchased certain bridges from private parties, and changed them from toll to free bridges, upon their being destroyed by freshets, or otherwise, may rebuild them. 4 20. Incurring liability under California statutes. The power to levy and collect a tax in the charter of a city " for any object whatever within the provision of the corporate powers before given," will not authorize the levy and collection of a tax for making a survey of a railroad route from the city to another. 5 The power granted to a city to take stock " in any public improve- ment, or effect a loan for any purpose," upon obtaining the con- 1 Clark v. City of DCS Moines, (1805) to build a bridge at its own cost across 19 Iowa, 199. a boundary creek, one end of the bridge ' Howard v. City of Osbkosb, (1878) extending into the territory of another 33 Wis. 309. county, in which the Supreme Court * Garland r. Board of Revenue, 87 of the United States construed the Ala. 223; s. c., 6 So. Rep. 402. Kentucky statutes relating thereto. 4 Elliott v. Gammon, (1886) 76 Ga. 766. Douglass . Mayor and Common See Washer r. Bullitt County, (1884) Council of Placerville, (1861) 18 CaL 110 U. 8. 658, involving the question 643. of the power of a county in Kentucky 26 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 21 sent of the people at an election held for the purpose cannot be extended to improvements other than municipal in their char- acter. Under such a power, for instance, a city cannot subscribe to stock in a navigation company. 1 21. Incurring liability under Indiana statutes. The board of commissioners of a county in Indiana, under their power " to make all orders respecting the property of the county * * * and to take care of and preserve such property," may contract for insurance upon the public buildings of the county. 8 While at the time of the passing of an order by an Indiana board of county commissioners, making a donation for the pur- pose of securing the location of an agricultural college within their jurisdiction and making an appropriation to pay the same, the Supreme Court of that state held that the order was not void, but was capable of ratification by the legislature. And this order was ratified and rendered valid by subsequent legisla- tion accepting the donation and locating the college in that county. And the law authorizing a collection by taxes of the amount donated for this purpose was not objectionable as being local or special when a general law could have been made appli- cable. 8 There is no power in an Indiana board of county com- missioners to furnish aid to a gravel road or turnpike company in building or repairing its road at the expense of the county, neither can they enter into a contract with such companies for the future repairs of a bridge or the approaches to such bridge on the line of its road. 4 Such a board cannot make a contract 1 Low v. Mayor and Common Coun- patent or their own usurpation, we cil of Marys ville, (1855) 5 Cal. 214. understand the powers of municipal. The court said: " The words ' public corporations to be limited, particularly improvements' when applied to a in the United States, to the express municipal government must be taken grant of their charters, the object of in a limited sense as applying to those their creation to be governmental and improvements which are the proper not commercial." subject of police and municipal regu- s Potts v. Bennett, (Ind. 1895) 39 N. lation such as gas, water, alms- E. Rep. 518. houses, hospitals, etc. and cannot be 3 Marks, Treasurer of Tippecanoe extended to subjects foreign to the ob- County . Trustees of Purdue Uni- ject of the incorporation and beyond versity, (1871) 37 Ind. 155; see Cash v. its territorial limits. Without refer- Auditor of Clark County, 7 Ind. 237; ring to the many privileges exercised Stocking . The State, 7 Ind. 326. by the free cities of Europe, some of * Driftwood Valley Turnpike Co. v, which exercised almost all the power Board of Comrs. of Bartholomew of sovereignty by virtue of royal County, (1880) 72 Ind. 226. 22] PUBLIC CORPORATIONS. 27 conditionally to pay certain expenses of boring wells for oil and digging for minerals. 1 Neither can it appropriate the funds of the county to the payment of the debts of a county agricultural joint-stock company or to the building of schoolhouses. 1 It is not, under the Indiana laws regulating the incorporation of cities, etc., within the power of a city council to contract to pay its marshal any sum of money for the performance of any dutiet outside of his official duties. 3 22. Incurring liabilities under Kansas statutes. The grant of power by the Kansas statutes to townships to issue bonds " to aid in the construction of railroads or water power by dona- tion thereto, or the taking stock therein or for other works of internal improvement" includes authority to assist in the con- struction of depots and sidewalks of a railroad. 4 A statute authorizing a municipal corporation to issue bonds which can only be paid by taxation, for the benefit of a manufacturing enterprise of private persons has been held to be void as violat- ing the fundamental rights of property, the purpose being essen- tially private in its nature, though the public may be incidentally benefited. 5 In the same federal court municipal bonds issued under legislative authority to be paid by taxation as a bonus or donation to secure the location, or aid in the erection of a manu- factory or foundry owned by private individuals were held to be void even in the hands of holders for value. 8 County commis- sioners in Kansas may employ counsel to take charge of litigation on behalf of the county where the county is interested in the result of the action, either in its own behalf, or in that of some township of the county, where the suit is brought against the representatives of the county, and is beyond the limits of the county. 7 Though made their duty, unless the charter of munic- ipal corporations expressly permits it, they cannot levy a tax for the erection of schoolhouses. 8 A trustee of a town in Kansas 1 Burnett v. Abbott, 51 Ind. 254. * Citizens' Savings Association r. * Warren County Agricultural Joint Topeka, (1874) 8 Dill. 876. Stock Co. r. Barr, 55 Ind. 30; Roth- ' Commercial National Bank t. lola, rock v. Carr, 55 Ind. 884. (1878) 2 Dill. 858. City of Brazil P. McBridc, (1879) 'Thacher t. Jefferson Ccunty, 18 69 Ind. 244. Kans. 182. 4 Township of Rock Creek v. Strong, ' Leaven worth r. Norton, 1 Kans. (1877) 96 U. S. 271. 482. 28 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 23 has no power to bind the county by a contract with a physician for treatment of persons sick with smallpox. The power to do so is alone in the commissioners of the county. 1 Neither is a county in Kansas bound to pay a physician for medical services rendered by him in attending on prisoners confined in the county jail, except when authorized by the county commissioners. 8 23. For lighting the streets of a city. The contention in an Indiana case was that to regulate the lighting of the streets of a city is a legislative power which cannot be delegated away, sur- rendered or restricted by contracts or otherwise, and that, there- fore, the contract made by the city authorities with a gas company for lighting its streets for a term of years was a restriction upon that legislative power, and, therefore, invalid. The Supreme Court of the state held the contract binding upon the city, and enforceable in the same manner as the contract of a person or a business corporation ; also, that it could not be repealed, impaired or changed by the city by ordinance or otherwise. 3 1 Smith v. Shawnee County, 21 Kans. to legislate within the authority dele- 669. gated to them by law is distinct from * Roberts v. Pottawatomie County, the power to contract, although exer- 10 Kans. 29. cised by the same corporation. They *City of Indianapolis v. Indianapo- cannot, by contract, delegate or re- lis Gas Light & Coke Co., (1879) 66 strict their legislative power, nor can Ind. 396. As to the power to con- they, merely by their legislative power, tract, it was said by BIDDLE, J., make a contract. These two powers speaking for the court: " No corpora- need not be confounded. The exer- tion can construct unless the power is cise of the legislative power requires granted by law. This power is gen- the consent of no person except those erally granted to business corporations, who legislate, while it is impossible to as for banking, manufacturing, ship- make a contract without the consent ping; and such corporations generally of another, or others. We think, there- have no legislative or governmental fore, that when [this city] made the powers, except the power to make by- contract in question with the gas light laws for their own government; they company it made it in the exercise of cannot pass ordinances for the govern- its power to contract, and not in the ment of others. Municipal corpora- exercise of its power to legislate, al- tions, besides the power to contract, though the power to make the con- which is generally granted to them tract was authorized by an ordinance; within certain limits, have legislative and having the power to make a con- or governmental powers by which they tract touching the subject-matter, it make by-laws to govern themselves had the right to make it according to and pass ordinances to govern others, its own discretion as to its prudence or the citizens of a town or city within or good policy within the limits of its their geographical limits. This power franchise." The court commented 24] PUBLIC CORPORATIONS. 24. Contract on time for lighting streets. A municipal corporation may contract on time with a gas or other lighting com- pany for a supply of gas or light for several years, as it would not be the contracting of a debt within the scope of section 2448 of the Revised Statutes of Louisiana, which provides that the " police juries of the several parishes and other constituted authorities of incorporated towns and cities in this state shall not hereafter have power to contract any debt or pecuniary liability without fully providing in the ordinance creating the debt the means of paying the principal and interest of the debt as contracted." 1 The upon Roll r. City of Indianapolis, 52 Ind. 547, and distinguished Kitten- house r. Mayor & City Council of Baltimore, 25 Md. 836; Gale r. Village of Kalnmazoo, 23 Mich. 844, and City of Oakland t>. Carpentier, 13 Cal. 540. They considered their views to be sus- tained by the main consent of the fol- lowing authorities: Evansville, Ind. & Cleveland Straight Line R. R. Co. t>. City of Evansville, 15 Ind. 395; Nel- son v. City of La Porte, 83 Ind. 258; City of Indianapolis n. Ely, 39 Ind. 873; City of Crawfordsville v. Hays, 42 Ind. 200; State Board of Agricul- ture P. Citizens' St. Ry. Co., 47 Ind. 407; Board of Comrs. of Tippecanoe County t>. Everett, 51 Ind. 543; San Francisco Gas Co. v. City of San Fran- cisco, 9 Cal. 453; Roll t>. City of In- dianapolis, 52 Ind 547; Davenport <\ Inhabitants of Hallo-well, 10 Me. 817; Bailey t. Mayor, etc., City of New York, 8 Hill, 581; Masterton*. Mayor, etc., City of Brooklyn, 7 Hill, 61; Mil- hau . Sharp, 27 N. Y. 611; Rich- mond County Gas Light Co. r. Town of Middletown, 59 N. Y. 228; Devlin v. Mayor, etc., City of New York, 68 N. Y. 8; Mayor & Council of Rome r. Cabot. 28 Ga. 50; Intcndant & Town Council of Livingston r. Pippin, 81 Ala. 542; State of New York t>. Mayor. etc., City of New York, 3 Duer, 119; Unit ton t>. Mayor, etc., New York, 21 How. Pr. 251; Louisville City Ry. Co. t>. City of Louisville, 8 Bush, 415; Harlem Gas Light Co. r. Mayor, etc., New York, 83 N. Y. 309; Illinois & St. Louis R. R. & Canal Co. v. City of St. Louis & Pacific Elevator Co., 2 Dill. 70; State of Ohio t>. Cincinnati Gas Light & Coke Co., 18 Ohio St. 262; Gall t>. City of Cincinnati, 18 Ohio St. 563; Minturn r. Larue, 23 How. 485; Memphis City t>. Dean, 8 Wall. 64; Chicago t>. Sheldon, 9 Wall. 50; Hitchcock r. Galveston, 96 U. 8. 341; Edwards v. Kearzey, 96 U. 8. 595; People v. Common Council of De- troit, 28 Mich. 228; Mayor, etc., of Jackson v. Bowman, 89 Miss. 671; Davenport Gas Light & Coke Co. . City of Davenport, 13 Iowa, 229; State of Wisconsin r. Milwaukee Gas Light Co., 29 Wis. 454; Norwich Gas Light Co. t>. Norwich City Gas Co., 25 Conn. 19; Western Saving-Fund Society of Philadelphia v. City of Philadelphia, 81 Pa. St. 175; Philadelphia t?. Fox, 64 Pa. St. 169. 1 New Orleans Gas Light Co. . City of New Orleans, (1890) 42 La. Ann. 188; 8. c., 7 So. Rep. 559. The court said: " There is no stipulation or ex- pression, either in the contract or ordi- nance, on which to ground the con- tention that the city thereby intended to contract a debt. The agreement imparts no absolute and binding obli- gations on the part of the city to pay any sum of money for a consideration pre-existing or executed on the part of the obligee which is of the essence of a 30 GENERAL POWEE TO INCUR PECUNIARY LIABILITY. [ 25 court held further that in the absence of a special statutory limi- tation or restriction the power given to the city to make contracts for lighting its streets, landings, etc., was sufficient to authorize a contract for more than one year for such commodity. 1 25. Caring for the indigent, etc. There is inherent in every municipal corporation the power to relieve sick persons indigent in their circumstances, especially in times of epidemic diseases, and to provide for poor persons who are unable to labor. 2 A city with power delegated to it to provide for foundlings, the insane, the indigent, infirm and helpless, and for the correction of the vicious and vagrant portions of its population, if it has not provided for such persons, or if they can be better cared for and trained in other institutions than in those of the city, may con- tract for such care and training by such other institutions. But the exercise of the power of making such contracts must be with the limitation that the subject-matter of the contract be kept within the power and control of municipal authority, and that complete accountability be provided for, and thus make the insti- tution contracted with, pro hoc vice, municipal officers. 3 debt. The obligation of the city for of Valparaiso v. Gardner, 97 Ind. 1; 8. future disbursements in favor of the c., 7 Am. & Eng. Corp. Cas. 626. company is conditioned on the per- J New Orleans Gas Light Co. v. City fonnance on the part of the latter of of New Orleans, (1890) 42 La. Ann. its part of the contract, a fact to be 188; s. c., 7 So. Rep. 559; citing in ascertained under the terms of the con- support of the ruling City of Indian- tract itself from month to month, apolis v. Indianapolis Gas Light Co. , 66 Although the eventual disbursements Ind. 396; Weston . Syracuse, 17 N. Y. to be made by the city may amount to 110; City of Valparaiso v. Gardner, 97 several hundred thousand dollars, it is Ind. 1; Atlantic Water Works v. Atlan- certainly not correct to argue that the tic City, 15 Am. & Eng. Corp. Cas. 327. effect of the contract was to place it in s Vionet v. Municipality No. 1, 4 debt to that amount. If under the La. Ann. 42. terms of the contract the company fur- 8 St. Mary's Industrial School for nishes and operates in quality and Boys v. Brown, (1876) 45 Md. 310. It quantity the lights contemplated and was said by the court: "The author- agreed upon, and if payments are ity (to provide for such persons) that made therefor by the city from month is held and exercised in this behalf is to month, as stipulated in the contract, a trust, as well for those who become the city would certainly never be in the objects of it, as those who support debt to the company. Hence we con- it by contribution in the form of taxes elude that no indebtedness was con- levied upon their property, and being templated to flow from or was created an important public trust it cannot be by the contract." On authority of delegated beyond the power and dis- Weston v. Syracuse, 17 N. Y. 110; City cretion of those to whom it is confided." 26, 27] PUBLIC CORPORATIONS. 31 26. Employment of physicians for the poor Indiana statute construed. The Indiana statute l makes it the doty of the board of commissioners of a county " to contract with one or more skillful physicians, having knowledge of surgery, to attend upon all persons confined in jail, or paupers in the county asylum, and may also contract with physicians to attend upon the poor generally in the county. Provided that this sec- tion shall not be so construed as to prevent the overseers of the poor, or any one of them, in townships not otherwise provided for, from employing such medical or surgical services as paupers within his or their jurisdiction may require." The Supreme Court has held that a county is not liable to a physician for med- ical services rendered by him to a poor person, when the physi- cians employed by the board of county commissioners to attend the poor, as required by this statute, refused to act, and when the town trustee, who by statute is the overseer of the poor, declined to employ this physician. 2 27. Expenses connected with epidemic diseases. The Supreme Court of Alabama has held that a contract by a city 1 Ind. Rev. St. (1881) 5764. 104 fnd. 321; s. c., 3 N. E. Rep. 757; 'Morgan County v. Seaton, (1889) see, also, Comrs., etc., v. Hoi man, 34 122 Ind. 521; 8. c., 24 N. E. Rep. 213. Ind. 256. As to the powers of town The holding of the court has been trustees under this statute, see Robbins uniform that the overseer of the poor, r. Board of Comrs. of Morgan County, under this statute, has power to em- (1888)91 Ind. 537. As to the terms, etc., ploy a physician only in the event the of a contract with a physician under board of commissioners fail to make this statute, see Board of Comrs., etc., suitable provision for attendance upon r. Ritter, (1883) 90 Ind. 362. As to the the poor by contract. Board, etc.. t. duty and power of a town trustee Boynton, 30 Ind. 359; Board, etc., r. under Ind. Rev. St. (1881) 6089, Hon. 87 Ind. 356. But the overseer in providing for persons in need of of the poor, in case the physician em- temporary relief, see Board of Comrs., ployed by the board in not accessible, etc., p. Jennings, (1885) 104 Ind. and an emergency is deemed to exist, 108; s. c., 3 N. . Rep. 619. The or if he refuses for any reason to act, mere fact that a board of commission- may employ a physician in case of ur- ers employs physicians to attend the gent necessity to treat one in need of poor of a county will not operate as a medical aid, and, in the absence of limitation upon the power of a town- fraud, the county will be bound by ship trustee as overseer of the poor to his judgment and liable for the medi- employ others in case of emergency, cal services, notwithstanding the em- Board of Comrs. of Perry County e. ployment of a regular physician by Lomax, (1892) 5 Ind. App. 567; a. c.. the county. Board, etc., v. Beaton, 90 82 N. E. Rep. 800. Ind. 158; Washburn t. Board, etc., 32 GENERAL POWEE TO INCUR PECUNIARY LIABILITY. [ 28 with a physician, entered into during the late war, to attend to indigent persons sick witli the smallpox, whether belligerents or non-belligerents, was not such a contract as is forbidden by the law of the land or public policy. 1 A statute authorizing the board of supervisors of a city " to allow and order paid out of the general fund, not to exceed six thousand dollars for any one year, for the support of " a smallpox hospital, has been held in California not to authorize the board to purchase a site for a smallpox hospital. 2 Neither was the purchase of a site for the hospital authorized by the statute giving the board power to make all regulations which may be necessary or expedient for the pre- vention of contagious diseases, nor by the constitutional provision of the state authorizing a city to make all such police, sanitary and other regulations as are not in conflict with general laws. 1 28. For what towns may not be made liable. A town has no authority to appropriate money for the payment of expenses incurred by individuals, prior to its corporate existence 1 City of Selma v. Mullen, (1871) 46 the board of supervisors by the statute. Ala. 411; in this case, where it appeared Aside from the fact that this statute that the usage of the city authorities makes no mention of real estate, or of was to have the city physician attend any purchase thereof, its language lim- to smallpox cases for an extra com- its the power to the expenditure of ' six pensation, and the city physician, thousand dollars for any one year,' plaintiff here, had been told by one of and the money thus allowed to be ex- the aldermen in the presence of the pended is for the 'support' of the others, no one objecting, to "go on, smallpox hospital words which emi- doctor, with your smallpox cases, and nently refer to an existing hospital, we will do what is just and right," it rather than to one to be thereafter was held that the city was bound by brought into existence. It is not to be an implied promise to pay him a rea- inferred that when the legislature was sonable value for his services in this thus careful in limiting the amount of respect. As to an action of assumpsit money to be expended, and in the Ian- lying against corporations upon an guage in which it described the mode express or implied promise, see Bank of its expenditure, it intended to con- of Columbian. Patterson, 7 Cranch, 299; fer an unlimited Authority upon the Bank of U. 8. n. Dandridge, 12 Wheat, board of supervisors to expend any 64; Danforth v. Schoharie & Duanes- amount of money that it might choose burgh Turnpike Road, 12 Johns. 227; for the purchase of a site for the hos- Montgomery County V. Barber, 45 pital for whose support it had thus Ala. 237. provided." 8 Von Schmidt v. Widber, City Treas- Von Schmidt v. Widber, City Treas- urer, (1894) 105 Cal. 151; 8. c., 38 Pac. urer, (1894) 105 Cal. 151; 8. c., 38 Pac. Rep. 683. The court said: "(Authority Rep. 683 citing as authority for the to make such a purchase) cannot be im- last proposition, Ketchum v. City of plied from the power conferred upon Buffalo, 14 N. Y. 356. 28] PUBLIC CORPORATIONS. as a town, in procuring the passage of its charter. 1 In the com- monwealth of Massachusetts towns have no authority to expend money or pledge their credit to celebrate the anniversary of the surrender of Cornwallis. 2 Nor has it authority to appropriate money for the celebration of the Fourth of July. 8 By the stat- ute of 1861 (Chap. 165) cities are now authorized in Massachu- setts to appropriate money to celebrate a holiday, but such author ity can be exercised only in pursuance of a "vote of two-thirds of the members of each branch of the city council present and voting by yea and nay vote. 4 'Frost e. Belmont, (1868) 6 Allen, 152. Tash v. Adams, Treasurer, (1852) lOCush. 252. Hood r. Lynn, (1861) 1 Allen, 103. BK.I.I.OW, Ch. J.,said,afterreferringto the power of towns to raise money for "all other necessary charges": The appropriation is neither necessary to the exercise of any power expressly grunted to the city; nor is it inci- dental to any right or authority, which, though not expressly granted, has its origin in well-settled usage and is founded upon the necessities, convenience, or even the comfort of the inhabitants. This is the extreme limit of the power of towns and cities to grant money as settled by repeated adjudications of this court. 8t tson r. K'-tnpton, 13 Mass. 272; Parsons r. Goshen, 11 Pick. 396; Willard v. New- buryport, 12 Pick. 227; Allen r. Taunton, 19 Pick. 485; Spaulding 9. Lowell, 23 Pick. 71; Anthony v. Adams, 1 Mete. 284. See, also, Gerry t. Stoneham, (1861) 1 Allen, 819. In New London v. Brainard, 22 Conn. r.~>:{, an appropriation which had been voted by the city for the celebration of Independence Day was held to luve been properly enjoined as be- yond the power of the city under its charter and the laws generally. As to the power of a city under the power given in its charter to raise and 5 expend moneys "to defray the con- tingent and other expenses of the city " to provide an entertainment for its citizens at the expense of the city, see Hodges v. Buffalo, 2 Den. 110; New London r. Brainard, 22 Conn. 553. 4 Morrison, Admx., .c. Lawrence, (1867) 98 Mass. 219. In Morton t. City of Nevada, 41 Fed. Rep. 582, bonds issued by the city for the pur- chase of a right of way and depot grounds for a railroad were held to be void as violating the constitutional provision of Missouri declaring that the general assembly shall not author- ize any city to loan its credit to any corporation unless two thirds of the qualified voters assented thereto. It was further held that the purchaser of these bonds could not maintain an action against the city for money paid and received to recover the amount paid the city for the bonds, as the city having no power to create the debt, no implied promise could arise for its payment, notwithstanding the general statute of Missouri, which gives the board of trust ITS power "to borrow money for the improvement" of the town, the purchase of highway and depot grounds for the railroad not being for the improvement of the town, but a debt incurred for the benefit of the railroad corporation without the uropcr assent of voters. 34 GENERAL POWER TO TNCUK PECUNIARY LIABILITY. [ 29 29. Expenses of a committee to secure legislation. A town cannot raise by taxation or by pledge of its credit, or pay from its treasury, money for the expenses of a committee directed by a vote of the town to petition the legislature for the annexation of the town to another town. 1 Neither can it raise 1 Minot v. West Roxbury, (1873) the accommodation of the inhabitants, 112 Mass. 1. ENDICOTT, J., a> t) sui h a.i town houses to assemble in proper construction of the \vor .s and market houses for the stile of pro- " necessary charges," referred to tie visions, may also be a proper town various Massachusetts cases previ ms charge, an 1 may come within the fair to this one as follows: "The lead- meaning of the term necessary, for ing case is Stetson v. Kernpton. 13 the^e may be essential to the corn- Mass. 272. The meaning of the word fort and convenience of the citizens. ' necessary ' in the statute is discussed * * * Wita re.spect to the defense at length by Chief Justice PARKER, of any town against the incursions of with a fulness of illustration in regard an enemy in time of war, it is difficult to to the various expenses which may be see any principle upon which that can said to fall within the words ' neces- become a necessary town charge. It is sary charges/ that seem to exhaust is not a corporate duty,' etc. In another the subject, and has not been mate- case * * * Rumford School District rially enlarged by later decisions. He v. Wood, 13 Mass. 193, the chief jus- says: ' The phrase ' necessary tice said of towns that they may be charges' is indeed general; that the considered as quasi corporations, with very generality of the expression shows limited powers co-extensive with the that it must have a reasonable limit:i- duties imposed on them by statute or tion. For none will suppose that un- usages. The rule of construction laid der this form of expression every tax dawn in these early cases has been would be legal which the town should strictly followed in the later decisions, choose to sanction. The proper con- In Parsons v. Goshen, 11 Pick. 396, struction of the term must be that in Mr. Justice WILDE says : ' The im- addition to the money to be raised for portant question in this case is settled, the poor, schools, etc., towns might and upon principles that cannot be raise such sums as should be necessary controverted, in Stetson t. Kempton.' to meet the ordinary expenses of the In Anthony v. Adams, 1 Mete. 284, year, such as the payment of such mu- Chief Justice SHAW said : ' It is now nicipal officers as they should be well settled that a town, in its corpo- obligedto employ, the support andde- rate capacity, will not be bound, even fense of such actions as they might be by an express vote of a majority, to parties to, and the expenses they the performance of contracts or other would incur in performing such duties legal duties not coming within the as the laws imposed, as the erection of scope of the objects and purposes for powder houses, providing ammuni- which they are incorporated.' In Vin- tion, making and repairing highways cent v. Nantucket, 12 Cush. 103, it was and town roads, and other things of a said by Mr. Justice MERRICK : ' Their like nature, which are necessary contracts will be valid when made in charges because the effect of a legal relation to objects concerning which discharge of their corporate duty, they have a duty to perform, an inter- The erection of public buildings for est to protect, or a right to defend. 30] PUBLIC CORPORATIONS. 35 by taxation, or pay from its treasury, money for expenses incurred in opposing before the legislature the annexation of the whole or a part of its territory to another town. 1 A Maine town cannot incur expenses in opposing before a legislative committee a division of its territorial limits/ 30. For the payment of bounties to volunteers. The Illinois Supreme Court sustained the constitutionality of a law Authorizing the towns in certain counties therein named to levy a tax to pay bounties to persons who should thereafter enlist or be drafted in the army of the United States, a vote of the township being first taken. The courts defined a tax for "corporate pur- poses" to mean "a tax to be expended in a manner which shall promote the general prosperity and welfare of the municipality which levirs it," and held that a tax levied by the town for the purpose of paying bounties to such as would volunteer in the army during the late war in order thereby to exempt the town from an impending draft on conscription might be fairly considered a tax for the common good and for a "corporate purpose." 3 But here is the extent at once of their demnify its officers against liabilities right and their power. They cannot incurred in the bonafide discharge of enquire in enterprises foreign to the their official duties, as in regard to the purposes for which they were incor- reassessment of taxes, the repairs of a porited, nor assume responsibilities highway, the report of a school com- which involve undertakings not within mittec, the erection of a town house, the compass of their corporate pow- all incidental to and connected with ers.' Following this rule of construe- the exercise of the powers of a town tion, this court has held expenditures (Nelson r. Milford,7Pick. 18; Bancroft to be legtil though not within the ex- r. Lynnflcld, 18 Pick. 566; Fuller e. terms of the statute, but inci- Groton, 11 Gray, 340; Hiidsell r. Il.in- dental to and within the scope of a cock, 3 Gray, 526; Babbitt v. Savoy, 3 power of a town, as for the erection of Cush. 530), and may pay for profes- markct and town houses, and the con- sional services in the defense of suits, strtt -lion of reservoirs to supply fire independent of the result of the suit. engines. Sp.mlding r. Lowell, 2:j and whether the town acted legally or Pick. 71; French r. Quincy, 8 Allen, illegally in the matter i a controversy, 9; Hardy e. Waftham, 8 Met. 168. For it being in the ordinary administra- the support of a public clock, as within tion of town affairs. Gushing v. the jurisdiction of a town, in the same Stoughton, 6 Cush. 889." manner as hay scales, burying grounds, ' Coolidgc P. Brooklinc, (1874) 114 wells and reservoirs, being objects of Mass. '>'..' convenience and necessity to the in- * Inhabitants of Westbrook r. In- habitants. Willard v. Newburyport, habitants of Deering, (1874) 63 Me. 231. 12 Pick. 227. A town may also in- Taylor*. Thompson, (1866) 43 III 9. 30 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 31, 32 31. Validating a contract of village trustees. Under the statutes of New York there is required a submission of a propo- sition for furnishing a water supply to a vote of the electors before a contract can be made by the village trustees, if the cost is to exceed a certain sum. In case village trustees enter into a contract for this purpose, not authorized by this statute, and there is an attempt to ratify it by the electors of the village, the contract would not be validated as of the time when it was made, but simply rendered operative from and after the date of the vote. 1 And the statute as to submission to a vote of the electors of the matter in question was not modified by the subsequent statute providing for the submission " to the taxpaying electors," at a special election of the question of raising moneys for some proper village object additional to the amount already authorized, and for raising the same in like manner with other taxes, and author- izing the trustees to borrow such sum in emergency in anticipa- tion of the tax, but granting them no authority to bond the village otherwise by contract. 2 32. Illustrations of liabilities incurred for a " corporate purpose." The Illinois Supreme Court has held frhat where a tax was voted by a city to donate a sum of money in aid of normal school in case it should be located therein, and it was so located, and the 1 Squire v. Preston, (1894) 82 Hun, r>. Cramer, 14 N. Y. Wkly. Dig. 107; 88; s. c., 31 N. Y. Supp. 174. The Hassan v. City of Rochester, 67 N. Y. statute referred to is N. Y. Laws 1873, 528. As to ratification of the contracts chap. 737, 5, as amended by N. Y. by a vote the court considered appli- Laws 1885, chap. 422. cable the language of Judge DENIO in * Squire 0. Preston, (1894) 82 Hun, 88; Peterson v. Mayor, etc., 17 N. Y. 449, 8. c., 31 N. Y. Supp. 174. The later 454, which was as follows: "No sort statute referred to is N. Y. Laws 1887, of ratification can make good an act chap. 504; see, also, N. Y. Laws 1890, without the scope of the corporate chap 566, 81. which re-enacts in sub- authority So where the charter, or a stance the act of 1873. See In re Com- statute, binding upon the corporation, missioners of Central Park,50N.Y.493; has committed a class of acts to par- In re Evergreens, 47 N. Y. 216. The ticular officers or agents other than questions involved in Squires. Preston, the general governing body, or where supra, were considered also in Squire it has prescribed certain formalities as t>. Cartwright, (1893) 67 Hun, 218; s. conditions to the performance of any c., 22 N. Y. Supp. 899, the contract description of corporate business, the made by the village trustees with the proper functionaries must act, and the water company being for the erection designated forms must be observed, and supply of hydrants. As to the and generally no act of recognition points involved, the court cited: Smith can supply a defect in these respects." 33] PUBLIC CORPORATIONS. . 37 bonds of the city were regularly issued and put in circulation to that amount, such debt was incurred for a " corporate purpose," within the meaning of the constitutional provision allowing taxa- tion for " corporate purposes." 1 So, also, held as to a certain issue of the city's bonds under legislative authority and upon a vote of its legal voters, whereby the city was relieved from the payment of a larger amount of its prior indebtedness. 8 The city being also authorized by the statute to give bonds to aid in the establishment and foundation of a university, and for that purpose having purchased grounds and submitted to vote of the people the question of issuing a certain amount of bonds to make payment for the lands, and it being carried, these bonds were also held to be for a " corporate purpose," there appearing no fraud, combi- nation or oppression in the transaction. 3 The constitutional pro- vision of New York prohibiting cities from incurring indebted- ness except for city purposes, does not deprive the city of the power to construct and operate a plant for a supply of electric light to the city and its inhabitants, as this is a corporate purpose within the meaning of the constitutional provision. 4 Should a municipaf corporation issue negotiable certificates of indebtedness, for instance, to a contractor for the performance of work to be done, or done, for an authorized corporate purpose, without legal authority or power to issue such certificates, the payee may main- tain an action for money had and received ; and the fact that the payee was not a party to the contract would be immaterial if the certificates are issued to him at the request of the contractor and the money received by the city and paid over to the contractor. 5 33. Purchase of fire engines and apparatus. A town possesses inherent power to purchase fire engines for the protec- tion of the property of its citizens from fire. 6 The statute of 1 Burr r. City of Carbondale, (1874) 204; Chapman . Douglas County, 76 111. 455. 107 U. S. 348; 8. c., 2 Sup. Ct. Rep. 1 Ibid. 62; Hitchcock t>. Galveston, 96 U. 8. 1 Ibid. In support of these views the 841. court cited Merrick r. Inhabitants of Corporation of Bluffton r. Studa- Amheret, 12 Allen, 500. baker, (1885) 106 Ind. 129. The court 4 Hequembourg r. City of Dunkirk, said: "The power to purchase fire 49 Hun, 550; 8. c., 2 N. Y. Supp. 447. engines by an incorporated city or Bangor Savings Bunk r. City of town does not, however, of necessity, Styi water, (1892) 49 Fed. Rep. 721; depend upon the question whether Louisiana v. New Orleans, 102 U. 8. the charter of such city or town has, 38 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [33 Indiana for incorporating towns gives them power in one section among other things " to provide all necessary apparatus for the extinguishment of fires.'' Under this section a town is authorized to purchase a fire engine for cash. 1 Another section gives towns power "to incur a debt, on proper peti- tion from the taxpayers of the town severally. * * * Under this section the town may incur a debt for the purchase of a fire engine and apparatus, or purchase it upon credit. 8 Another provision of this law requires the assent of five- eighths of the taxpaying citizens of the town before there is power in the town to borrow money or incur any debt or liability. Upon a proper petition the board of trustees in this case passed an ordinance for raising the money necessary to pay for an engine by sale of the bonds of the town. The court held that the board had the power to disregard this ordinance for an issue and sale of bonds. Their power to purchase an engine on a credit was not exhausted by the mere passage of the ordinance for the issue and sale of bonds. The engine might be purchased by parol and or has not, expressly granted such power. In 1 Dill, on Man. Corp. (3d ed.) 143. the learned author says : "The prevention of damage by fire is usually an object within the scope of municipal authority, either by ex- press grant or by the power, in a chartered town or city, to make police regulations or needful by laws, and for this purpose it may regulate the mode and removal of ashes. And where the town or municipal body has such power, it is authorized to appropriate money for the purchase of engines, or for the repair thereof, if to be used for the purpose of ex- tinguishing fires therein, and this, whether they belong to the corpora- tion or were purchased by private subscription." So in Clark r. City of South Bend, 85 Ind. 276; 8. c., 44 Am. Rep. 13, the court said : " A municipal corporation has such powers as are expressly granted and also such implied or incidental ones as are necessary to carry into effect the express powers and effectuate the object of the corporate existence. It was long ago declared that the power to prevent danger from fire is an in- cidental one, belonging to all munic- ipal corporations." So, also, in Baumgartner v. Hasty, 100 Ind. 575 ; s. c., 50 Am. Rep. 830, the court said : "The rule has always been that a municipal corporation has the in- herent power to enact ordinances for the protection of the property of its citizens against fire. * * * The exercise of such a power is not the exercise of a new power, nor of one not connected with the purposes for which public corporations are organ- ized ; on the contrary, it is the exercise of a power long possessed by municipal corporations and closely con- nected with the purposes for which such corporations are organized." 1 Second National Bank of New Albany r. Town of Danville, (1878)60 Ind. 504. * Second National Bank of New Albany v. Town of Danville, (1878) 60 Ind. 504. 34] PC BUG CORPORATIONS. 30 in this case on credit, and notes commercial or otherwise might be executed for the price by the board of trustees of the town. 1 The power to purchase fire engines and apparatus is necessarily or fairly to be implied as incident to a power granted a city's common council to pass ordinances for the prevention and MIJ> pression of fires and to appoint and remove fire wardens ; and, by ordinance to prescribe the powers and duties of such fire war- dens and of the fire engineers and firemen ; and also the right to raise money by taxation for supporting the fire department. 8 Under a statutory authority to purchase tire engines and appara- tus of all kinds for the use of the fire department of a city, the board of fire commissioners having charge of such matters may purchase hose carriages. 8 34. Illustration of wrongfully incurred liability. Where the sum of $1,500 had been voted by a school district of Wyom- ing for contingent expenses, the Supreme Court of that state held that the purchase of a steam-heating apparatus for a sum largely in excess of that amount was not within the power of the 1 Second National Bank of New department with apparatus would be Albany v. Town of Danville. (1878) 60 as futile as the privilege of raising an Ind. 504 ; Sheffield School Township army without the power to provide . Andress, 56 Ind. 157. See upon weapons or subsistence. The power this subject, generally, Evansville, to do either would imply the power etc., R. R. Co. t. City of Evansville, to effectuate the intent involved in the 15 Ind. 895; City of Indianapolis r. grant by the execution of its incidents. Miller, 27 Ind. 394 ; Thompson v. City The contracts for the purchase of of Peru, 29 Ind. 305. On the prin- apparatus are clearly among the ciple, Halstead r. Board of Comrs. incidents of the grant. The power to of I^ake County, 56 Ind. 363. purchase fire engines has been, in * Green t. City of Cape May, (1879) several states, sustained under the au- 41 N. J. Law, 45. It was said in the thority of the city to make police opinion: "The power to suppress regulations for public safety, which, fires, etc., would be nugatory without it is held, confers the power to take tin- i tower to obtain the means by measures for the prevention of fires, which the suppression can be offected. Whether the power to suppress fires The authority to prescribe the power arises from the general safety clause; and duties of firemen and fire engineers of the charter or from express grant, implies that there shall be apparatus, it curries with it the right to purchase in the management of which duties fire engines. 1 Dill, on Man. Corp. shall arise and become the subject of 94." municipal regulation. The power to 'Leonard r. Long Island City, (1892) organize a fire department unaccom- 47 N. Y. St. Rep. 761 ; s. c., 90 N. Y. panied with the power to equip the Supp. 26. 40 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [35 district board. 1 The court held the warrant issued by the school district for a steam-heating apparatus to be void for another reason that it was in violation of the statute of congress limiting the amount of indebtedness to be incurred by every political or municipal corporation, county or other subdivision of the terri- tories of the United States to an amount not exceeding a certain percentage on the value of taxable property therein. 2 35. Purchase of cemetery grounds. A charter of a municipal corporation conferring the power to purchase fire 1 School District No. 3 in Carbon Pac. Rep. 922; Acts 49th Cong. (1st County n. Western Tube Co., (Wyo. Sess.) chap. 818, 4. It was urged 1895) 38 Pac. Rep. 922. It was said before the court that the debt at- by the court: "Certainly our statute tempted to be incurred by the district does not permit the contracting of board for the heating apparatus was a debts far in excess of the appropriation necessary one, and that the very exist- made for contingent purposes for that ence and maintenance of the public year, and we doubt that such author- schools required that they should be ized expenditures would be counte- kept open and the pupils comfortably nanced anywhere in the absence of a seated and warmed. The court said to statute giving a district school board this: "But this question is settled, express powers to contract for the dis- The provisions of the act of congress trict beyond the annual appropriations were probably borrowed from the made by the annual school meeting, Constitution of Illinois, which con- where such meeting is made the tains a similar restriction, a limitation source of the power of taxation. It which has been judicially interpreted, would authorize the creation of a The clause shall not become indebted floating indebtedness which should ' in any manner or for any purpose ' bind the district the same as a bonded in the Illinois Constitution is construed indebtedness permitted by an act of to mean just what it says, and not to the legislature. In some of the states permit an exception that would allow the district board or some of its mem- a public corporation to incur indebted- bers are authorized either in express ness for supplies to meet its ordinary statutory terms or by implication, wants and necessities, an exception where the board or officer are charged which the framers of the Constitution with certain duties, to incur expenses did not see fit to make and which the for the district in limited sums for courts have no power to insert. Prince specific purposes, but this power to t. City of Quincy, 105 111. 138, 143, bind the district is strictly limited to 216; City of Springfield v. Edwards, the purposes named in the statutes. 84 111. 626; Law v. People, 87 111. 385. Conklin v. School District, 22 Kans. The same principle is sustained by the 521; School District r. Snell, 24 Mich. Supreme Court of the United States 350; Gibson v. School District, 36 in construing a similar construction in Mich. 404; Johnson r. School District, the Constitution of Colorado. Lake 67 Mo. 319." Co. v. Rollins, 130 U. S. 662; s. c., 9 1 School Dist. No. 3 of Carbon Sup. Ct. Rep. 651; Lake Co. v. County r. Western Tube Co., (1895) 38 Graham, 130 U. S. 674; B. c., 9 Sup. 36") PUBLIC CORPORA!! 41 apparatus, cemetery grounds, to establish markets and other things, for the execution of which power money would be a necessary means, in the absence of any positive restriction, con- fers the power to borrow money as an incident to the execution of such general powers. 1 A power of taxation conferred in the charter cannot be deemed to exclude the power of borrowing. 2 This city having contracted to purchase a cemetery lot, and pay for the same by its corporate bonds, it was held, having acted within the powers conferred by its charter, could not be pre- vented by a subsequent act of the legislature forbidding the issuing of bonds. 8 36. Erection of crematory for garbage, etc. The Supreme Court of Wisconsin has held that, under the general power given by tbe statutes of Wisconsin to prevent or abate nuisances, a village board may contract for the building of a crematory for garbage, dead animals, etc. 4 Ct. Rep. 654. It makes no difference for destroying them, instead of foul - for what purpose or in what manner ing the waters of a lake or stream of the debt was created; if in excess of water with them, to be again cast up, the statutory or constitutional limit it to the prejudice of the public, or de- is wholly void." positing them where they would create 1 Mills v. Glcason, (1860) 11 Wis. 470. a new nuisance. To this end, if a *Ibid.; Clarke r. School District, 3 garbage crematory becomes necessary, K. I. 199. the board may, within a fair and bona 1 Mills v. Gleason, (1860) 11 Wis. 470; fide exercise of their discretion, con- see State T. Common Council, 7 Wis. tract for its construction, and the vil- 688; Smith c. Appk-ton, 19 Wis. 4G8. lage will be bound by the contract. 4 Kilvington v. City of Superior, Speaking of the powers of such cor- (1892) 83 Wis. 222. The caurt said: porations, in Spaulding v. Lowell, 23 "The power 'to prevent or abate uui- Pick. 71, 74, SHAW, Ch. J., says: 'They sanccs ' that which occasions public can exercise no powers but those which hurt or inconvenience is necessarily are conferred upon them by the act by a very broad and comprehensive one, which they are constituted, or such as and essential, if not indispensable, to arc necessary to the exercise of their the purpose for which the village was corporate powers or duties and accom created. It would hardly be questioned plishtncnt of the purposes of their as- hy any one that if garbage, manure, sociation.' French r. Quincy, 3 Allen, or dead animals were found within the 9, 12. This rule has been affirmed village, in the interest of good order, in this state, with the just qualification cleanliness or public lua'.tli. the board that such corporations may resort to of trustees would have power to abate the usual and convenient means of ex- such nuisances by removing or other- ecutin? tho powers granted; that is to wise making suitable disposition of say, as applied to this case, that the vil- them. To this end, it might provide luge, in order to prevent or abate nui- 6 42 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 37-39 37. Use of private property for sewers. Under the authority to construct sewers as incident to the general right of a municipal corporation to maintain streets and highways, 1 the governing authorities of a city may contract for a right to con- struct a sewer through private property and bind the city for the cost by way of damages agreed upon by the authorities and the owners of the private property. 2 38. Detection of criminals. Municipal corporations, when not authorized to levy taxes to pay the expenses of detecting and bringing to justice persons guilty of crimes punishable under general laws, cannot through their governing board create an indebtedness against the corporation for any such purpose, whether by proclamation, resolution or ordinance. 3 39. Aiding private corporations. A municipal corpora- tion cannot become a shareholder or stockholder in a private cor- poration or borrow money or incur debts to aid extraneous sances, might resort to such means as 444; Spaulding v. Lowell, 23 Pick. 17, were usual and convenient. Mills v. 80. It was not necessary, therefore, Gleason, 11 Wis. 470, 491; Oilman v. that there should have been express Milwaukee, 61 Wis. 588, 592; Bell . power conferred on the village to build, Platteville, 71 Wis. 139, 142; Meinzer v. or contract for building, the crematory. Racine, 68 Wis. 241, 245. The power The village board might contract for to prevent and abate nuisances is an ex- it as a means adapted to the end of press grant of power, and not an im- preventing or abating nuisances, and plied one; and 'it has long been an estab- as a health measure, and so within the lished principle in the law of corpora- general purpose for which the village tions that they may exercise all their was organized." powers within the fair intent and pur- ' Cone v. City of Hartford, 28 Conn, pose of their creation which are rea- 363. 366; Fisher v. Harrisburg, 2 Grant sonably proper to give effect to powers (Pa.), 291; Stoudinger v. City of New- expressly granted. In doing so, un- ark, 28 N. J. Eq. 187. less restricted in this respect, they - Leeds v. City of Richmond, (1885) must have a choice of means adapted 102 Ind. 372. In the power granted to ends, and are not confined to any to a city to construct a sewer outside one mode of operation,' and their dis- of its limits, when necessary to afford cretion in this respect cannot be re- an outlet for sewers within, is in- vised or interfered with by the courts, eluded the power to agree with own- cxccpt where the substantive power is ers of lands as to terms of their occu- exceeded, or fraud is shown, or there pancy. Little v. City of Rochester, is a manifest invasion of private rights. (1883) 17 N. Y. Wkly. Dig. 513. Dill. Mun. Corp. g 91, 94, and cases 8 Murphy v. City of Jacksonville, cited; Benson v Waukesha, 74 Wis. (1881) 18 Fla. 318. Whether or not 31, 89; Kelley v. Milwaukee, 18 Wis. town trustees could bind a town by 83, 85; Schanck v. Mayor, 69 N. Y. offering a reward for the apprehen- 39] PUBLIC CORPORATIONS. objects, unless the power be expressly granted. 1 There is no power conferred upon a city to purchase real estate within its corporate limits designed for the benefit of an agricultural society that its annual fairs should be held therein, by a provision in its charter giving the council "full power and authority t-o purchase, jind provide for the payment of the same, all such real estate and personal property as may bo required for t-he use, convenience- and improvement of the city." 2 Even with power, granted by sion of a felon who had been guilty of homicide in the town has been qucs 1 in Kentucky. Lee r. Trustees of Flemingsburg, (1838) 7 Dana (Ivy.), 28. 1 Mayor r. Wetumpka Wharf Co., 63 Ala. 611; Low v. Marysville, 5 Cal. 214; Douglass v. Placervill*. 18 Cal. 643. City of Eufaula v. McNab, (1880) 67 Ala. 588. SOMERVILLR, J., speak- ing for the court, said: "It may be rone uled that if the hind iu question had been purchased for an exclusively public iie, as being designed for dedi- cation to a purpose within the usual scope of municipal governments, it might be a proper exercise of corpor- ate power under the above section, and the validity of the contract of pur- chase could not be affected or ren- dered invalid by any subsequent di- version of the land to unauthorized uses, not shown satisfactorily to have been mutually intended at the time of the purchase. 2 Dill, on Mun. Corp. 444; Weisraer v. Village of Doug- las, 64 N. Y. 91 ; s. c., 21 Am. Rep. 586. But the terms of the charter are imperative that such property must be ' required for the use, convenience and improvement of the city.' Col- lateral advantages, incidentally result- ing in the promotion of the city's commercial or business prosperity, will not be sufficient. It is not con- templated or permitted that such property shall be acquired in aid <>f private enterprise not of a public character, however 1 uidahle may be its purpose, or however useful may be its encoura^.-mcnt. As said by Mr. Justice MII,U:H in Loan Association T. Topeka, 20 Wall. 6.i5. 660: It fol- lows that in this class of cases the right to contract must be limited by the right to tax, and if in the given case no tax can lawfully be levied to pay the debt, the contract itself is void for want of authority to make it. The same view was expreased by BRICK- ELL, Ch. J., in the N. O. M., etc., R. R. . Dunn, 51 Ala. 128, 136, where the following language is used: ' The power of taxation thus conferred (by the charter) must be limited and cdn- flned strictlyto the purposes for which the corporation is created. The reve- nues derived from the exercise of this power must be faithfully applied to these purposes. The corporate au- thorities cannot, without a violation of duty and usurpation of power, appro- priate the revenues thus produced to any other purposes or objects than such as are fairly expressed or reasonably implied iu the charter. It is not ma- terial what is the character of the ob- ject, or how pressing the necessity, or what are the benefits, real or imagin- ary, which may flow to the city. If not within the purposes of the act of incorporation, there in a want of power in the corporate authorities.' It was said by the Supreme Court of Maine in Allen r. Inhabitants of Jay, (JO Me. I'.M, that 'taxation by the very meaning of the term implies the 44 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 40 its charter, in a city to aid in the construction of improvements partaking of a public character, the city could not, in the exercise of the power, contract to pay money, or to appropriate its reve- nues to aid in constructing the works of a private corporation. 1 There being no provision in the Constitution of West Virginia authorizing the levying of taxes to be used to aid private persons in conducting a private manufacturing business, the Supreme Court of the United States Jield that the legislature had no power to authorize a city of that state to issue its bonds for the purpose of lending them to persons engaged in manufacturing ; flie act, therefore, was invalid and all bonds issued under its authority were, as against the city, void. 2 The Supreme Court of Arkansas has held that the common council of a town has no power to appropriate money to aid the building of a court house in such town, as such an act is prohibited by that article of the Constitution of the state that no county, city or town, or other municipal cor- poration, shall appropriate money or loan its credit to any corpo- ration, institution or individual. 3 40. Subscription to capital stock of railroad corpora- tions. Municipal corporations are clothed with no power, out- side of express authority granted by statute, to subscribe to the stock of private corporations. 4 And if such authority be given by the legislature the mode and procedure prescribed by the statute must be strictly followed. 5 The legislature of a state may grant to municipal corporations power to subscribe to the capital raising of money for public uses, and ' San Diego Water Co. t>. City of excludes the raising it for 'private ob- San Diego, (1881) 59 Cal. 517. jects and purposes.' 'I concede,' 'Parkersburg v. Brown, (1882) 106 says BLACK, Ch. J., in Sharpless *>. U. S. 487; s. c., 1 Sup. Ct. Rep. 442. Mayor, 21 Pa. St. 147, 168, 'that a law 3 Russell v. Tate, 52 Ark. 541; s. c., authorizing taxation for any other 13 S. W. Rep. 130. As to the loaning than public purposes is void.' The of its credit by a municipal corpora- court cited as sustaining the text: tion to a private corporation, forbidden Loan Association v. Topeka, 20 Wall, by constitutional provisions of the 655; Allen v. Inhabitants of Jay, 60 state, see City of Cleburne v. Brown, Me. 124; s. c., 11 Am. Rep. 185; 73 Tex. 443; 8. c., 11 S. W. Rep. 404. Lowell v. City of Boston, 111 Mass. 4 French n. Teschemaker, (1864) 24 454; B. c., 15 Am. Rep. 39; Hanson Cal. 518; Gulf Railroad Co. t>. Miami v. Vernon, 27 Iowa, 28; s. c., 1 Am. County, 12 Kans. 482. Rep. 215; Railroad Co. v. Dunn, 51 French v. Teschemaker, (1864) 24 Ala. 128, Weismer v. Village of Doug- Cal. 518. las, 64 N. Y. 91; s. c., 21 Am. Rep. 586." 40] PUBLIC OORPOEATION8. 45 stock of private corporations formed to carry out such public improvements as tend to increase the trade and business interests of the municipality. 1 In the absence of constitutional prohibition the legislature of a state may authorize municipal corporations to aid in the construction of railroads.' And a statute authorizing municipalities to aid in the construction of a railroad is not in conflict with the provisions of a State Constitution forbidding a loan of the credit of the state to private persons or corporations, and forbidding the state subscribing to the stock of any corpora- tion, or from being interested in any work of internal improve- ment, and forbidding any person being deprived of his property without due process of law. 8 There is no ground for a constitu- tional objection to the grant of power by the legislature to a city to subscribe to stock of a railroad company in the fact that such company is a foreign corporation and that its road terminates at a point in another state from which it runs a line of boats to the city issuing its bonds in aid of the company. 4 The statute of Arkansas authorizing coimties "having or controlling internal improvement funds, or credits granted to it by the state," to sul>- scribe to the capital stock of any valid anc duly organized rail- road, has been held not to confer power upon counties to sub- scribe for stock in a railroad compapy and issue bonds of the county in payment for it which might by any possibility become a proper charge upon the taxpayers of the county. 5 The court adhered to this decision in a later case and held generally that a county or other municipal corporation had no power, independ- ently of an express grant of authority, to subscribe for stock in a railroad company and issue bonds in payment of the subscrip- tion. 6 The Iowa Supreme Court has held that to aid in the con- struction of a railroad was not a public purpose within the mean- ing of a provision in the charter of a city that " whenever, in the opinion of the city council, it is expedient to borrow money for any pitbltc purpose the question shall be submitted," etc., and 1 City of Bridgeport r. Housatonuc bonds, sec Bnrd P. City of Augusta, R. R. Co., (184S) 15 Conn. 4', 5. 80 Fed. Rep. 906. 1 Taylor P. City of Ypsilanti, 11 Fed. 4 Moulton c. City of Evansville, 25 Rep. 025. Fed. Rep. 382. 1 Ibid. As to the power of Kansas English . Chicot County, (1871) 2 cities under the legislation of that Ark. 4.VI. state to become interested in railroad * Hancock . Chicot County, (1877) enterprises and to issue railroad aid 82 Ark. 575. 46 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [40 there was no power conferred by the charter to borrow money for the purpose of aiding in the construction of a railroad, the power to borrow money conferred upon the city not authorizing the loan of the credit of the city. 1 The Supreme Court of Illi- nois has recently held that where an act incorporating a railroad company gave power to towns along the line of its road to sub- scribe to the capital stock of the company, a town along its line, subsequently incorporated by an act of the same session of the legislature, which did not enumerate among the powers of the town the power to subscribe to such stock, could make a valid subscription to such stock, there being no inconsistency between the act incorporating the railroad company and the one incorpo- rating the town. 2 1 Chamberlain v. City of Burlington. (1865) 19 Iowa, 395. 8 Hutchinson e. Self, (1894) 153 111. 542; s. c., 39 N. E. Rep. 27. As to the constitutionality of acts authorizing municipal subscription to stock of rail- roads, etc., see Commonwealth ex rel. Armstrong v. Perkins et al., Commis- sioners of Allegheny County, (1862)43 Pa. St. 400. As to power of munic- ipal corporations under the Constitu- tion and laws of Colorado to make dona- tions or subscribe to capital stock of private corporations, see Colorado C. R. R. Co. v. Lea, 5 Col. 192; Packard v. Jefferson County, 2 Col. 338; People v. Pueblo County, 2 Col. 360. In Ken- tucky: W. & M. S. T. R. Co. v. Clark Co. Ct., (1860) 3 Mete. 144; Shelby Co. Ct. v. C. & O. R. R. Co., (1871) 8 Bush, 216; Mercer Co. Ct. v. S. M. & H. T. Co., (1874) 19 Bush, 257; Mercer Co. Ct. v. Ky. River Navigation Co., (1871) 8 Bush, 307; C. & O. R. R. Co. v. Barren Co. Court, 8 Bush, 215; Fore- man v. Murphy, (1870) 7 Bush, 304. Subscription made valid by con- firmation by act of the legislature. Shelby Co. Ct. v. C. & O. R. R. Co., 8 Bush, 218. Legislature may modify, etc., after a vote is taken and before the actual making of subscriptions. C. & O. R. R. Co. v. Barren Co. Court, (1874) 10 Bush, 610. Constitutionality of acts author- izing subscriptions settled. Shelby Co. Ct. v. C. & O. R. R. Co., (1871) 8 Bush, 215; Tyler v. E. & P. R. R. Co., (1872) 9 Bush, 515; Bullock v. Curry, 2 Mete. 174; Allison v. L. II. C. & W. R. Co., 9 Bush, 248; Shelby ville Trus- tees v. 8. & E. T. Co. , 1 Mete. 57. Under what circumstances the legisla- ture may repeal acts granting author- ity to subscribe to capital stock of railroad company. C. & L. R. R. Co. T. Kenton County Court, (1851) 12 B. Mon. 150; M. T. Co. v. How, (1854) 14 B. Mon. 432. In Missouri :Osage Valley & Southern Kansas R. R. Co. v. Morgan County Court, (1873) 53 Mo. 156; Rubey v. Shain, (1873) 54 Mo. 207. As to the power of the legislature to authorize such subscriptions, see St. Joseph & Denver City R. R. Co. v. Buchanan County Court, 39 Mo. 485; State v. Saline County Court (1870) 45 Mo. 242. As to raising money to aid in the construction of a railroad, see Stevens . Anson, 73 Me. 489. In Pennsylvania R. R. Co. v. City of Philadelphia, (1864) 47 Pa. St. 189, the power to invest its stocks, money or credit directly or indirectly in aid of a steamship line between this city 41, 42] PUBLIC CORPORATIONS. 47 41. Power of the legislature as to corporations in such matters. It is in the power of the legislature of a state to confer on municipal corporations largi-r powers than would be implied from the general purposes of their creation, and when the legislature of a state, in express terms authorizes cities or towns to subscribe for stock in an enterprise, of the kind usually known as internal improvements, canals, railroads and plank- roads, for instance, the contract of such cities or towns, made pursuant to the statute, is binding upon them.' 42. Constitutionality of legislation authorizing such aid. The Supreme Court of Alabama has sustained the acts authorizing cities to aid by sutecription to stock and issue of bonds in the construction of railroads as constitutional. 2 In an and foreign ports, in the absence of Court of Alabama construed the special legislation authorizing it, was words, however, to authorize the city denied to this city by the Supreme to pledge its credit, and thereby raise Court of Pennsylvania. See chap, money to aid in the construction of "Municipal Aid." some work of the kind generally rc- 1 Mayor & Aldermen of Wetumpka ferred to as internal improvements in p. Winter, (1857) 29 Ala. 651. It ap- the general acceptation of the words peared in this case that certain bonds as a means of improving the commerce had been issued by a city under stat- of the city, and thereby benefiting its utory authority, and it was provided citizens. As to the power of the legis- by the statute that "the money aris- lature to confer upon municipal cor- ing from the sale of said bonds may porations the power to lend its credit be appropriated under the supervision in aid of railroad or other improve- and direction of the mayor and alder- mcnts, see Fielder r. M. &E. R. R. Co., men of [the city], for any purpose of 51 Ala. 178. internal improvement for the benefit 'Gibbons r. Mobile & Great North- of the citizens of [the city]." These ern R R. Co., (1860) 30 Ala. 410, bonds were used to aid in the con- adhering to the doctrine declared in strurtion of a plank road which was Stein t. Mayor, Aldenren, etc., of to enter the city from an outside point. Mobile, (1854) 24 Ala. 591, that There was a contention that this was although the only legitimate object an improper use of the bonds on the of taxation is the support and main part of the city; that inasmuch as the tenance of government, yet this pur- powers of municipal corporations are pose embraces a wider range than the conferred for their well-being and mere machinery employed in its ad- gcnerally confined to police and sani- ministration; that the power author- tary regulatims within the chartered izes the employment of the necessary limits of such corporations, the proper appliances to augment the aggregate, construction of the words "internal wealth and prosperity of the inhabit improvements" in the statutes was ants of the city; and that this may that they applied to no works except be accomplished by providing outlets within the city limits. The Supreme for commerce, opening channels of 48 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 42 early leading case in Wisconsin, involving the lending of its credit by the issue of its bonds in aid of a railroad company by a city of that state, the constitutionality of the act granting the power to the city to do so was vigorously attacked on all points. The Supreme Court, however, sustained the constitutionality of the act, holding that the constitutional provisions that the " credit of the state shall never be given or loaned in aid of any individual, association or corporation," and that " the state shall never con- tract any debt for works, of internal improvement, nor be a party in carrying on any such works were limitations upon the state alone and did not prohibit the legislature to authorize counties, towns and cities to loan their credit or contract debts for works of internal improvement ; that the Constitution in another place recognized the power of municipal corporations to loan their credit and required the legislature simply to restrict it. 1 The legis- lature may authorize a town to subscribe for the stock of a rail- road company and to incur indebtedness for making internal inter-communication with other parts issue of bonds in payment for it, and of the state, etc. Mayor, etc., of declared this rule: "To justify a court Wetumpka v. Winter, 29 Ala. 651; in pronouncing a statute void, it must .Sharpless v. Mayor, etc., 21 Penn. St. be apparent that it is an exercise of 147; Louisville & Nashville R. Co. v. powers not legislative of power County Court, 1 Sneed, 637. In Stein committed to one or more of the other . Mayor, etc., supra, the court re- departments of the government, or that viewed as to the power as well as it is violative of some provision of the purposes of taxation the following Constitution, state or federal. Whether cases, arising in different states, the policy of tbe statute is sound to wit: Battle v. Corporation of whether it will promote the public Mobile, 9 Ala. 234; Intendant of good whether it is in harmony with Marion v. Chandler, 6 Ala. 899; natural right or will obstruct justice State v. Estabrook, 6 Ala. 653; are not judicial questions. Dorman Nichol v. Mayor of Nashville, 9 v. State, 34 Ala. 216." Humph. 252; Hope v. Deaderick, 8 l Clark v. City of Janesville, (1859) Humph. 1; Commonwealth v. McWil- 10 Wis. 136, following State ex rel Dean liams, 11 Penn. St. 61; Parker . David- son, 1 Sneed, 637; Nichol t>. Mayor, etc., of Nashville, 9 Humph. 252; Railroad Co. v. Comrs. cf Clinton Courty, 1 Ohio St. 77; Trustees of Paris r. Cherry, 8 Ohio St. 564: Cass t>. Dillon, 2 Ohio St. 607; State t>. Comrs. of Clinton County, 6 Ohio St. 280; State . Van Home, 7 Ohio St 827; State t>. Trustees of Union, 8 Ohio St. 394; Trustees, etc., v. Shoe- maker, 12 Ohio St. 624; State 0. Comrs. of Hiincoek, 12 Ohio St. 596; Powers r. Dougherty County, 23 Ga. 65; San Antonio *>. Jones, 28 Tex. 19; Commonwealth v. McWilliams, 11 Penn. St. 61 ; Moere r. City of Reading, 21 Penn. St. 188; Slack r. R:iilro:uiCo., 13 B. Mon. 1; Talbot P. Dent, 9 B. Mon. 526; City of St. Louis . Alex- ander, 23 Mo. 483; City of Aurora t>. West, 9 Ind. 74; Cotton r . Comrs. of Leon. 6 Fla. 610; State ex rel. Copes v. Charleston, 10 Rich. (S. C.)491; Comrs. of Knox County r. Aspinwall, 21 How. 539; Comrs. of Knox County t>. Wal- lace, 21 How. 546; Zubriskie t>. Railroad. Co., 23 How. 381; Amey t>. Mayor, etc., 24 How. 864; Gelpcke v. Dubuque, 1 Wall. 175; Thomson r. Lee County, 3 Wall. 327; Rogers 9. Burlington, 3 Wall. 654; Gibbons t>. Mobile & G. & Northern R. R Co., 36 Ala. 410; St. Joseph, etc., R. R. Co. t>. Buchanan County Court, 39 Mo. 485; State t>. Linn County Court, 44 Mo. 504; Stewart . Board of Supervisors of Polk County, 30 Iowa, 9; John r. C. R. & F. W. R. R, Co., 35 Ind. 539; Ex parte Selma, etc., R. R. Co., 45 Ala. 696; Stockton & Visalia R. R. R. Co. r. Stockton, 41 Cal. 147. admission that the power existed. See Foster v. Eenosha, 12 Wis. 016. 1 Bushnell r. Bcloit. (1860) 10 Wis. 195. See, also, Brodhcad v. Milwau- kee, 19 Wis. 624; State ex rel. Car- penter t>. Beloit, 20 Wis. 79; Whiting t>. Railroad Co., 25 Wis. 167; Bridge- port cHousatonuc R. R. Co., 15 Conn. 475; Sharpless r. Mayor, etc.. 21 Penn. St. 147; Comm. ex rel. Thomas t. Comrs. Allegheny Co., 7 Am. Law Reg. 92; Talbot r. Dent, 9B. Mon. 526; Black v. Maysville & Lexington K. R. Co., 13 B. Mon. 1; Chenney r. Hooscr, '.) II. Mon. 250; Goddin r. Crump, 8 Leigh, 120; Nichol v. Mayor, etc., Nashville, 9 Humph. 252; Cincinnati R. R. Co. v. Clinton County, 1 Ohio St. 77; Steubenville & Ind. R. R. Co. 9. North Township, 1 Ohio St. 105; Shaw v. D.-nnis. 5 Gilm. (111.) 405; Ryder v. Altor & Sangamon River R. Co., 13111. 516, Dubuque County v. D. & P. R. R. Co., 4 G. Gr. 1; Vicks- burg, Shrcveport & Texas R. R. Co. t>. Ouarhita, 11 La. Ann. 649; Parker v. Scogin, 11 La. Ann. 629; City of Au rora v. West, 9 Ind. 74. As to the constitutionality of legislative enact- ments authorizing a subscription to stock, etc., in aid of railroads, see Stewart v. Board of Supervisors of Polk County, (1870) 30 Iowa, 9; Goddin r. Crump, 8 Leigh, 120; Starinr. Genoa, 29 Barb. 442; Bank of Rome . Village of R >me, 18 N. Y. 88; Prettyman . Supervisors, etc., 19111.406; Robertson e. Rockford, 21 111. 451; Johnson f. Stark Co., 24 111. 75; Pattison r. Yuba Co., 18 Cal. 175; Blanding r. Burr, 18 Cal. 843; Hobart v. Supervisors, 17 Cal. 23; Taylor t>. Newberne, 2 Jones Eq. (N. C.) 141; Caldwell v. Justices 7 60 GENERAL POWER TO INCUR PECUNIARY LIABILITY. authorizes its city council " to make, ordain and enact such laws and regulations (not contrary to the Constitution and laws of this state) as may be deemed necessary in relation to the streets and highways, public buildings and powder magazines, and every other matter and tiling which they may deem necessary for the good order and welfare of said city," is not authorized to construct or aid in constructing a plank road or bridge beyond the corpo- rate limits of said city. 1 1 City Council of Montgomery . Montgomery & Wetumpka Plank Road Co., (1857) 31 Ala. 76, holding a loan of the city funds to this company for construction of its road and a bridge beyond the limits of the city to have been unauthorized and void; STOKE, J., said: " We find no express authority [in the charter of this city] to enter into the contract declared on; neither is the exercise of such power neces- sary to carry into effect any of the ex- pressly granted powers; nor was the exercise of the power under considera- tion a necessary means of effecting the purpose for which this corporation was created. * * *" As to the effect of the general words in the charter it was said: " In the case of Beaty v. Lessee of Kuowler, 4 Pet. 153-171, the Supreme Court of the United States held the following lan- guage: ' The provision in the 10th section tnat the ' directors shall have power to do whatever shall appear to them necessary and proper to be done for the well ordering of the interest of the proprietors, not contrary to the laws of the state,' was not intended to give unlimited power, but the exercise of a discretion within the scope of the authority conferred. If the words of this section are not to be restricted by the other provisions of the statute, but to be considered according to their lit- eral import, they would vest in the directory a power over the land only limited by their discretion. They could dispose of the land and vest the proceeds in any manner which they might suppose would advance the interest of the proprietors. It is only necessary to state the consequence to show the danger of such a const ruc- tion.'" Citing The People v. Utica Ins. Co., 15 Johns. 358, 383; Stetson . Kcmpton, 13 Mass. 272, 278, 279; State of Ohio . Washington Social Library Co., 11 Ohio, 96; Ang. & Ames on Corp. (3d ed.) 84, 85, 86. The language found in the charter which was construed in the case of Beaty v. Lessee of Knowler, supra, strikingly resembles the clause from the act incorporating the city of Mont- gomery, which we are considering. The grant of power in the one case is that "the directors shall hate power to do whatever shall appear to them to be necessary and proper to be done," etc. In the other it embraces "every other matter and thing which they may deem necessary for tfie good order and welfare of said city." In this case, as in the case from 4 Pet. supra, if the words of the charter " are not to be restricted by the other provisions of the statute, but to be considered according to their literal import, they would vest in the corporate authorities a power * * * only limited by their discretion." We cannot believe it was the intention of the legislature to confer on the city council of Montgomery "unlimited power," but only to grant to that body the right to exercise "a discretion within the scope of the authority con- ferred. In other words, we limit the 44] PUBLIC CORPORATIONS. 51 44. Subscription for less than the amount voted. When authorized by the legislature to issue bonds which may be delivered to a railroad corporafion in payment of a subscription to its capital stock by a municipal corporation, the subscription to stock or issue of bonds may be for less than the amount voted. 1 words, ' every other matter and thing,' ness transaction. The act itself auth- as found in the act, to such subjects ori/.ing counties, townships and as are cognate to the powers expressly municipal corporations to subscribe conferred." for stock in and to issue bonds to rail- 1 Chicago, Kansas & Western R. R. road companies, is entitled, 'An act to Co. v. Oznrk Township, (1891) 46 Kans. enable counties, townships and cities 415. The court cites Turner v. Wood- to aid in the construction of railroads,' son County, 27 Kans. 814, and then etc. Laws of 1876, chap. 107. This said: "This question has also been shows that the main object of the act virtually decided * * * by the was to enable counties, townships and Supreme Court of Alabama [in] Win- cities ' to aid in the conxtnu-tinn ofrail- ter v. City Council of Montgomery, 65 road*,' and was not to permit such cor- Ala. 403; s. r., 7 Am. & Eng. R. R. porations to engage in such trans- Cas. 807. This case is as nearly in actions as a mere business venture, or point, as nearly applicable, as nearly as an investment in stock or a specu- analogous to the present case as it Jation in bonds and stocks." Twenty could well be, and we know of no years ago it was said by this court in authority to the contrary, and the the case of Comrs. of Leavenworth principle enunciated in the cases cited Co. v. Miller, 7 Kans. 479, 538, 529, 532, is substantially that when authority is among other things, as follows: " If a given to the officers of a public corpo- railroad company is purely a private ration, by an election or otherwise, to corporation, and if the construction issue a certain amount of the bonds of and operation thereof is purely a the corporation, the officers will have private purpose, neither the govern- the power and the right, wherever ment nor any municipal corporation there is a sufficient reason therefor, to has any right to become a stojkholder issue a less amount of the bonds of therein. Governments were not or- the corporation." The court further ganized for the purpose of engaging on in the opinion said: "The object in private enterprises or private busi- of the law in permitting public corpo- ness, but only for the transaction and rations to subscribe for stock in rail- promotion of puMic affairs. Even if road companies, and to issue their the purchase of stock in a railroad bonds in payment therefor, is not in- company should be a paying trans- temlrd as a business transaction like action as an investment (which unfor- that consummated by an individual Innately for counties and municipal when he purchases stock and pays corporations it is not), still a govern- therefor in money or in something mental organization would have no else. It is merely for the purpose of right for that reason alone to engage procuring greater facilities for travel in it, for governmental organizations and transportation for the general are not created for purposes of specu- public which is always considered as a lation, nor are they created for the public purpose and not merely as a purpose of promoting the general wel- private purpose, enterprise or busi- fare of the individual members thereof 52 GENERAL POWES TO INCUR PECUNIARY LIABILITY. [ 45 45. The effect of subsequent legislation upon such a sub- scription. A city in Georgia, the mayor and council of which had been by statute empowered " to borrow money and contract loans, not to exceed $200,000, for the use of the city * * * ; and to pledge the funds or property of the corporation * * * and the commons thereof, for the redemption of such loan or loans, and also shall have power to purchase any real or personal estate for the use and benetit of the corporation, * * * " sub- scribed for shares of stock of a railroad company. After the subscription the city authorities were by statute "empowered to contract a further loan of the same amount, over and above the amount already borrowed, and that the town commons and pub- lic property of the city be pledged for the payment of the same." The preamble to this last act referred to the passage of the first act, concluding : " And whereas, that sum has been already borrowed and vested in stocks for the purposes of internal improvement" The Supreme Court of Georgia held that the effect of this last or citizens. The increased facility for the voters at the election. The propo- travel and transportation is the main sition was, when fairly construed, that object in the creation of railroads, and the city should extend aid to the ruil- this it is which constitutes a railroad road company by the issue of its bonds a public purpose. All other benefits, to an amount not exceeding one mil- though belonging of right to the pub- lion of dollars, which were to be ein- lic, are simply incidental." Pages 528 ployed in building and equipping the and 529. "The opening of hotels, road. It was not pecuniary gain, not the running of stage coaches, hacks, any of the advantages which would, drays, etc., have never been considered accrue to an individual from member- as incumbent upon governments, ship in the railroad company .hat Governments have never undertaken to formed a motive or inducement lor keep hotels, run stage coaches, etc., and clothing the city with power to aid in it has never been considered that there the construction of the road. The was any moral or legal obligation rest- benefits which would result to the ing upon them to do so. But the duty commerce and industry of the city, of opening highways, canals and other the increased facilities of access to It, like improvements for the accommo- were the purposes for which the dation of travel and commerce, has power was conferred. If these could always been considered most binding be secured without involving the city upon all governments." Page 532. in a debt of one million of dollars, it In the case of Winter v. City Council was not only within the power, but it of Montgomery, above cited, the was the duty of the city council to Supreme Court of Alabama used the secure them for the least practicable following, among other language: sum. The power to create the larger "We do not discover that the city includes the power to create the lesser council varied the propositions which debt. Omne mqjus continet in se were submitted to and approved b} - minos."! Am. & Eng. R. R. Cas. 319. 46, 47] PUBLIC CORPORATIONS. 53 statute, by necessary implication was to ratify and make valid the subscription for the shares of stock of the railroad corporation. 1 46. Statutory authority to construct a railroad. The Supreme Court of Ohio has sustained the constitutionality and validity of the act of the legislature of that state, the general scope and purpose of which was to authorize cities of the state of a certain population to construct a line of railroad leading there- from to any other terminus in the state, or in any other state, through the agency of a board of trustees, etc., with authority to such board of trustees to borrow a sum of money to a limited amount, and to issue bonds of the city, secured by a mortgage upon the railway and its net income, with a pledge of the faith of the city to levy a tax sufficient, with the net income of the road, to pay the interest upon and provide a sinking fund for the payment of the bonds. 2 47. Constitutional provisions construed. The constitu- tional provision in Kentucky that no act of the legislature author- izing the creation of any debt on behalf of the commonwealth shall become effective until it has been submitted to the people at a general election, and shall have received a majority of all 1 Winn v. City Council of Macon, construction of such improvements. (1857) 21 Ga. 275. And it was said that for much stronger Walker r. City of Cincinnati, (1871) reasons counties might be authorized 21 Ohio St. 14. SCOTT, Ch. J., said : to construct works of a similar kind, " That it Is within the legitimate scope of a local character, having a special of legislative power to authorize a mu- relation to their business and interests, nicipality of the state to aid in the con- And, as the state might constructor struction of a public improvement, authorize the counties to construct such as a railroad, by becoming a stock- these works entire, or create corpora- holder in a corporation created for that tions to do it entire, it was hold that as purpose, and to levy taxes to pay the a question of power each might be au- subscription, must be regarded as fully thorized to do a part. * * * And settled in this state by repented adju- if, in the absence of a constitutional dications. In the case of C., W. & prohibition, a municipal corporation Z. R. R. Co. . Comrs. of Clinton may be authorized to aid, by stock County, 1 Ohio St. 77, the subject was sul>scriptions, in the construction of a very fully considered; and it was" held railway which has a special relation to that as the state may itself construct its business and interests, upon what roads, canals and other descriptions of principle shall we deny that it can be internal improvements, so it may em- authorized to construct it entirely at ploy any lawful means and agencies its own expense, when its relation is for that purpose, among which are such as to render it essential to the private companies incorporated for the business interests of the municipality T " 54 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 4S the votes then cast " does not include debts created by a county or other municipal division of the state. Whether tax in aid of the construction of a turnpike for instance shall be levied or not may be submitted to the voters of a county or magisterial district of a county at a special election. 1 48. What is not a work of "internal improvement," in the meaning of Nebraska statute. A steam grist mill is not a work of internal improvement within the meaning of the stat- ute of Nebraska which authorizes counties, cities and precincts of organized counties " to issue bonds to aid in the construction of any railroad or other work of internal improvement." : 1 Walton v. Riley, (1887) 85 Ky. 413; up of cities, counties and towns, the B. c., 3 S. W. Rep. 605. See Slack v. whole state may thus become in- Maysville & Lexington R. R. Co., volved. This provision, then, would (1852) 13 B. Mon. 1. In People ex rel. be no restriction upon the power to McCagg v. Mayor, Comptroller & create a debt beyond a certain amount, City Clerk of the City of Chicago, and would fail of its purpose of pro- (1869) 51 111. 17; s. c., 2 Am Rep. tecting the state and its citizens from 278, it was held that the legislature oppressive burdens." might be regarded as prohibited by the 2 Osborne v. County of Adams, clause of the State Constitution which (1882) 106 U. S. 181; s. c., 1 Sup. Ct. prohibited the state from creating a Rep. 168, affirming Osborne v. County debt exceeding 50,000 without the of Adams, (1881) 2 McCrary, 97. The consent of the people, manifested by a court distinguished Township of Bur- vote at a general election, from fore- lington v. Beasley, 94 U. S. 310, as ing one of the .municipalities of the follows: "That case arose under a state to incur debts for an amount statute of Kansas, which empowered larger than 50,000 without the con- municipal townships in that state to sent of the people of such municipal issue bonds for the purpose of build- division of the state. The court said: ing bridges, free or otherwise, or to "What is the real value of this pro- aid in the construction of railroads vision of the Constitution if the legis- or water power by donation thereto, lature, inhibited from incurring a debt or the taking of stock therein, or for beyond fifty thousand dollars on be- other works of internal improve- half of the state, may force a debt ten- ment." The bonds there in suit were fold or one hundred-fold greater, for issued to aid in the construction and there is no limit to the power upon all completion of, and to furnish the the cities of the state? We can per- motive power for, a steam custom ceive none. Where these municipal!- grist mill. It was held that the stat- ties become so indebted by compulsion ute, reasonably interpreted, embraced of the legislature the whole state, in a grist mill operated by steam, as well its real and substantive, if not in its as one run by water power; that corporate body, will in truth and fact, since municipal aid was authorized be the debtor, for the same power of for "the construction of * * * coercion can be applied to counties water power," the phrase "other and towns, and as the state is made works of internal improvement," in the ITBLIC OOEPOEATION8. 55 49. What is such a work. The Nebraska Snpreme Court lias held that a water grist mill erected for public use, the rates of toll to be determined by the county commissioners, was a work of internal improvement within the meaning of the statute of that state authorizing counties and cities in that state " to issue bonds or aid in the construction of any railroad or other work of internal improvement * * *." l 50. Contracts of guaranty. The authority to sell nego- tiable paper held by a city does not carry with it, as an incident, Kansas statute, might be fairly con- strued as embracing works of the minor class, and consequently as cm- bracing a steam grist mill. The court was somewhat influenced, as plainly appears from its opinion, by decisions of the Supreme Court of Kansas, par- ticularly that of Commissioners of Leavenworth County v. Miller, 7 Kaus. 479. The present case is different. The only work of internal improve- ment specially in the Nebraska statute is a railroad, and we are not justified by anything in Township of Burling- ton e. Beaslcy, or in the decisions of the courts of Nebraska in holding that a steam or other kind of grist mill is of the class of internal improvements which municipal townships in that state are empowered, by the statute in question, to aid by an issue of bonds." For cases holding that the right to erect public buildings, such as jails and court houses, derives no support from such a statute, sec Union Pacific Railroad v. Lincoln County, 3 Dill. 300; Dawson County 9. McNamar, 10 Neb. 270. 'Traver P. Board, etc., of Mi-rrii-k County, (1883) 14 Neb. 827. (Mting us authority for this ruling: Guernsey*. Burlington Township, 4 Dill. 372, 875; Township of Burlington r. Beaslcy, 94 U. 8. 810, 818. In State ex rel. Bowen p. Adams County, (1884) 15 Neb. 568, in which the Supreme Court denied a mandamus to compel a levy of a tax to pay interest on an issue of bonds of the county in aid of a steam grist mill on the ground that there was no stat- ute in that state authorizing the voting . of aid to such mills, and that bonds voted in aid of them were invalid, it was said that the decision in the case of Traver t. Board, etc., Merrick County, 14 Neb. 327, was based al- most entirely upon the statute author- izing the condemnation of private property for the purpose of erecting dams and overflowing lands in order to obtain power to propel mills, and upon the decisions of the Nebraska Supreme Court iu Nosser r. Seeley, 10 Neb. 460, and Seeley v. Bridges, 13 Neb. 547. In Traver r. Board, etc., Merrick County, supra, it was said on page 334: " There is a clear distinction between aiding the development of the water power of the state a power which is continuing in its nature, and may be used without cost or expense and must be used at certain points on a stream where a dam can be erected and power obtained and a mill pro- pelled by steam that must be attended with a continuous cost for fuel, and may at any time be removed to another locality." In County Commissioners v. Chandler, (1877) 96 U. S. 205, the Supreme Court of the United States held that a bridge intended for and used as a thoroughfare to be a public highway and, hence, a work of "in- ternal improvement," within the mean- 56 GENERAL POWER TO INCUR PECUNIARY LIALILITY. [ 51 the power to guarantee it. 1 A county in Arkansas cannot be bound by a contract entered into by the county judge guarantee- ing payment for goods to be sold one who has a contract for the construction of a turnpike. 2 A municipal corporation authorized by statute to obtain money on loan, on the faith and credit of the corporation, for the purpose of contributing to works of internal improvement, may, under the power granted by the statute, guarantee the payment of the bonds of a railway company. 3 51. Employment of agents or attorneys. There is authority in the Revised Statutes of Maine, relating to towns, to expend money " for the necessary town charges," after specify- ing certain other purposes. Under those words towns may employ a reasonable number of agents or attorneys to advance or protect the rights of towns before any legally constituted tribu- nal; 4 but they do not authorize a town to raise and expend money to send lobbyists before the legislature. 5 The board of directors of schools in Louisiana have authority to constitute or defend suits, and the right to incur liability for the costs of such suits follows, as a matter of course. 6 Reasonable attorney's fees in an action against village trustees to enjoin the collection of a tax, and defended in good faith, are a proper charge against a ing of the Nebraska statute authoriz- purchaser upon that of the city with ing cities, counties and precincts in which it was joined. It is difficult to that state to issue bonds in aid of conceive of language more compre- works of "internal improvement." hensive than that employed to em- 1 Carter n . City of Dubuque, (1872) brace every form of securities in which 35 Iowa, 416. tJie faith and the credit of the city might 8 Dickinson Hardware Co. v. Pulaski be embodied, and that in such cases it County, 55 Ark. 437; s. c., 18 S. W is not important to the character of the Rep. 462. transaction that the money is obtained City of Savannah v. Kelly, (1883) in the first instance by the railroad 108 U. S. 184; s. c., 2 Sup. Ct. Rep. company, upon the credit of the city, 472. Mr. Justice MATTHEWS, speak- was directly ruled in Rogers v. Bur- ing for the court, said that the lington, 3 Wall. 654, and affirmed in fact that the money "was not ad- Town of Venice v. Murdock, 92 U. 8. vanced directly to the city, but upon 494." its assurance of repayment to the rail- 4 Inhabitants of Frankfort v. Inhab- road company, is not a departure even itants of Winterport, (1865) 54 Me. from the letter of the law, much less 250. from its meaning; nor does the fact 6 Ibid. that the money was advanced partly 6 Fisher Board of Directors of on the credit of the railroad company City Schools of New Orleans, (1892) 44 diminish the presumed reliance of the La. Ann. 184; 8. c., 10 So, Rep. 494. 52] PUBLIC CORPORATIONS. 57 village under a statute authorizing village trustees "to employ an attorney or attorneys for the transaction of any matter requiring legal skill." l The Kansas Supreme Court has held that when- ever a county is interested at all in the result of a suit, either in its own behalf or in that of some township of the county, and the suit is brought against the legal representatives of the county, and is beyond the limits of the county, as, for instance, a mandamus proceeding against the commissioners of a county before the Supreme Court, the county commissioners may, if they choose, employ counsel to take care of the interests of the county. 8 This rule has been declared in Kansas. A county's contract with a counselor at law for services, such as are required by law to be performed by the county attorney, is prima facie void. 8 So, also, is a contract by a city for services as an attorney or counselor at law, such as the law requires to be performed by the city attorney. 4 52. Contracts for legal services when allowed. Towns in Illinois have power, at their annual town meetings, to provide for the institution and defense of all suits in which they are interested, and a town meeting may exercise the power by reso- lution directing the supervisor to procure legal services, and such a contract will be binding on the town should the amount agreed 1 Squire v. Preston, (1894) 82 Hun, was not clear. As to the employment 88; 8. c., 81 N. Y. Supp. 174. of additional counsel to assist corpora - 1 Timelier v. Comrs. of Jefferson tion counsel or to conduct profession- County, (1874) 13 Knns. 182; People r. ally business in which the city is Supervisors of N. Y., 32 N. Y. 478; interested, see Smith r. Mayor, etc., Brady t>. Supervisors of N. Y., 2 of New York, (1875)5 Hun, 237. As to Sandf. 460; Gillespie r. Broas, 23 employment of attorneys by counties, Barb. 370. see Brome t. Cuming County, 81 Neb. 'Clough . Hart, (1871) 8 Ivans. 487. 862; 8. c., 47 N. W. Rep. 1050; Board 4 Ibid. In Hugg r. City Council of Comrs. Rush County r. Cole, 2 Ind. City of Camden, (1878) 29 N. J. Eq. 6, App. 475; 8. c., 28 N. E. Rep. 772; where there was a city ordinance pro- Beebe r. Board Suprs. Sullivan County, viding that the solicitor of the city 64 Hun, 877; B.C., 19 N. Y. Supp. 629; should prosecute and defend all suits. Waters P. Trovillo, 47 Kans. 197; s. c., etc., brought by or against the city, 27 Pac. Rep. 822; Butler r. Sullivan the chancellor refused a mandatory in- County, 108 Mo. 680; 8. c., 18 8. W. junction to restrain the city from cm- Rep. 1142; Lassen County r. Shinn, ploy ing other counsel, on the ground of 88 Cal. 510; B.C., 26 Pac. Rep. 365; possible irreparable injury to the city, Fouke r. Jnckscu County, 84 Iowa the suit being ready for trial, and on the 616: s. c., 51 N. W. Rep. 71. ground that the complainant's right 58 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 52 to be paid not be so great, in view of the interests involved, as to indicate bad faith. 1 The Supreme Court of Illinois lias upheld as implied, under the legislation of that state with reference to towns, the power of the supervisor of a town to enter into aeon- tract of retainer with an attorney at law to defend a suit insti- tuted against the town upon coupons attached to bonds of the town the validity of which was disputed. 2 In case, in the exer- cise of their judgment and discretion, the governing board of a county conceive that the interests of the county are involved in a certain question, and take legal measures by suit or otherwise, to advance or protect those interests, the expense incurred thereby becomes a legal charge against the county, notwithstanding the judgment of the court in the matter be that a wrong remedy was adopted, or that there was no remedy at all. 8 A county, under the statutory power " to make all contracts and do all other acts in relation to the property and concerns of the county neces- sary to the exercise of its corporate powers," may retain attor- neys to resist the collection of a tax in the action of a taxpayer who has been induced by the courts to refuse to pay a tax levied by the state for payment of interest on certain county bonds, the object being to test the validity of such bonds.* And the stat- ute making it the duty of county boards to take suitable measures for prosecuting and defending all suits to be brought by or against their respective counties, and all suits which it is necessary to prosecute or defend to enforce the collection of all taxes charged on the state assessment, does not take away the right to retain an attorney in such a case. 5 1 Town of Mt. Vernon v. Patton, in this case made with one who was (1879) 94 111. 65. assistant city attorney, to collect all 9 Town of Bruce v. Dickey, (1886) bills for taxes assessed on property as 116 111. 527; 8. c., 6 N. E. Rep. 435; unknown, and all unsatisfied judg Cooper v. Delavan, 61 111. 96. ments in favor of the city for taxes, on 8 ilornblower v. Duden, (1868) 35 Cal. the ground that it neither violated the 664. In State ex rel. Bermudez v. charter of the city nor conflicted with Heath, Mayor of New Orleans, (1868) any of the rights of the assistant city 20 La. Ann. 172; s. c., 96 Am. Dec. attorney, nor did the duties involved 390, the Supreme Court held the right in the contract embrace any of the of the city to employ an attorney at duties or include any of the emolu- law conversant with city affairs to fa- ments of the office of assistant attorney, cilitate the collection of debts due * Franklin County v. Layman, 146 the city was unquestionable as long as 111. 138; s. c., 33 N. E. Rep. 1094, af- it infringed on no rights of the city's finning 43 111. App. 163. officers. The court upheld a contract s Ibid. 53, 54] PUBLIC CORPORATIONS. 59 53. Contracts for legal services how made. Thr common council of a city in Indiana is vested with the power to employ counsel to assist the city attorney to protect the interests of the city ; but the contract of employment must be made directly or through an authorized agency. 1 The common coun- cil of a city being empowered by its charter to employ counsel cannot delegate this power to the mayor, and any contract made by the mayor with an attorney to act for the city will be void. 8 This power by ordinance to select an attorney for a city conferred upon the common council is a trust created for a public purpose, not assignable at the will of the trustee. 8 The Court of Errors and Appeals for New Jersey has held that the corporate authori- ties of one of the cities of that state, under the provisions of its charter, had the power to employ associate counsel in defending suits against the corporation or in which the city was interested ; and that the board of aldermen were sole judges of the necessity of such employment in any particular case, and the exercise of their discretion in such a matter was not reviewable in that court. 4 The authorities of the city, though under its power to employ associate counsel, were not vested with the right, under the guise of such employment, to withdraw and take out of the hands of the city counsel any particular class or classes of cases and to con- fide the management of them to others. 5 54. Where a public corporation is bound for legal serv- ices. An attorney properly employed by a town to perform legal services, being ready and willing to perform the contract, should the proper officers of the town prevent his doing so, will be entitled to recover under the contract. 6 If there is an appeal 1 Justice v. City of Logansport, (1892) Paul, 19 Minn. 389; State t>. Bell, 84 6 Ind. App. 135; s. c., 32 N. E. Rep. Ohio St. 194; State r. Hauser, 63 Ind. 868; City of Logansport r. Dykeraan, 155; Birdsall c. Clark, 73 N. Y. 73. 116 Ind. 15. Brooklyn t>. Breslin. 57 N. Y. 591: 1 City of East St. Louis r. Thomas, Ruggles t>. Collier, 43 Mo. 858. (1882), 11 Bradw. 283. State, Hoxsey, v. Mayor & Alder- Cooley's Const. Lira. 204; City of men of the City of Paterson, (1878) 40 East St. Louis . Wehrung, 50 111. 28; N. J. Law, 186. Foss T. City of Chicago, 56 111. 854; Ibid. See reasoning of the court in Jenks P. Chicago, 56 111. 397; L. 8. & Ramson r. Mayor, etc., of New York. M. 8. Ry. Co. v. Chicago, 56 111. 454; 24 Barb. 2','<; Jackson Co. r. Brush, 77111. 59: Oak- *Town of Mt. Vernon r. Patton, land v. Carpentier, 13 Cal. 540, Why te (1879) 94 111. 66. t>. Mayor, 2 Swan, 864; Darling r. St. 60 GENERAL POWEE TO INCUR PECUNIARY LIABILITY. [ 55 from the action of a city council while acting as a board of equalization, this being the discharge of a corporate function, and acting as a representative of the city, a city solicitor would be justified in defending its action in the appellate court and for such services would be entitled to compensation, even though neither the service nor the compensation be provided for by ordinance. 1 An attorney employed by a town agent in Vermont in a suit in favor of or against the town is entitled to payment for his services from the town, without an express vote to that effect; and the rule is the same if the town agent, being an attorney, renders professional services for the town. 2 And if a town agent, after the expiration of his term of office, continues the management of suits in which the town is interested, without any objection from, or any express employment by the town or his successor, as town agent, he is entitled to recover of the town for his services after his term of office expires. 3 An officer of a city who has employed counsel in a contest to gain possession of the city's property, in the result of which the city is interested, may compel the city to pay the expenses incurred by him in the matter. 4 55. Employment of counsel for the defense of officers. Counsel may be employed by a town to defend their police officers in actions for false imprisonment. 5 'Kinnie v. City of Waverly, (1876) of that state, BRADLEY, Ch. J., used 42 Iowa, 437. this language in support of the judg- *Langdon v. Town of Castleton, ment denying an injunction: "Is it (1858) 30 Vt. 285. then one of the usual and ordinary 8 Ibid. expenses of a city to protect its offi- 4 Stilwell 0. Mayor, etc., of N. Y. f cers who, while exercising iu good 19 Abb. Pr. 376. faith the functions of their office, 6 Roper v. Town of Laurinburg, have been found by the verdict of a (1884) 90 N. C. 427; s. c., 7 Am. & jury to have exceeded the lawful Eng. Corp. Cas. 130; Babbitt v. Savoy, powers of that office and to have tres- 3 Cush. 530. In Sherman v. Carr, 8 R. passed upon the rights of a citizen? I. 431, an action of taxpayers to en- If the power to indemnify an officer join the payment by the treasurer to under these circumstances does not the mayor of moneys appropriated by rest in that body who appropriated the city council to defray the expenses the money for all the legitimate duties of a suit brought against the mayor of of a municipality within its own a city and the constable who acted in province, the various executive officers his aid for certain acts of theirs in vir- of a city perform their duties at the tue of a power conferred upon the peril of an individual responsibility mayor by act of the general assembly for all their mistakes of law and of 56] PUBLIC CORPORATIONS. 61 56. Indemnity for expenses of litigation. A promise on the part of a town to refund money paid by assessors on an illegal assessment of a town tax made by them is a valid con- tract. 1 An action by selectmen to recover the amount of a judg- ment for damages and costs recovered against them and paid, and the reasonable expenses of defending the action, pakl and incurred by them, would be supported by a vote of the town to indemnify the selectmen against any claim for damages and costs of a cer- tain description which may be legally substantiated against them or either of them. 2 And, on such a vote to indemnify them, the action may be to recover the amount of the judgment against the selectmen for the damages and costs and the fees of counsel and witnesses, and other expenses incurred reasonably and in good faith in defending the action in which the judgment was recovered without proving that the town had notice of the pen- dency of the action. 8 Money may be appropriated by a town by vote to indemnify its school committee for expenses incurred in defending an action for an alleged libel contained in a report made by them in good faith and in which libel suit judgment has been rendered in their favor. 4 A town, where it has appointed a committee to defend an action against one of its officers, as for instance, a surveyor of highways, on account of the digging of a drain, would be bound by a vote to defray the expenses incurred by such committee in his defense, notwithstanding it were under no previous obligation to indemnify the surveyor, and that the committee were entitled to compensation and indemnity from the town for their services and expenses. 5 A city may and should reimburse a mayor who has successfully resisted a proceeding fact, however honest and intelligent which, while the officer continues to they may be, and also at the peril of act in behalf of the community, and the possible mistakes of a jury natu- not in his own behalf, it is held that rally jealous of the rights of the citi- the community cannot indemnify zen when brought in conflict with the him." exercise of official power. If the offl- ' Nelson v. Milford, (1828) 7 Pick. cer is thus responsible he will natu- 18. rally be too cautious, if not timid, in ' Hadsell v. Inhabitants of Hancock, the exercise of his powers which must (1855) 3 Gray, 526. be frequently exercised for the pro- * Ibid. tection of society, before and not after 4 Fuller r. Inhabitants of Groton, a thorough investigation of the case (1858) 11 Gray, 340. in which he is called upon to act. * Bancroft r. Lynnfleld, (1836) 18 * * * We know of no case in Pick. 566. 62 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 57 taken in the name of the city against him to compel him to a course of official action deemed by him violative of law and detrimental to the city's interest, where the performance of that duty has involved on his part the disbursement of his own money. 1 Towns may bind themselves by a vote to indemnify a collector of taxes from the costs and expenses of defending actions brought against him for acts done in the performance of his duties. And the town may be bound to the same extent by the selectmen under the provision of the statute relating to towns that they " shall have the ordering and managing of all the pru- dential affairs of the town." 2 57' When a corporation is not bound for professional services of an attorney. An attorney retained by a city to conduct certain litigation until it was concluded, upon an agree- ment that he was to receive reasonable compensation for his serv- ices, being afterwards appointed city counselor, with prescribed duties to perform in the matters of the city involving litigation, the Supreme Court of Michigan has held could not recover on a quantum ineruit for services in such suit performed after his appointment to the official position, in the absence of any agree- ment that the business of carrying on the suit, though falling within his official duties, should not be considered as included among the services paid for by the annual salary, but should be compensated for in some other way. 3 A corporation cannot by a suit at law question its own existence, seek to restrain the regular succession of its officers, and to have a decree declaring its charter 1 Barnert v. Mayor & Aldermen them, and in cases even where the suit of City of Paterson, (1886) 48 N. J. is between third parties, if the towns Law, 395; s. c., 6 Atl. Rep. 15; 16 are interested. Briggs v. Whipple, Am. & Eng. Corp. Cas. 131. On the (1834) 6 Vt. 95. In Cullen v. Town of right of a municipal corporation to re- Carthage, (1885) 103 Ind. 196; s. c., imburse its officers in such cases, see 53 Am. Rep. 504; 14 Am. & Eng. State, Lewis, v. Freeholders of Hud- Corp. Cas. 256, the court upheld the son, 37 N. J. Law, 254; State, Brad- power, as an incidental one, of the ley, v. Hammonton, 38 N. J. Law, 430, board of trustees of a town to employ J Pike n. Middleton, (1841) 12 N. H. counsel to defend the action brought 278. As to indemnity for expenses in against the marshal of the town for suits in which the town is interested, false imprisonment by one whom he see Baker v. Inhabitants of Windham, had arrested for violation of law. (1836) 13 Me. 74. Towns may by a *City of Detroit v. Whittemore, vote bond themselves for expenses of (1873) 27 Mich. 281. a suit when action is for or against 58] PUBLIC CORPORATIONS. 63 void, and having no power to institute such a suit, its authorities cannot bind it to pay for the services of an attorney in the con- duct of the suit. 1 The statute of Arkansas makes provision for an allowance by the County Court in favor of a collector of taxes for reasonable attorneys' fees and other expenses incurred in defending suits brought against him for performing or attempt- ing to perform any duty in reference to the collection of the revenue. 3 But a county is not bound to pay attorneys he may be represented by in an action for injunction against his collec- tion of a tax, under a contract with the collector. He has no power to bind the county to pay such fees. And, in the absence of statutory regulation, he alone is liable in such cases. 8 58. The same subject continued. A board of county commissioners in Indiana is authorized to employ counsel in mat- ters pertaining to the business of the county, and to give to the members of the board legal advice in relation to their official duties; but they have no power to bind their successors by employing attorneys to act for a period beyond the time when the board will, by operation of law, have to be reorganized. 4 A county is not bound by the expenses for attorney's services incurred by a county collector for resisting objections to his bond. 5 Negotiable drafts drawn by a municipal corporation for 1 Daniel r. Mayor & Aldermen of 3 Simmes v. Chicot County, (1888) 50 Memphis, (1851) 11 Humph. 582. In Ark. 566; s. c., 9 8. W. Rep. 308; Wallace c. Mayor & Common Council Fry r. Chicot Co., 87 Ark. 117. of the City of San Jose, (1865) 29 Cal. * Board of Comrs. of Jay County 180, it was held that there was no r. Taylor, (1889) 123 Ind. 148;. 8. C., power, under the charter of this city, 28 N. E. Rep. 752; 30 Am. & Eng. in the mayor and council to enter into Corp. Cas. 294. a contract by which the city became & Fry, Collector, r. Chicot County, obligated to pay an attorney at a (1881) 37 Ark. 117. In Baldwin v. future time a sum of money, if he sue- School City of Logansport, 0881) 78 ceeded in placing the city in posses- Ind. 346, where the school trustees of sion of certain real estate, unless there the city made an order authorizing the was money in the treasury at the time treasurer of the school board to em- to pay the same, after paying the ex- ploy attorneys "to prosecute the penses of the city government and all county auditor for refusing to pay other demands legally due. As to this over moneys belonging to the school contract creating a debt, see People t>. fund, and shortly afterward there was Johnson, 6 Cal. 499; Nougues r. elected a new board of school trustees, Douglass, 7 Cal. 65, 69; People ex rel. whereupon the attorneys employed McCullough r. Pacheco, 27 Cal. 175. under the order of the former trustees ' Mansf . Dig. Ark. 5859. proceeded in the proper court for a 64 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 59, 60 the payment of judgments and costs in actions brought against the supervisors of the county for penalties for an alleged neglect of duty in refusing to audit and allow salaries to associate judges of general sessions of the corporation appointed under an uncon- stitutional law, have been held in New York to be void upon the ground that the corporation had no right to assume defense of an action to which it was not a party and which it had no interest in resisting. 1 59. What contracts with attorneys are contrary to public policy. A contract entered into by the authorities of a city, with an attorney who had been under the employment of the city in a litigation to protect its rights in certain property and franchises, under a former contract, which by its terms is irrevocable and binds the city for additional compensation to such attorney in the form of a large proportion of the city's receipts, as, for instance, from the use of a ferry by the public, is beyond the power of such authorities ; is contrary to public policy. 2 60. Limitations upon the indebtedness to be incurred. By a statute of Massachusetts one of its cities, for the purpose of supplying pure water to its citizens, after providing for condem- nation of lands, etc., and the appointment of commissioners to execute the work, was authorized through its city council " for the purpose of defraying the cost " of whatever lands were so mandate to the auditor, etc., the ob- upon it a discretion necessarily leg- ject of the suit being to determine islative in character, which such a who were the legal school trustees, it body cannot surrender by contract or was held that the order of the school bind itself not to exercise freely when- trustees above mentioned did not au- ever it may become necessary." Water- thorize the employment of the attor- bury v. City of Laredo, 60 Tex. 522; neys to bring a civil suit to try the Laredo t. Macdonnell, 52 Tex. 520; question as to who were the legal Laredo v. Martin, 52 Tex. 559. In trustees, and the school city was not Board of Comrs. of Jay County v. liable for the fees of the attorneys for Taylor, (1889) 123 Ind. 148; s. c., 23 such services. N. E. Rep. 752; 30 Am. & Eng. Corp. 1 Halstead v. Mayor, etc., of New Cas. 294, a contract entered into be- Tork, 3 N. Y. 430, affg. 5 Barb. 218. tween the board of commissioners and 9 Waterbury v. City of Laredo, (1887) certain attorneys, by which the board 68 Tex. 565; s. c., 20 Am. & Eng. employed these attorneys to act as Corp. Cas. 186. It was said by the county attorneys for a period of three court: " Such a contract, if valid, years from a date named in the con- certainly would divest the municipal tract, was held to be void as contrary government of the discretion conferred to public policy. 60] PUBLIC CORPORATIONS. ^"' condemned, and of completing the works and paying all expenses incident to the accomplishment of the main purpose " to issue scrip to an amount not exceeding in the whole five hundred thousand dollars." The Supreme Court of Judicature of that state construed this act not to restrict the city in the amount of expenditures which they might make for the accomplishment of tin- purpose of the act, but only in the amount of permanent debt which they might create. 1 The provision in the charter of a city that the council " shall not borrow for general purposes more than fifty thousand dollars," the Supreme Court of the United States has held did not limit the debt of the city, nor prohibit the council from entering into a contract involving an expenditure exceeding that amount for special improvements, such as the grading and paving of streets and the construction of sidewalks, which were authorized by its charter. 8 The effect of 1 Foote t>. City of Salem, (1867) 14 far as it was in other respects lawful, Allen, 87. BKJKLOW, Ch. J.. said : "It remained in force, and for the breach is a restriction on the authority of the of the same the corporation was liable, city to create a permanent debt, pay- See as to this last point: Tracy e. able at a distant period of time, but Talmage, 14 N. Y. 1G2; Curtis . not a limitation on their powers to Leavitt, 15 N. Y. 9; Oneida Rnnk r. raise money by taxation or temporary Ontario Bank, 21 N. Y. 490; Argenti loans in order to carry forward and . City of San Francisco, 16 Cal. '2">. execute the works which, by the pre- Maher v. City of Chicago, 38 111. 266; vious provisions of the act, they were City of Chicago v. The People, 48 111. in the broadest terms empowered to 416. In The State Board of Agricul- construct. * * * If construed as ture . Citizens' Street Railway Co., 47 an absolute condition or limitation on Ind. 407, it was held that although there the authority of the city, no steps may be a defect of power in a corpora - could be safely taken to execute the tion to make a contract, yet if a con- authority conferred, unless it had been tract made by it is not in violation of previously ascertained that the expen- its charter or of any statute prohibit- diture to be incurred would not ex- ing it, and the corporation has by its ceed the prescribed sum. But it is promise induced a party relying on obvious that this would be clearly iin- the promise and in execution of the practicable in relation to an enterprise contract to expend money and per- of the character contemplated by the form his part thereof, the corporation statute." is liable on the contract. See, sub * Hitchcock t. Galveston, (1877) 96 stantially to the same effect, Allegheny U. 8. 341, holding further that the City . McClurkan, 14 Penn. St. 81; contract was not rendered wholly in- Silver Lake Bank r. North, 4 Johns, operative because it provided that the Ch. 370. As to the rule in the text, work done under the contract should see Cumming r. Brooklyn, 11 Paige, be paid for in bonds of the corpora- 596; Allen . City of Janesville, 85 tion, the issue of which bonds was un- Wis. 403; Argenti r. City of San authorized by law. The contract, so Francisco, 16 Cal. 255. 9 66 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 61 charter provisions of a city prohibiting the creation of municipal liabilities in any one year exceeding the amount to be raised by tax and providing that payments on a municipal contract shall be made from sums raised by tax for the year for which such con- tract is made, is to forbid the creation of future responsibility for annual current expenses. 1 The provisions in the statute of Iowa declare that it is competent for any city authorized by that statute to levy a tax to pay for the paving of street and alley intersections " to anticipate the collection thereof by borrow- ing money, and pledging such tax, whether levied or not, for the payment of the money so borrowed." The Supreme Court of that state has held that there was no limitation upon the city as to the amount of the work of the kind contemplated it might do in a single year except the limitation in the Constitution as to the indebtedness it might contract, and that the provision above referred to did not limit the city in making the loan provided for to the amount of tax which would accrue under a levy for a single year, but that it was empowered to pledge the tax to any extent necessary to enable it to meet such indebtedness as it might lawfully incur in a single year, and to levy a tax for successive years for that purpose. 2 61. The same subject continued. The indebtedness of a school district having exceeded that allowed by the constitutional limitation, should its directors contract an indebtedness with other 1 Putnam v. City of Grand Rapids, Rep. 617; 42 N. W. Rep. 650. A con- (1885) 58 Mich. 416: 8. c.,25N. W. Rep. tract entered into by a city with a 330; City of Springfield v. Edwards, 84 water works company to furnish water 111. 626; Law v. People, 87 111. 385; to the city for an annual sum has Fuller T. City of Chicago, 89 111. 282; been held not to be in violation of a Howell . City of Peoria, 90 111. 104; law that the council of the city shall New Orleans . Clark, 95 U. S. 644, contract no debt on its part which 652; French . City of Burlington, 42 shall not be payable within the fiscal Iowa, 614; National State Bank r. year in which it was contracted, and Independent District, 39 Iowa, 490; which cannot be discharged from the McPherson v. Foster, 43 Iowa, 48; income of such year, as the compensa- City of Council Bluffs v. Stewart, 51 tion for each year's service of the Iowa, 385; Scott v. City of Davenport, company under the contract in ques- 34 Iowa, 208; Mosher v. Independent tion was payable in that year and each School District, 44 Iowa, 122; East St. year's indebtedness was only for the Louis T. People, 6 Bradw. 76; Bu- water furnished in that year. Utica chanan v. Litchfield, 102 U. S. 278. Water Works Co. v. City of Utica, * Coggeshall v. City of Des Moines, (1884) 31 Hun, 426. (1889) 78 Iowa, 235; s. c., 41 N. W. 61] PUBLIC CORPORATIONS. 67 persons, and afterwards, through collusion with those other per- sons, permit them to obtain judgment for such indebtedness against the school district, the judgment would be of no validity against the district, and could not be enforced. 1 The limitation of the indebtedness which may l>e incurred by a county of the territory of Utah, as fixed by the act of congress with reference to territories and the territorial legislature, is the amount of the income and revenue of the county for the two years just preced- ing the incurring of the indebtedness, and the Supreme Court of the territory has held county warrants, issued for indebtedness beyond that amount, to be void and unauthorized. 8 1 Kane t>. Independent School Dist. county under a contract which pro- of Rock Rapids, (1891), 82 Iowa, 5; vided that the contractors agreed "to 0. c., 47 N. W. Rep. 1076. take and receipt the sura of $3.510 in * Fenton t. Blair, (Utah, 1895) 89 Pac. warrants on county treasurer, payable Rep. 485. In Butts r. Little, (1881) 68 on December 25, 1884, and bearing Ga. 272, the Supreme Court of Georgia eight per cent interest after that date held that for a county to contract for until paid in full, iq payment for said the erection of a public building at a cells and wrought iron works," for specified price, which was to be com- which, at the November term of the pit-ted by a certain date, and payment Court of Ordinary orders were issued for which was to be made as the work to " pay out of any money now being progressed, on estimates to be made collected for new jail fund," was held by certain architects, less fifteen per to create a new debt, and that it was cent, was in effect a contract to pay the in violation of the Constitution of the price agreed on by the day of the date state. Rogers r. Board of Comrs. of completion fixed; and the amount Le Sueur County, (Minn.) 59 N. W. being more than could constitutionally Rep. 488; Hunt r. Fawcett, 8 Wash, be raised by taxation without author- 896; 6. c.. 36 Pac. Rep. 818; Hocka- ity of the voters exhibited by an elec- day v. Comrs., 1 Colo. App. 362; tion, was to incur a debt not authorized Barnard r. Knox County, 105 Mo. 882; by the Constitution. See Spann v. s. c., 16 S. W. Rep. 917, overruling Webster County, 64 Qa. 498,500; Hud- Potter v. Douglas Co., 87 Mo. 240; son t>. Marietta, 64 Qa. 286. As to the Bonnell t. County of Nuckolls, 82 Neb. effect of limitation upon the power to 189; 8. c., 49 N. W. Rep. 225, afllrm- creatc indebtedness, sec Murphy v. ing Bonnell t>. Nuckolls County, 28 East Portland. 42 Fed. Rep. 808; Lott Neb. 90; s. c., 48 N. W. Rep. 1145; . Mayor, etc., of City of Way cross, 84 Baird c. Todd. 27 Neb. 782; Bpilman Ga. 681; s. c., 11 S. E. Rep. 558; Dehm . City of Parkersburg, 85 W. Va. 605; v. City of Havana, 28 111. App. 520; s. c., 14 8. E. Rep. 279; Hockaday ( Murk c.Columbus, 23 Wkly. Law Bull. t>. Board of County Comrs., (Colo. 289; Coggeshall v. City of Des Moines, App.) 29 Pac. Rep. 287; Nolan County 78 Iowa, 235; s. c., 41 N. W. Rep. 617. r. State, 83 Tex. 182; s. c., 17 8. W. In Cabaniss r. Hill, (1885) 74 Ga. 845, a Rep. 828; People r. Hamill, 134 111. contract for certain iron doors, cells, 666; s. c., 29 N. E. Rep. 280; Rehmke pipes for sewers, etc., furnished a r. Goodwin, 2 Wash. St. 676; s. c., 27 68 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 62 62. Limitations upon power to incur indebtedness procuring a supply of water. Where the common council of a city was prohibited by the charter from contracting debts or incurring liabilities exceeding in any one year the revenue for such year unless authorized by a majority vote of the electors of the city, the Supreme Court of Michigan held that a contract made by the common council without such a vote for the use of at least fifty water hydrants per year at fifty dollars each for a term of thirty years, created a liability against the city to the full extent of the thirty years' rental, which aggregate liability being in excess of the revenue which could be legally raised in any one year, the contract was void. 1 Pac. Rep. 473; Mayor, etc., of Rome E. Rep. 782. That towns having power 0. Me Williams, (1881) 67 Ga. 106; to provide for the purchase and main- State ex rel. Vandiver v. Tolly, (S. C., tenance of fire engines for the extin- 1892) 16 S. E. Rep. 195; Childs t>. City guishment of fires have the incidental of Anacortes, (1892) 5 Wash. St. 452; power to make provision, by reservoirs 8. c., 32 Pac. Rep.. 217. or other means, for a supply of water, 1 Niles Water Works T>. Mayor, etc., without which the engines would be of the City of Niles, (1886) 59 Mich, useless, see Hardy v. Waltham, 3 Met. 811; s. c., 26 N. W. Rep. 525; 11 163. In Salem Water Co. v. City of Am. & Eng. Corp. Cas. 299. In Salem, 5 Oreg. 30, it was held that an Davenport v. Kleinschmidt, (1887) 6 agreement by the city to pay the Mont. 502; s. c., 16 Am. & Eng. water company $1,800 per annum for Corp. Cas. 301, where the bonded seventeen years in quarterly install- indebtedness of a city was $19,500 ments for water to be furnished the and the floating indebtedness over city without any provision for raising $15,000, a contract bonding the city to and appropriating revenue to be ap- take water from a contractor at an plied in payment for such liabilities as annual rent of 15,000 was held to be they became due, necessarily created in violation of a provision in the char- a liability within the meaning of the ter of the city limiting the power of act of incorporation of the city which the city council " to incur any indebt- prohibited the city from creating edness on behalf of said city for any "any debt or liabilities in any man- purpose whatever to exceed the sum ner " against the city which should of $20,000, as such contract created an exceed the sum of $1,000; and that indebtedness within the meaning of the contract was void.. The court this limitation. See on this subject reviewed the following cases perti- Burlington Water Co. v. Woodward, nent to this ruling: State of Calif or- 49 Iowa, 58, 61; Grant v. City of Da ven- nia v. McCauley, 15 Cal. 429; People port, 36 Iowa, 396,401; Sackett P. City ex rel. McCauley v. Brooks, 16 Cal. New Albany, 88 Ind. 473; s. c., 45 Am. 11, 24; Koppikus v. State Capitol Corn- Rep. 472; Prince r. City of Quincy, 105 missioners, 16 Cal. 249, 253; State v. HI. 138, 142; State v. Mayor, 23 La. Medbery, 7 Ohio St. 526; People . Ann. 358; Smith r. Inhabitants of Ded- Pacheco, 27 Cal. 175; Coulson . City ham, (1887) 144 Mass. 177; s. c., 10 N. of Portland, 1 Deady, 481. 63] PUBLIC CORPORATIONS. 69 63. The same subject continued. Power conferred upon cities by statute " to construct, maintain and operate water works " does not, expressly or impliedly, deprive such cities of tin -ir pre-existing and co-existing power and rii^ht to "authorize any incorporated company or association to construct such works " for furnishing the city with wholesome water. 1 The Indiana Supreme Court, in a later case involving a contract with a water company, has held that although the power of a city to contract for a supply of water for public use, be, in a general sense, a dis- cretionary one, it cannot be so exercised as to create a corporate debt beyond that limited by law, nor to surrender or suspend legislative power. 2 A city vested by the terms of its charter with " full power and authority to make such assessments on the inhabitants of the city, or those who hold taxable property therein, for the safety, benefit, convenience and advantage of said city, as shall appear to them expedient " may make an assessment 'City of Vincennes r. Callender, what constitutes a "debt" or "in- (1882) 86 Ind. 484, sustaining a con- debtedness," under the constitutional tract of the city with a water company provisionsof various states, the Indiana to supply water as not ultra mret. court refer to and comment upon the * City of Valparaiso c. Gardner, following cases : Sackett v. City of (1884) 97 Ind. 1. As to the contract New Albany, 88 Ind. 473 ; Lowber t>. in this case, it was generally said by Mayor, etc., 5 Abb. Pr. 325; Clarke ELLIOTT, Ch. J. : " We have no doubt t>. City of Rochester, 24 Barb. 446; that the corporation had authority to Weston v. City of Syracuse, 17 N. Y. contract for a supply of water for a 110; Garrison v. Howe, 17 N. Y. 458; period of twenty years, and that the Wentworth t. Whittemore, 1 Mass, contract cannot be overthrown solely 471 ; People t>. Arguello. 37 Cal. 524 ; on the ground that it is a surrender of East St. Louis /-. East St. Louis, etc., legislative power. There is a distinc- 98 111. 415 ; Prince e. City of Quincy, tion between powers of a legislative 105 111. 138; s. c., 44 Am. Rep. 785; character and powers of a business Dively v. City of Cedar Falls, 27 nature. The power to execute a con- Iowa, 227. Approved of in 1 Dill, on tract for goods, for houses, for gas, Mun. Corp. (3d ed.) 135 ; Grant v. for water and the like, is neither a City of Davenport, 36 Iowa, 896; judicial nor a legislative power, but French r. City of Burlington, 42 Iowa, is a purely business power. The 614 ; Burlington Water Co. . Wood- question is, however, so firmly settled ward, 49 Iowa, 58 ; Scott County v. by authority that we deem it unneces- City of Davenport, 84 Iowa, 208 ; aary to further discuss it. City of State t>. McCauley, 15 Cal. 429 ; Peo- Indiunapolis t. Indianapolis, etc., Co., pie r. Pacheco, 27 Cal. 175; Coulson 66 Ind. 896 ; Dill, on Mun. Corp. t>. City of Portland, Deady, 481 ; ::5. 474, and authorities cited." Coy t>. City Council, 17 Iowa, 1; Upon the question of the restriction Coffin t. City Council, 26 Iowa, 515. upon the city stated in the text and as to 70 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 64: on the value of the real estate within the corporate limits of the city, through its city council, for the purpose of constructing a canal for the better securing a supply of water for the city. 1 A municipal corporation may under legislative grant of power, to make all contracts in its corporate capacity which may be deemed necessary for the welfare of the corporation, make a contract for the construction of water works. 8 Under the statute entitled " An act to enable cities to supply the inhabitants thereof with pure and wholesome water," 3 a city is authorized to contract for a supply of water for public and private use. 4 64. Donation of bonds to aid in developing water power. A municipal corporation, the charter of which authorizes it " to borrow money on the credit of the city and to issue bonds therefor," and which, under a special statute, is authorized to borrow a sum named " to be expended in developing the natural advantages of the city for manufacturing purposes," has no authority, under the grants of power above stated, to issue bonds by way of donation to an individual to aid in developing the water power of the city, and is not liable to an action upon such bonds by one who takes them with notice of the facts. 5 1 Frederick v. City Council of 99 U. S. 86, and Ottawa v. National Augusta, (1848)5 Ga. 561. This canal Bank of Portsmouth, 105 U. S. 342, was constructed for procuring a bet- involving bonds of the same issue, ter supply of water and for manu- where it was held in substance that, facturing purposes. as there was legislative authority to 4 Mayor & Council of Rome v. issue bonds for municipal purposes, Cabot, (1859) 28 Ga. 50. and it was recited in the bonds then 8 Pub. Laws N. J. (1876), 366. sued on that they were issued for such 4 Hackensack Water Co. v. City of purposes, the city was estopped from Hoboken, 51 N. J. Law, 220; s. c., proving, as against bona fide holders, 17 Atl. Rep. 307. As to contracting that the recitals were untrue; and as for water supply, see City of Grand the plaintiffs in those cases had no Rapids v. Hydraulic Co., 66 Mich, knowledge of the precise purposes for 606; s. c., 33 N. W. Rep. 749; which the bonds were issued, they had Adrian Water Works v. City of Adrian, the right to rely on what was recited. 64 Mich. 584; s. c., 31 N. W. Rep. The parties here suing did know the 529 ; Culbertson v. City of Fulton, 127 purpose for which they were issued. 111. 30; s. c., 18 N. E. Rep. 781; These bonds being Illinois contracts, Atlantic City Water Works Co. v. WAITE, Ch. J., referred to these cases: Read, 50 N. J. Law, 665; s. c., 15 Taylors Thompson, 42111. 9; Chicago, Atl. Rep. 10. Danville & Vincennes R. R. Co. v. 5 Ottawa v. Carey, (1883) 108 U. S. Smith, 62 111. 268; The People . Du- 110; s. c., 2 Sup. Ct. Rep. 361. The puyt, 71 111. 651; Burr . City of Car- court distinguished Hackett v. Ottawa, bondale, 76 111. 455; People v. Trustees 64] PUBLIC CORPORATIONS. 71 of Schools, ?S 111. 130; Quincy, Mis- souri & Pacific R. R. Co. t. Morris, 84 111. 410; Supervisor, etc., of Hensley Township r. The People, 84 111. 644, as to what might be held to be a cor- porate purpose. The chief justice then used this language as to the case before the court: "As power in a municipal corporation to borrow money and issue bonds therefor im- plies power to levy a tax for the pay- ment of the obligation that is incurred, unless the contrary clearly appears (Rails County Court . The United States, 105 U. 8. 733), it follows that the power contained in the charter to borrow money did not authori/.e the issue of the bonds in this case, unless they were issued for a corporate pur- pose, there being a constitutional pro- hibition against taxation by the city, except for corporate purposes. * * * The charter confers all the powers usually granted for the purposes of local government, but that has never been supposed of itself to authorize taxes for every thing which, in the opinion of the city authorities, would ' promote the general prosperity and welfare of the municipality.' Un- doubtedly the developments of the water power in the rivers that traverse the city would add to the commerce and wealth of the citizens, but cer- tainly power to govern the city does not imply power to expend the public money to make the water in this river available for manufacturing purposes. It is because railroads are supposed to add to the general prosperity that municipalities arc given power to aid in their construction by subscriptions to capital stock or donations to the corporations engaged in their construc- tion; but in all the vast number of cases involving subscriptions and do- nations that have come before this court for adjudication since The Com- missioners of Knox County v. A spin - wall, decided twenty-five years ago and reported in 21 I low. 539, it has never been supposed that the power to govern, of itself, implied power to make such subscriptions or such do- nations. On the contrary, it has been over and over again held, and as often as the question was presented, that unless the specific power was granted, all such subscriptions and all such do- nations, as well as the corporation bonds issued for their payment, were absolutely void, even as against bona fide holders of the bonds. Thomson v. Lee County, 3 Wall. 327; Marsh . Ful- ton County, 10 Wall. 676; St. Joseph Township r. Rogers, 16 Wall. 644; McClure v. Township of Oxford, 94 U. 8. 429; Wells v. Supervisors, 102 U. S. 625; Allen t>. Louisiana, 103 U. 8. 80." CHAPTER II. GENERAL POWER TO INCUR PECUNIARY LIABILITY PRIVATE CORPORATIONS. 65. General rules as to incurring indebtedness. 66. Purchase of property. 67. Aiding other corporations. 68. Contracts of suretyship. 69. Guaranty of bonds of one rail- way corporation by another. 70. Guaranty of bonds of railroad corporation by one of another kind. 71. Circumstances surrounding cor- poration may authorize the guaranty. 72. Guaranty of dividend upon pre- ferred stock of another cor- poration. 73. What contract of another cor- poration may not be guaran- teed. 74. Athletic club. 75. Banking associations. 76. A savings bank's powers. 77. Corporations dealing in lands. 78. Insurance corporations. 79. Manufacturing corporations. 80. Mining corporations. 81. Railroad corporations. 82. The same subject continued. 83. Raising money by borrowing notes and indorsement of them. 84. Evidences of indebtedness forms. 85. More rules on this subject. 86. Bonds of a banking association. 87. Power to secure their indebted- ness. 88. Limitation of indebtedness. S9. Debt limited by par value of capital stock. 90. When a statutory limitation of indebtedness does not apply. 65. General rules as to incurring indebtedness. Within the scope of its general and discretionary powers, the authority of a corporation to dispose of its funds for any purpose whatever may be admitted to be absolute and beyond all control. 1 It is always presumed that a corporate body may make any proper contracts, the scope and tendency of which are manifestly to for- ward the design of its legislative creation. 2 Such corporations, if not restricted by their charters, have incidental authority to borrow money for any of their lawful purposes. 8 But the power to borrow money, being an incidental power, does not extend 1 Binney's Case, (1829) 2 Eland's Ch. agent under employment to perform 99, 142. services consonant to the general de- * Kitchen v. Cape Girardeau & State sign of the corporation. Line R. R. Co., (1876) 59 Mo. 514, an Partridge . Badger, 25 Barb. 146. action to recover for services as an 65] PRIVATE CORPORATIONS. 73 beyond cases where it is essential to the transaction of its ordi- nary affairs. 1 The limit fixed in the charter of a corporation as to its capital does not restrict its power to contract debts for the purpose of the incorporation as to their amount, nor as to the amount of property it may purchase or accumulate.* A private corporation has been held liable, at least to the extent of the con- sideration received, for indebtedness assumed to be contracted in excess of the limit imposed by the articles of incorporation. 8 A corporation, created with authority to construct a certain road and collect toll thereon, may purchase a like road already con- structed, and charge toll thereon. 4 A corporation organized under a state corporation act which authorizes the formation of a corporation to engage " in any lawful enterprise, business, pur- suit or occupation," has power to buy and sell or lease a railway. 9 There is an implied power in a corporation empowered to con- struct a work to borrow money necessary for the purpose of such construction, and to issue its bonds for the money borrowed. 6 A corporation authorized by the general law under which it is incor- porated to borrow money for the purpose of constructing its works, and to issue bonds for its payment, has the power to pur- chase works already constructed and suitable for its purposes, and issue bonds in payment for such works. 7 In such a case, the ODrpo ration may issue stock for a portion of the purchase money of such works, and pay in cash or issue bonds for the balance. 8 1 Beers c. Phoenix Glass Co., 14 Barb. 299; Straus & Bro. v. Eagle Ins. Co. 358. of Cincinnati, 5 Ohio St. 59. 'Barry r. Merchants' Exchange Co., 4 State ex rel. t>. Hannibal, etc.. Road 1 Sandf. Ch. 280. Co., (1889) 37 Mo. App. 496. ' Humphrey v. Patrons' Mercantile Oregonian Ry. Co. v. Oregon Ry. Association, (1879) 50 Iowa, 607. The & Navigation Co., 23 Fed. Rep. 232. New York Court of Appals has sus- Smith . Law, 21 N. Y. 296. tained the validity of a contract of a ' Gamble v. Queens County Water private corporation for proper and Co., (1890) 25 Abb. N. C. 410, revers- necessary work preliminary to active ing 52 Hun, 166. business operations, as within its inci- 8 Ibid. As to legislature's power to dental power to make any contract authorize corporations of its creation necessary to advance the object for to borrow money, etc., sec Covington which it was created. Legrand r. . C., etc., Bridge Co., (1878) 10 Bush, Manhattan Mercantile Association, 74. As to power to borrow money, (1880) 80 N. Y. 638, affirming 44 N. see Union M. Co. . Rocky Mt. Nat. Y. Super. Ct. 562. See Broughton . Bank, 2 Col. 248; Beers r. Pho?nix M. Water Works, 3 B. & A, 1; Bank Glass Co., 14 Barb. 858; Mead v. of Columbia v. Patterson, 7 Cranch. Keeler, 24 Barb. 20. As to raising 74: GENERAL POWER TO INCUB PECUNIARY LIABILITY. [_ b6 A corporation, with power to borrow money, may legitimately borrow promissory notes upon which to raise money for its business. 1 66. Purchase of property. By the common law corpora- tions have a right to purchase and hold property so far as may be necessary to carry into execution the purposes and objects for which they are created. 2 A corporation incorporated under the general laws of Alabama, has power to borrow money to pur- chase and improve real estate that it may be enabled to carry into effect the purposes of its incorporation. 3 The Iowa Supreme Court has held that a corporation authorized by its charter to purchase, etc., " any real estate or other property deemed advis- able in the transaction of its business " might purchase its own money for the purpose of carrying out the purposes of its creation, see Wellers- burg, etc., Co. v. Young, 12 Md. 476; Mayor, etc. , of Baltimore . Baltimore & Ohio R. R. Co., 21 Md. 91. As to the means employed to carry out such purposes, coming withiu the implied powers of corporations, see Willmarth v. Crawford, 10 Wend. 342; Madison, etc., Plank Road Co. v. Watertown, etc., Plank Road Co., 5 Wis. 173; Clark v. Farrington, 11 Wis. 306. As to these implied powers being per- formed by their agents, see Smith v. Eureka Flour Mills, 6 Cal. 1; Straus & Bro. v. Eagle Ins. Co. , 5 Ohio St. 59. As to making promissory notes under the implied power, see Moss v. Oakley, 2 Hill, 265; Munn . Commission Co., 15 Johns. 44; Mott v. Hicks, 1 Cow. 513; Auerbach v>. Le Sueur Mill Co., (1881) 28 Minn. 291; s. c., 9 N. W. Rep. 799; Sullivan . Murphy, 23 Minn. 6; Chaska Company . Board of Supervisors of Carver Co. , 6 Minn. 204. 1 Holbrook v. Basset, 5 Bosw. 147. 1 Blanchard's Gun-Stock Turning Factory v. Warner, (1848) 1 Blatchf. 258. 3 Alabama Gold Life Ins. Co. v. Cen- tral Agricultural & Mechanical As- 10 sociation, (1875) 54 Ala. 73. Arguendo it was said by BRICKELL, Ch. J : " The general principle is that a corporation can make no contracts, and do no acts, except such as are authorized by its charter. From the charter it derives all its powers, and the capacity of ex- ercising them. Any contract made by it not necessary and proper, directly or indirectly, to enable it to answer the purpose of its creation, is void, and neither a court of law or of equity can enforce it. Grand Lodge v. Wad- dill, 36 Ala. 313; Smith v. Ala. Life Ins. & Trust Co., 4 Ala. 558; City Council v. Montgomery & Wetumpka Plank Road, 31 Ala. 76. It must not be understood, however, that the charter, whether it is of special legis- lative enactment, or derived from gen- eral statutory provisions, must ex- pressly confer the power of making contracts. As we have said, the ca- pacity to contract is an incidental cor- porate power, and if the special act of incorporation, or the general statutory law is silent as to the contracts into which a corporation may enter, it has the power to make all such contracts as are necessary and proper to enable it to accomplish the purposes of its creation. Ang. & Ames on Corp. 66] PRIVATE CORPORATIONS. 75 stock. 1 Upon evidence that it was customary and necessary, in the economical conduct of tin- business of iron furnaces to con- duct a supply store in connection therewith, the Supreme Court of Tennessee has held that debts created in the purchase of a stock of goods for such store were valid obligations of the furnace rompany. The power to conduct such a store being clearly inci- s ','71. This is the theory on which the general statutes for the organiza- tion of private corporations proceed, for though the powers of such cor- poration are enumerated, that of mak- ing contracts is not included, but is left to Implication from the powers mentioned, and the character and pur- poses of the corporation. It is not in- dispensable, therefore, to the validity of a contract made by a corporation for money borrowed, that the power to borrow money should be expressly conferred. Ang. & Ames on Corp. 257. If the nature and character of the corporation render the power a usual and proper mode of accomplish- ing its objects and purposes, the power is incidental or implied. When the corporation has, as all private cor- porations have, under the general law providing for their creation, the capac- ity of acquiring and holding personal and real property, the mode of acquir- ing not being limited, they may ac- quire it by purchase or by gift. The corporation has the capacity of an in- dividual in this respect, within the scope of its legitimate objects and purposes. Having the power to ac- quire and hold personal and real es- tate by purchase, it has, as an incident, the power to borrow money to make the purchase. The exercise of such power may be advantageous and use- ful, enabling the corporation, the owner, to put its powers into active exercise, and to acquire the necessary property on terms more profitable to its stockholders. It would scarcely be affirmed that the power to acquire and hold real and personal estate must be so narrowed that the corporation could not contract a debt for its purchase that at the very moment of the pur- chase and conveyance the purchase money must be counted out or the purchase and conveyance is void. If the necessities and interests of the cor- poration require it, which must be de- termined by those having charge of ita affairs, and intrusted with the power and duty, that a debt be contracted in the acquisition of the necessary prop- erty, the power to contract it cannot be denied. If more advantageous to borrow the money and make immedi- ate payment than to contract the debt for the purchase money with the ven- dor, the contract is equally within the scope of corporate power and valid." Fay t>. Noble, 12 Cush. 1; Davis t>. Proprietors of Meeting House, 8 Met. 321; Union Bank c. Jacobs, 6 Humph. 515; Barry r. Merchants' Exchange Co , 1 Sandf. Ch. 280; Burr t>. Mc- Donald, 3 Gratt. 215; Curtis v. Leav- itt, 15 N. Y. 9; Bradley t>. Ballard, (1870) 55 111. 413; Mead v. Keeler, (1857) 24 Barb. 20; Partridge r. Bad- ger, (1857) 25 Barb. 146; Clark v. Tit- comb, (1864) 42 Barb. 122; Life & Fire Ins. Co. v. Mechanic Fire Ins. Co., (1831) 7 Wend. 31; Barnes c. Ontario Bank, (1859) 19 N. Y. 152; Smith r. Law, (1860) 21 N. Y. 296; Ridgway r. .Farmers' Bank of Bucks Co., (1825)12 Serg. &R. 256; Hamilton v. Newcastle & Danville R. R. Co., (1857) 9 Ind. 859; Rockwell r. Elkhorn Bank. (1861) 13 Wis. 658. 1 Iowa Lumber Co. r. Foster, (1878) 49 Iowa. '2~>. As supporting this doc- trine, sec Barton r. P. J. & U. F. 76 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 67 dental to the business of making iron, was, therefore, within the corporate powers of the company, though not mentioned in the charter. 1 67. Aiding other corporations. An aei; of the legislature of New York authorizing the several railroad corporations of that state to subscribe to the capital stock of a railroad company designed to penetrate the western country has been held to be constitutional and valid. 2 The Supreme Court of Nevada has held a contract by a mining corporation to advance a specific sum of money to aid in the construction of a tunnel to drain its mine not to be ultra vires, and that such a contract came within the incidental and implied powers of a mining company. 8 Notwith- standing the Code of Oregon in one place provides that " persons" shall be construed to include a corporation, the authority granted under the same Code to two or more " persons " to form a corpo- ration in a certain manner does not empower a corporation to become a subscriber to shares in another corporation. 4 The Court of Appeals of Maryland has sustained the power of one steamboat company to purchase shares of stock in another. 5 A Plank Road Co., 17 Barb. 397; Cooper is nothing in the charter of the steam v. Frederick, 9 Ala. 738; Verplanck v. packet company or in the nature of Mer. Ins. Co., 1 Edw. Ch. 84; Hart- its business that would, in the slight- ridge v. Rockwell, R. M. Charlton, est manner, forbid the exercise of such 260; Gillet v. Moody, 3 Comst. 479; power, and having money to loan or in- Taylor v. Miami Exporting Co., 6 vest, there would appear to be no good Ohio, 176; State Bank t>. Fox, 3 reason why it might not invest in the Blatchf. 431; City Bank of Columbus stock of other corporations as well as in v. Bruce, 17 N. Y. 507. any other funds, provided it be done 1 Searight v. Payne, 6 Lea, 283. bonafide and with no sinister or unlaw- 2 White t>. Syracuse & Utica R. R. ful purpose. The courts of England Co. , (1853) 14 Barb. 559. at one time strongly opposed the rights 3 Sutro Tunnel Co. . Segregated of one corporation to deal or invest in Belcher Mining Co., 19 Nev. 121; s. the stock of another corporation with- c., 7 Pac. Rep. 271. out express authority for so doing, but 4 Denny Hotel Co. of Seattle v. that opposition has been entirely over- Schram, (Wash.) 32 Pac. Rep. 1002. come and it is now settled there that 5 Booth v. Robinson, (1880) 55 Md. one corporation may deal in the shares 419. It was said by the court: "This of another, without express authority [purchase and holding of this stock], so to do, unless where expressly pro- it is contended, by the plaintiffs, hibited or the nature of its business ren- could not be done without express der it improper so to deal. ReBarned's authority by law. But, while some Banking Co., L. R., 3 Ch. 105; courts have so held, the great weight Re Asiatic Banking Co., L. R., 4 Ch. of authority is the other way. There 252. Ic the latter of the cases first PRIVATE CORPORATIONS. 77 joint stock corporation organized "to do a general insurance agency commission and brokerage business and such other things as are incidental to and necessary in the management of that business," has been held in Connecticut to have no power to sub- scribe to the stock of a savings bank and building and loan asso- ciation. 1 Though the power to borrow money may be implied in such a corporation, it cannot legally subscribe to such stock as a means of effecting a loan ol money. 2 The power of an agricul- tural society to subscribe to stock in a street railway company which was to construct a street railroad through the streets of the city to the grounds of the society and to borrow money, secure it by assigning certain promissory notes of the railroad company and mortgage to secure them and to guarantee such notes in order to effectuate the purposes of the society, has been sustained by the Iowa Supreme Court. 3 68. Contracts of suretyship. The Louisiana Supreme Court has held that there was no express authority given to the officers of the corporation involved in this case to enter into a contract of surety shio ; neither was there any general authority cited, Lord Justice SELWYN. in speak- same case affirmed on appeal in 5 Md. ing of this power of corporations, said: 152. " As to the capacity of a trading cor- ' Mechanics & Workingmen's Mu- por-ition to accept shares in another tual Savings Bank & Building Asso- trading corporation, it is sufficient ciation of New Haven v. Meriden for me to say that I entirely agree Agency Co., (1855)24 Conn. 159. with the judgment of Lord CAIRNS in *Ibid. That a municipal corporation the case of Barned's Banking Co., viz., may be bound by a subscription to that there is not, either by the com- stock not authorized by its charter mon or statute law, anything to pro- by subsequent legislative sanction, see hibit one trading corporation from First Municipality . Orleans taking or accepting shares in another Theatre Co., 2 Rob. (La.) 209. In New trading corporation. There may, of Orleans, Florida & Havana Steamship course, be circumstances which pro- Co. c. Ocean Dry Dock Co., (1870) 28 hibit or render it improper for a com- La. Ann. 173, the Louisiana Supreme pany so to do having regard to its Court held that the dock company own constitution, as defined by its could not subscribe to the capital memorandum and articles." It is in stock of the navigation company, this accordance with the statutes that the being foreign to the object of its own law is laid down as settled by Brice in charter. Purchasing stock of another his work on Ultra Viret, pp. 91, company. Salomons t>. Laing, 18 92. And in this state the same prin- Beav. 339. ciple has been fully sanctioned in the * Thompson t>. Lambert, (1876) 44 case of Elysville Manuf. Co. v. Iowa, 239. Okisko Co., 1 Md. Ch. Dec. 892, and 78 GENERAL POWER TO INCUR PECUN1AEY LIABILITY. [ 69 from which the power to enter into such a contract could be implied or fairly deduced under a plea of usage, necessity, con- venience or public interest. 1 A corporation cannot by its officers execute a note for a debt due from a third person to another, having no relation to its business. 2 A manufacturing corpora- tion, organized under the general laws of Kew York, has no power to indorse for the accommodation of another paper in which it is not interested. 3 And the indorsement of such paper by the treasurer of a manufacturing corporation may be pre- sumed to be ultra vires* But this rule has been adhered to, that while a corporation has no right to bind itself by an accommoda- tion acceptance or indorsement, the corporation is liable on such acceptance or indorsement to a bona fide holder, although it was made for a purpose or at a place not authorized by the charter of the corporation. 5 69. Guaranty of bonds of one railroad corporation by another. Upon a sufficient consideration one railroad corpora- tion may guarantee the payment of the bonds of another. 6 It is 1 Louisiana State Bank T. Orleans 5 Mather v. Union Loan & Trust Co., Navigation Co., (1848) 3 La. Ann. 294, (City Court of N. Y. 1889) 26 N. Y. in which case the powers of corpora- St. Repr. 58; s. c., 7N. Y. Supp. 213; tions at common law and under the citing McCullough v. Moss, 5 Denio, Civil Code of Louisiana are fully dis- 567; Mechanics' Banking Association cussed. v. New York, etc., White Lead Co., 8 Hall T. Auburn Turnpike Co., 35 N. Y. 505; Farmers & Mechanics' (1865) 27 Cal. 255. Bank v. Butchers & Drovers' Bank, 16 3 National Park Bank t. German- N. Y. 125. See, also, Usher T. Ray mond American Warehousing, etc., Co., Skate Co., (Mass. 1895) 39 N. E. Rep. (1889) 116 N. Y. 281; s. c., 26 N. Y. 416; Savage Mfg. Co. v. Worthington, St. Repr. 675; Wahlig v. Standard 1 Gill. 284; Madison, etc., R. R. Co. t>. Pump Manufacturing Co., (1889) 25 N. Norwich Saving Society, 24 Ind. 457, Y. St. Repr. 864; s. c., 5 N. Y. Supp. modifying Smead v. R. R. Co., 11 Ind. 420; citing Central Bank v. Empire 104; LaFayette Savings Bank v. St. Stone Dressing Co., 26 Barb. 23; Louis, etc., Co., 2 Mo. App. 299. Bank of Genesee v. Patchin Bank, 13 6 Low v. California Pacific R. R. N. Y. 309. See, also, Bridgeport City Co., (1377) 52 Cal. 53. It appeared in B:ink v. Empire Stone Dressing Co., this case that one railroad company, 30 Barb. 421; Farmers & Mechanics' under authority of law, leased the line Bank x. Empire Stone Dressing Co., 5 of another for a term of years. The Bosw. 275; Morford v. Farmers' Bank consideration of the lease was an of Saratoga, 26 Barb. 568. annual rental, and that the lessee com- 4 Wahlig v. Standard Pump Manu- pany should guarantee the principal f acturing Co. , (1889) 25 N. Y. St. Repr. and interest of bonds to be issued by 864; B. c., 5 N. Y. Supp. 420. the lessee company. The contract of 70] PRIVATE CORPORATIONS. 79 a good consideration for the guaranty of the bonds of one railroad corporation by another that the former conform its gauge to that of the latter and thus form running connections between the roads of the different corporations ; and the guaranty of such bonds by a company empowered by general law of a state, " at any time, by means of their subscription to the capital stock of any other company, or oth< /v/vV, to uid such company in the construction of its railroad, for the purpose of forming a con- nection of said last-mentioned road with the road owned by the company furnishing such aid," is within the powers of the guaranteeing corporation. 1 70. Guaranty of bonds of railroad corporations by one of another kind. In a very recent and elaborately considered case, the United States Circuit Court for the district of Ken- tucky has held that a land company, a Kentucky corporation, vested by its charter with large and extensive franchises and powers, had power to guarantee the bonds of a railroad company. 2 guaranty was challenged as ultra Supreme Court of New York held the vires. The lessee company had no arrangement entered into between express authority to make such con- several connecting railroad companies, tract of guaranty, but did have power for the purpose of securing a uniform to make all such contracts as were gauge of the several roads, and thus usual and proper in the building and increasing the business and profits of operation of a mil way, and it likewise each, constituted a sufficient considera- had power to lease the line of the tion for a guaranty by one of the cor- lessor company. The Supreme Court poratious of the payment of the bonds held that the consideration was suffl- of another ; also that the general cient and the guaranty valid. They statute referred to in the text gave were of opinion that it was as com- power to the companies whose lines petent for the company to promise to were connected to enter into the pay conditionally as to promise to pay arrangement as to a uniform gauge absolutely ; that the validity of the and to make it part of such arrange- agreement depended upon the stifB- inent that one or more of the com- ciency of the consideration. The panics should guarantee the payment right to take the lease being express, of the interest coupons issued by it was a good consideration for the another. See, also, Railroad Co. c. conditional promise involved by aeon- Howard, 7 Wall. 411. tract of guaranty. ' Tod r. Kentucky Union Land 'Zabriskie r. Cleveland, Columbus Co., (1898) 57 Fed. Rep. 47; affirmed & Cincinnati R. R. Co., (1859) 28 How. by the United States Circuit Court of 881. In Connecticut Mutual Life Appeals for the sixth circuit in Mar- Insurance Co. v. Cleveland, Columbus bury . Kentucky Union Land Co., & Cincinnati R. R. Co., (1868) 41 (1894) 62 Fed. Rep. 835. LURTON, Barb. 9; s. c., 26 How. Pr. 225, the Circuit Judge, said: "The power to 80 OENEKAL POWER TO INCUR PECUNIARY LIABILITY. [71 71. Circumstances surrounding corporation may authorize the guaranty. The court applied the principles gov- erning corporations in reference to their acts under the powers execute accommodation paper, or to there is no inherent want of power in guarantee for accommodation the obli- a business corporation, having the gations of another corporation is not power to execute negotiable paper, to expressly conferred by the charter of obligate itself as a surety or guarantor, the land company. Ordinarily, such If such a corporation receive commer- power is not implied from the powers cial paper or bonds in due course of conferred upon corporations, and such business, we see no reason why, upon contracts are generally in excess of transferring such paper, it may not be the powers of corporations, and, there- lawful to obligate itself as indorser or fore, void as ultra, vires, in the true guarantor. Such a contract would be sense of the term. This proposition a new and independent contract, and rested upon two or more very evident would rest upon a sufficient considera- reasons: (1) The corporate funds be- tion, if entered into as a legitimate long to its shareholders, and, by the means of increasing the value of the very terms of the law creating it, can- security to be disposed of in the or- not be devoted to any other purposes dinary course of business. In Rail- than those indicated by its charter road . Howard the question arose as and constitution. Such obligations to the liability of a railroad company would violate the fundamental terms upon its guaranty of certain bonds of the agreement between the cor- issued by various counties and cities, porators themselves. (2) To do so and received by the railroad company would be to exercise a power not con- in payment of subscriptions to its ferred by the state, either expressly stock. Upon full consideration it was or impliedly. The state's grant of the held that, inasmuch as the company corporate franchises is for the purpose had received the bonds in payment of prescribed, and the execution of such stock, and had a right to obligate itself obligations would be beyond the by its own bonds for the purpose of power conferred, and, therefore, a di- building its road, it might lawfully, version of the corporate purposes, as and in furtherance of its authorized well as the corporate funds. (3) Such purpose, guarantee such bonds as a obligations rest upon no consideration, means of augmenting their value on and would not, therefore, be valid, the market, thus producing funds to They would amount to a donation of build its road. 7 Wall. 411, 412. The the corporate funds, and, therefore, power of a corporation, to bind itself an unlawful diversion. Mor. Priv. by a guaranty, when it does so for its Corp. 423; Davis v. Railroad Co., 131 own benefit and as a means of selling Mass. 258; Madison Plank Road Co. v. at an augmented value, is generally Watertown Plank Road Co., 7 Wis. conceded by the authorities. 'In such 59; McLellan v. File Works, 56 Mich, cases,' says Mr. Randolph in his work 579; s. c., 23 N. W. Rep. 821; Na- upon Commercial Paper (Vol. 1, tional Park Bank v. German- American 334), ' the guaranty is an original Mutual Warehousing & Security Co. , contract of the corporation for its own 116 N. Y. 292; s. c., 22 N. E. Rep. benefit, the consideration moving to 567; ^Itna Nat. Bank v. Charter Oak itself, and not to the person whose Life Ins. Co., 50 Conn. 167. But debt is guaranteed.' There being no 71] PRIVATE CORI'oi:\: 81 expressly granted and implied, referring to the general purposes, franchises, etc., embraced in the charter of this land company, to this particular case, showing wherein the circumstances surround- ing it made it legal and proper that it should guarantee the bonds of the railroad company. 1 absolute want of power in an ordinary business corporation to bind itself as u guarantor. \\v must next inquire as to tin; circumstances which will make a contract lawful and obliga- tory. The cases already cited estab- propo-ition that if such a cor- poration lias the power to issue bonds or other commercial securities, and beco'iies the holder of fuch bonds or securities issued by other corpora- tions, it may indorse or guarantee them upon transferring them for the pur- pose of raising money to carry out any purpose for which it might bor- row money. The right of a corpora- tion to do an act or make a contract is not always a question of law. What it may not do under some circum- stances, it may do under others. It may carry on the business it is author- ized to do in the usual and customary manner that business of the same nature is carried on by individuals." 'Tod v. Kentucky Union Land Co., (1893) 57 Fed. Rep. 47. Referring to a special power granted the land com- pany for a "temporary consolida- tion" with the railroad company, it was said: " The power to make a tem- porary consolidation, looking to all the four corners of the charter, clearly im- plies the power to make such an alli- ance <>r bring about such a union and cooperation of interests between the land company and a railway company as shall be to the mutual interest of ea -h, and place both under the same control and management. This could be done by the plan suggested by Mr. Morawctz in section 942 of his work on Private Corporations, whereby the shares of one company should be held 11 by the other or by the same persona This meaning seems reasonable and proper, looking to the objects and purposes of this corporation, and any steps which brought about unity of interest and co-operation in purpose as being legitimate and authorized. Under this power we are of opinion that [this] land company had the power to acquire the shares in the rail- way company, and the right to exer- cise control over the railway com- pany through the ownership and con- trol of those shares. Undoubtedly tin- general rule is that a corporation has no implied power to acquire shares in another for the purpose of controlling it. Marble Co. r. Harvey, 92 Tenn. 115; s. c., 20 8. W. Rep. 427. This would be contrary to the well-under- stood public policy concerning such companies. But this objection does not lie here: (1) Because the charter of the railway company expressly provides that its shares may be owned by any other corporation. (2) The express power in the charter of the land company removes nil objections, based on grounds of public policy, to its control of a railway company by and through its shares. What the legislature of Kentucky has expressly permitted cannot bu void as against public policy in tho absence of any violation of a const itutiouil provision. Under such circumstances it is not for the courts to say that what the legis- lature authori/.es is unlawful because contrary to public policy. Having authority to acquire this stock, the land company became the sole stock- holder in the railway company. ]'.-.<{> had express authority to borrow 82 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [72 72. Guaranty of dividend upon preferred stock of another corporation. The court also held that this land corn- money and issue bonds to curry out the purposes of the organization. The completion of this railway WHS an object within the scope of its char- ter powers. It could do so by its own name or by aiding the railway com- pany to negotiate its securities by guaranteeing their payment. The guaranty was not for the accom- modation of the railway company. The guarantor being the sole share- holder of the railway company, it was a contract for its own benefit, and, therefore, rested upon a suffic ient security. In addition, the land com- pany was a creditor of the railway company, and was to, and did, receive the proceeds arising from the sale of the half million of these bonds. The re- mainder of the money thus raised was to be applied to the building of the railway line. The consideration was sufficient to fully support the contract. A like question arose in Chicago, R. I. & P. R. Co. v. Union Pac. Ry. Co., 47 Fed. Rep. 16, where Mr. Justice BKEWEK held that ' where one rail- road company owns substantially all the stock of another railroad company, a lease of the latter line for rent to be paid to the former company is not void for want of consideration since it amounts merely to an agreement to pay the rent directly to the stock- holders.' Upon appeal to the United States Circuit Court of Appeals for the fifth circuit, this ruling was affirmed. 51 Fed. Rep. 329; s. c., 2 C. C. A. 242. The directors of the railway company held the property of that company, including these bonds and their proceeds, when sold, in trust for the * * * land company as holders of the shares in that company. To say that its guaranty of these bonds was a mere accommodation guaranty when it was the cestui que trust in the proceeds of the bonds, and thereby enable it to defeat its respon- sibility, as a contract ultra vires, would be sticking in the bark and result in manifest injustice. That at some future day this union may be dis- solved by a sale of the stock owned by the land company is not of import- ance. The real and substantial owner of the railroad company at the time these bonds were guaranteed was the land company. The guaranty was for the benefit of the guarantors. Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., 51 Fed. Rep. 310; s. c.. 2 C. C. A. 174. The case is not like that of Davis v Railroad Co , 131 Mass. 258. That was a donation to support a musical festival. The benefit to the railroad company was in the supposition that it would profit by increased travel. This was alto- gether too remote, and the contract properly held void. When the ques- tion is, as here, whether or not a par- ticular act is ultra vires, decided cases are of little value. Each case must be largely a question of fact. Yet, by reference to a few of the decided cases, we can discover the principle upon which other courts have pro- ceeded in deciding such questions. We will refer to a few cases: In Louis- ville & N. R. Co. T. Literary Society of St. Rose, 91 Ky. 395; s. c.. 15 S. W. Rep. 1065, the Court of Appeals of Ken- tucky passed upon a question involving the implied power of a corporation. It appeared that the literary society of St. Rose and the literary society of St. Catherine were corporations for edu- cational purposes, existing in or near the town of Springfield in Washing- ton county, Kentucky. They had power to contract and to buy and sell real and personal property for the purpose of sustaining and carrying PRIVATE CORPORATIONS. 83 pany was authorized to guarantee a dividend upon the preferred stock of the railroad company. 1 on said institutions of learning and lirrwise. Each of them owned and operated a farm of about 1,000 of very considerable value. This, in the language of the court, 'created a large industry in the way of supplies furnished to them, and tin v in turn furnishing to others.' Eaeh of these corporations sigrn -d an obligation to a railroad company to indm-r ii to extend its line near their property. In an action upon those obligations, it was contended that they were ultra tire. The court said : ' Corporations derive their powers from charters. They are those which are expressly given or by fair implication are necessary to the execution of their object. Cases may be found where the officers of a cor- poration have exceeded their powers, but the corporation, nevertheless, held liable because the transaction was within the scope of its business, and it had received a benefit from it. The only trouble arose from a defect of power in the managers. This case is not within this class, however, be- cause it appears beyond all doubt that the change of location as to depot was not to the interest of these insti- tutions. The building of the road was calculated, however, to be highly beneficial to them, both as to furnish- ing convenient access to them for persons coming and going, and also in furnishing them a means of obtaining their supplies and sending their pro- ducts to market. It was calculated to and undoubtedly did add greatly to the value of their properties and the large industries which their char- ters had authorized them to create. It conferred a direct benefit. The power existed by fair implication to do anything reasonably calculated to add to their value. How far this power extended we need not decide. Certainly, however, if during a por- tion of the year these institutions had hi-cn almost inaccessihlf for the lack of a turnpike or a bridge, a subscrip- tion by them to build either would have been valid; and while not author- ized to enter into all manner of specu- lations, yet. in our opinion, a subscrip- tion by them to aid the building of this rond was not, under all the cir- cumstances, ultra tire and, therefore, void.' " 1 Tod t . Kentucky Union Land Co. , (1893) 57 Fed Rep. 47, affirmed by United States Circuit Court of Appeals for the sixth circuit in Marbury r. Kentucky Union Land Co., (1894) 62 Fed. Rep. 335. This "guaranty," the court said, "stands upon the same footing as the guaranty of the bonds. The temporary consolidation between the two companies, springing out of the ownership of the stoc-k in the rail- way company by the land company, in view of the terms of the charter of the latter company, authorized it to aid the former in any usual way to build its line of railroad." Certain second mortgage bonds of the railroad company were issued and delivered to the land company on account of in- debtedness due by the railway com- pany to the land company. A largo part of these bonds had been sold by the land company, and were in the hands of various individuals who held them as bonafide purchasers for value. When sold, the payment of these bonds, principal and interest, was guaranteed by the land company. Others had been pledged as collateral security, and these, also, were guar- anterd by the land company. As to these bonds the court said: "The bonds, having been received in pay- ment of, or on account of, indebted- 84 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 73, 74 73- What contract of another corporation may not be guaranteed. The United States Circuit Court of Appeals for the sixth circuit has held that a corporation organized under the law of Ohio for the purpose of making iron work for mining plants had not the power to guarantee the performance of another's contract for the erection of a mining plant, and the accompany- ing warranties, on the ground that the guaranty would secure a sale of the iron work used in the plant. 1 Further, the performance of such contract on the part of the party to whom the guaranty was given did not estop the corporation from denying its power to give the guaranty. 2 74. Athletic club. A corporation formed under a statute for encouraging athletic exercises, under a provision of the stat- ute that it " may hold real and personal estate, and may hire, pur- chase or erect suitable buildings for its accommodation to an amount not exceeding five hundred dollars," has power to take a lease of land, and to erect a suitable club house upon it. Having such power it may raise money for the purpose by negotiating a ness, became the property of the [land railway company was not affected by company]. To augment their value the amendment, and all which could be when sold, or pledged as collateral, lawfully done by reason of such exist- their payment was guaranteed. It is ing lawful union might thereafter be true that when this guaranty was done, so long as it continued. Irre- placed upon the bonds, the clause in spective of the particular power re- the charter of the land company per- suiting from the ' temporary consoli- mitting a consolidation with a railroad dation,' and the relations resulting company had been repealed. Inas- therefrom, this obligation of the land much, however, as the connection be- company is valid, under the authority tween these two companies was of the cases holding that a corporation authorized when the latter acquired having the power to bind itself by the stock of the former, and paid or commercial paper might indorse or assumed its debts, and inasmuch as guaranty commercial obligations re- this alliance, union or ' temporary con- ceived in ordinary course of business, solidation ' was in force when this re- and guaranteed when sold to augment pealing act took effect, and when these the price realized in their sale and bonds were guaranteed, we think it transfer." As to guaranteeing divi- was not prohibited by the repeal from dends, see Col man v. Eastern Ry. Co., continuing the union of the two com- lOBeav. 1; Logan v. Earl of Courtbwn, panics, or obligating itself by this 13 Beav. 22. guaranty. The amendment should be ! Humboldt Min. Co. v. American construed as prospective and not re- Manufacturing, Mining & Milling Co., trospective. Any relation which had (1894) 62 Fed. Rep. 356. theretofore been entered into with this * Ibid. 75] PRIVATE CORPORATIONS. 85 loan and giving its promissory note for its payment. 1 Additional authority given in the statute " to receive and hold in trust funds received by gift or bequest " will not confine it to that mode of raising it. 3 75. Banking associations. The General Banking Law of New York did not give banking a.-.-<><-i;itir become indebted, in the exercise of its in the place of another. The power undoubted legitimate business. It to borrow then is a necessary incident has the right to receive deposits, and to the power to become indebted. It it must become indebted for them. It is a power without which no banking has the right to purchase gold and sil- association could safely carry on its vi r bullion, foreign coins and bills of business." exchange; and it may become indebted 4 Curtis r. Leavitfr, (1857) 15 N. Y. 9. upon such purchase. It requires COMSTOCK, J., in the opinion rendered state stocks as a basis of its circula- by him, on page 63, stated the tion, and it may lawfully contract a doctrine in Barry r. Merchants' Ex- debt in the purchase of state stocks change Company, 1 Samlf. Cli. 280, for that purpose. There may be 289, in the language of Assistant Vice- other ways in which a banking asso- Chancellor SANDFOKD: "A corpora- nation can become legally indebted, tion, in order to attain its legitimate It may become liable for the payment objects, may deal pm-ix-ly as an indi- of its debts at a time when, owing to vidual may, who seeks to accomplish 86 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 76 76. A savings bank's powers. Every corporation created for transacting business, unless restrained by its charter or some statute, has, as a necessary incident, the power of incurring debts in the course of its legitimate business. For instance, in the case the same ends. If chartered for the ever varying exigencies of human af- purpose of building a bridge, it may fairs. It is plain that corporations, in contract a debt for labor, the materials, executing their express powers, are or the land upon which the bridge is not confined to means of such indis- abutted. If more advantageous, it pensable necessity that, without them, may borrow money to purchase such there could be no execution at all. land or materials, or to pay for such The entire doctrine would lead at labor, and as the evidence of the in- once to a very great absurdity, for if debteduess, it may execute to the there are several modes of accomplish- creditoi'3 a note, a bond, or a mortgage, ing the end, neither one is indispen- whether the debt be for the money sable, and each would exclude all the borrowed, or the work, materials, or others. And thus, by inevitable logic, land." COMSTOCK, J., said, on pages an express grant of power would lie 64,65: " I confess my own inability to forever dormant because there are refute the doctrine so perspicuously more modes than one of carrying it laid down by Assistant Vice-Chancel- into execution. It is almost as diffl- lor SANDFOUD. I am not aware that cult to say that the incidental power it comes in conflict with any known depends for its existence on the de- distinction between private persons gree of necessity which connects it and corporations. It is true that the with the power in chief. Such a doc- latter take all their powers, direct and trine would impose upon courts a incidental, under their charters; but never-ending difficulty, for the inquiry when the direct power is granted in would plainly be whether the chosen terms, they take it, as a natural per- instrumentality is the very best that son enjoys it, with all its incidents could be selected, and if not the very and accessories. A simple association best, however minute the difference of merchants to build an exchange may be, then the inevitable decision could, if they so agreed with each must follow that the choice was fatally other, very appropriately borrow bad, although strictly adapted to the money in furtherance of the object, end in view, and made in the utmost and why can they not, if they take good faith. These demonstrations, the principal power under a charter for such they appear to me, would from the government, which enables seem to leave but one other conclusion, them to act as a single person, and which is, that corporations, along with with a collective wfll? It is truly said their specific powers, take all the rea- that corporations can only exercise sonable means of execution, all that such incidental powers as are neces- are convenient and adapted to the end sary to carry into effect the express in view, although not the very best by objects of their charters. But neces- many degrees of comparison. And sity is a word of flexible meaning, this is a doctrine which must neces- There may be an absolute necessity, a sarily result in the liberty of choice great necessity and a small necessity, amongst those means. The choice and between these degrees there may may be wise or unwise. If made in be many others depending on the the exercise of an intelligent good 77] I'UIVATL CORPORATIONS. 87 , of a savings bank it was held that it had the power to negotiate a loan from another bank and of making and indorsing negotiable paper in payment of such debts. 1 77. Corporations dealing in lands. The Supreme Court of California has held that ' where a corporation was formed for the purpose of dealing in and speculating in real estate, and with the express power " to buy, improve, sell, lease and otherwise dispose of real estate" the term "improve" included the per- formance of any act, whether on or off the land, the direct and proximate tendency of which was to benefit or enhance its value. Therefore, a subscription made by such a corporation to a railroad company for the purpose of increasing the facilities and lessen- ing the cost of transportation on the same, " where the direct and proximate tendency of such increase of facilities is to enhance the value of its lands " was held a valid and binding faith, the wisdom of the selection may ' Fifth Ward Savings Bank t>. First be called iu question, but the power National Bank, (1880) 48 N. J. Law, to make it cannot be. I can, there- 513. DEPCE, J., speaking for the fore, see no room for the distinction Court of Errors and Appeals of New which admits the power of a corpora- Jersey, said: "Savings banks are estab- tion to contract a debt for labor and lished for business purposes. Their materials to be used in building an ex- functions are to receive, hold and in- change, or a bridge, or a turnpike vest moneys that may be deposited road, or in manufacturing, those being with them, and to repay the money in each case the specified object of the deposited under reasonable regulations charter, but denies the right to bor in their by-laws. In order to make row money to be used in the purchase the business successful, these institu- of the same labor and materials. If tions are required to keep their money there be any reason for a distinction, invested as closely as may be con- resting on a comparison of benefit to sistent with the ordinary demands of the corporation, the advantages of bor- depositors. But in seasons of financial rowing would in most cases be unde- excitements they may be subjected to niable. So, in point of public policy, extraordinary demands from depos- the reason for that preference would itors, to meet which and save the appear to be still stronger, for while credit of the institutions, large sums the industrial classes would require no of money may be required to be raised protection, the money lenders could on sudden and unforeseen contingen- safely be left to guard their own in- cies. At such times, the securities terests. I believe the distinction re- such institutions usually hold an- ferred to is not recognized by any likely to be depressed in the market adjudged case." BHOWN, J., dis- and unsalable except at ruinous sacri- russcs these questions in his opinion, flees. If thr*.r institutions should not pages 157-161; SIIANKLAND, J., in his h:i\v UK- p<>\vi-r to borrow money and opinion, pages 160-169; PAIGE, J., in to make negotiable paper, or make a his opinion, pages 210-218. pledge of securities on which money 88 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ Y7 contract. 1 In a Pennsylvania case, where a corporation owned a large body of wild land and had power by its charter " to aid in the development of minerals and other materials, and to pro- mote the clearing and settlement of the country," the Supreme Court held that the building of saw mills and a hotel for the accommodation of those having business in connection with parry- ing out the prime object of the corporation was within its powers. 2 The Kansas Supreme Court, in an opinion delivered by Mr. Justice BKEWEE, now of the United States Supreme Court, held that where a corporation was created for the purpose of locating and laying out a town site, and making improvements thereon, it was within the power of such corporation to donate lands for the purpose of securing the erection and maintenance of a school upon property adjacent to that owned by the town site company ; " that the direct and proximate tendency of the improvements sought to be obtained by the donation is the build- ing up of the town, and the enhanced value of the remaining property. The purpose of the corporation is to build up the town, * * * and this purpose is directly furthered by such' a donation." 3 In the United States Circuit Court for the western district of Virginia it was held that an improvement company organized under an act of the legislature of that state, to buy and sell lands, erect, sell and lease buildings, to grade and improve streets, to furnish gas, electric light and water works, to construct and operate street railways, furnaces and mills, and to acquire by purchase or subscription the stock or bonds of any mining, manufacturing, water, gas, street railway, or other improvement company, had power to give part of its stock to a railway com- pany in order to enable the latter to complete its line to the prop- erty of the improvement company. 4 A corporation created for the purpose of dealing in lands, and to which the powers to pur- may be borrowed temporarily, great by implication a power in corpora- sacrifices in the sale of the securities tions to borrow money and give in which the trust funds are invested, negotiable security as a means of if not financial ruin, would be the borrowing." probable result of every unexpected ' Vandall v. Dock Co, 40 Cal. 84. run upon the bank by depositors to * Watts' Appeal, 78 Pa. St. 370. withdraw their deposits. It is the 3 Whetstone v. University, 13 Eans. existence of conditions and contin- 320. gencies of this kind likely to arise in 4 McGeorge v. Big Stone Gap Imp. the conduct of business that the law Co., (1893) 57 Fed. Rep. 262. recognizes as the ground for raising 7> | PRIVATE CORPORATIONS. 89 chase, to subdivide, to sell, and to make, miy contract essential to the transaction of its business are expressly gran tr. Co.. (1876) 29 Ohio St. 330. Howard, 7 Wall. 411. In Trenton * Lyndeborough Glass Co. . Massa- Mutual Life & Fire Insurance Co. t>. chusctts Glass Co., (1873) 111 Mass. McKelway. (1858) 12 N. J. Eq. 133, 315. The court said :" They succeeded 188, Chancellor WILLIAMSON said: "It a former company which had been cannot be denied but that the corpora- engaged in the same business ; it was tion might borrow money under some important that they should retain the circumstances, and that a contract old customers. They were repairing Itoiuijids made for such loan would be their manufactory and machinery and illegal [legal V], and not in contra ven- these goods were bought to keep in tion of the charter. For instance, their stock and enable them to fill should the corporation incur a loss, orders from tin ir customers until they and not have the available means could supply themselves from their promptly to meet it, it would not be own inanul':i< t<>ry. Such purrha-rs illegal for them to make a k>an to nre auxiliary and incidental to tin- meet the exigency." main purposes of their incorporation 92 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 80 business, as a convenience or necessity thereto. 1 A corporation manufacturing machinery may purchase cotton for use in pack- ing its manufactures for cash or on credit and give its evidences of debt for the same. 2 A manufacturing and mercantile corpora- tion may incur a liability in the nature of a reward to one caus- ing the apprehension of persons charged with crime and their conviction. 3 80. Mining corporations. The power to borrow money is an incident to the corporate powers of a mining corporation. 4 It is a necessary incident of a mining corporation that it shall have power to contract and to bind itself to those dealing with it in matters within the intent of the charter, even though the charter contains no express grant or power to contract or incur indebtedness. 5 A corporation, the purpose of which by the act creating it is to mine and transport coal, may purchase and use a steamboat for the purpose of transporting and delivering coal. 6 A corporation organized for mining purposes has power to pur- chase timber. 7 But it has no authority to issue accommodation paper and deliver it to strangers. 8 The board of director? of a and are fairly within the scope of the Woodb. & M. 105, it was held that a powers conferred upon them by law. manufacturing corporation could not Brown t>. Winnisimmet Co., 11 Allen, legally invest money in a bank for the 326." purpose of carrying on the banking 1 Dauchy . Brown, (1852) 24 Vt. business ; nor could it issue promis- 197. sory notes in payment of shares in a 9 Gist v. Drakely, 2 Gill, (Md.) 330, banking company which would bind 345. the corporation or its members. As to 3 Norwood & Butterfleld Co. t>. the incidental power of a private cor- Andrews, (1894) 71 Miss. 641; s. c., poration to make any contract neces- 16 So. Rep, 262. Citing Railroad Co. sary to advance the objects for which v. Cheatham, 85 Ala. 292; s. c., 4 So. it was created, see Legrandfl. Manhat- Rep. 828; Ricord v. Railroad Co., 15 tan Mercantile Association, (1880) 80 N. Nev. 167 ; Express Co. v. Patterson, Y. 638, affg. 44 N. Y. Super. Ct. 562. 73 Ind. 430. In National Bank of 4 Kent . Quicksilver Mining Co., Republic v. Edward C. Young, Re- (1879) 78 N. Y. 159. ceiver, etc., (1886) 41 N. J. Eq. 531, "Wood Hydraulic Hose Mining Co. it was held that a corporation created r. King, (1872) 45 Ga. 34. for the purpose of carrying on a 6 Callaway M. & M. Co. v. Clark, manufacturing business had implied (1862) 32 Mo. 305. power to make negotiable paper for 7 Adams Mining Co. t. Senter, (1872) use within the scope of its business, 26 Mich. 73. but no power to become a party to 8 Beecher v. Dacey, (1881) 45 Mich, bills or notes for the accommodation 92. of others. In Sumner T. Marcy, 3 81, 82] PRIVATE CORPORATIONS. 93 mining Corporation which is empowered to enter into any con- tracts essential to its ordinary business may borrow money for tin- purposes of the corporation and invest certain of its officers with power to negotiate loans, etc. 1 That such officers have been invested with power to negotiate loans, etc., may be shown other- wise than by official record of the board's proceedings.* 81. Railroad corporations. A corporation incorporated for the construction of a railway has power to agree to pay for its right of way in bonds. 8 A railroad company, granted aright to construct a particular line of road, with general power to pur- chase all kinds of property of whatever nature, may purchase from another railroad company a road constructed on that line if the latter company has the power to sell it. 4 Corporations created for the construction of railroads, in the absence of limitation or restraint by statute, have power to borrow money and to make bonds, bills or promissory notes for its repayment, and also power to mortgage their property, real or personal, as a security for such evidences of debt. These are powers necessary and proper to enable them to accomplish the purposes of their creation, and are regarded as incidental or implied, though not expressly con- ferred by the charter or act of incorporation. 5 A railroad cor- poration, with power to construct and maintain a railroad, can- not, however, incur a debt for an examination of mines along its route by an expert and a report upon the extent of the output of the same, this being a matter not within the legitimate purposes of its creation. 6 82. The same subject continued. A railroad company has no right, under an authority to borrow money, to raise money 1 Mining Co. v. Anglo-Califoruian the implied power of a corporation to Bank, 104 U. S. 192. borrow money needed for its legiti- * Ibid. mate purposes, and give security 'Munson r. Syracuse, Geneva, etc.. therefor to the lender, see In rePatrnt R. R. Co., (1880) 108 N. Y. 58; s. c., 4 File Co., L. R. (6 Cu.) 88; Monument Cent. Rep. 191. Nat. Bank r. Globe Works. 101 Mass. 4 Branch r. .Tesup, 106 U. 8. 468. 57; Hays r. Gallon Gas Light Co.. 29 s Kelly v. Trustees of Ala. & Cinn. Ohio St. 330; Curtis c. Leavitt, 15 N. R. R. Co., (1877) 58 Ala. 48; Rich- Y. 9. ards c. Railroad, 44 N. H. 127; Com- George. Nevada Central Railroad monwealth t>. Smith, 10 Allen, 448; Co., (Nev. 1894)88 Par. Hep. 441; ritini: Savannah & Memphis R. R. Co. . Thomas r. Railroad Co., 101 U. 8. 82; Lancaster, (1878) 62 Ala. 555 As to Davis r. Railroad Co., 131 Mass. 259. 94 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 82 by the issue of irredeemable bonds entitling the holder merely to a share of the earnings after the payment of a certain divi- dend to the stockholders ; neither has it the right to issue inter- est-bearing bonds, secured by mortgage, if a portion of such bonds are perpetual. 1 Under the laws of Wisconsin railroad companies were given power to make such contracts with rail- roads terminating on the eastern shore of Lake Michigan, within the state of Michigan, as would enable them to run their roads in connection with each other, etc., and to " build, construct and run as a part of their corporate property such number of steam- boats or vessels as they may deem necessary to facilitate their business. The Supreme Court of the "United States has held that, under the power given by the above-mentioned statutes, a railroad company could contract with a steamboat company to run in connection with its line, and might lawfully guarantee that their earnings should not fall below a certain sum. 2 A cor- 1 Taylor v. Philadelphia & Reading this question: " Every admissible defi- R. R. Co., (1881) 7 Fed. Rep. 386. nition of the term borrow or loan, as McKENNAN, C. J., referring to the applied to money and commercial proposition to issue such bonds, said: transactions, embraces an obligation to "It does not propose to create the return the property borrowed. A relation of debtor and creditor be- loan of money is universally under- tween the defendant and the sub- stood to be the delivery of a certain scribers. The money obtained by the sum to another on contract for its re- defendant could not be regarded as turn, generally with interest, as corn- borrowed, because that implies reim- pensation for its detention and use. bursement, and it is not demandable To call the payment of money to an- by the subscribers or payable by the other, who is to receive and perma- defendant. It has not the essential nently retain it as his own, in consid- and distinguishing qualities of a loan, eration of an annual benefit or profit, It contemplates a stipulation that the a loan, would seem to be a plain misuse subscribers, in consideration of the of language." See Kent r. Quicksil- sums paid, not lent, by them, shall be ver Mining Co., 78 N. Y. 159, 177; entitled to receive, in a remote and Burt v. Rattle, 31 Ohio St. 116. uncertain contingency, a portion of s Green Bay & W. R. Co. t>. Union the defendant's earnings, to be meas- Steamboat C6., 107 U. S. 98; s. c , 2 ured by a certain rate per cent upon Sup. Ct. Rep. 221, in which case Jus- three times the sums paid by them, tice GRAY said: " Whatever under the and after that shall participate with charter or other general laws, reason- the common shareholders in the di- ably considered, may fairly be re- vision of the residuary earnings. By garded as incidental to the objects for what allowable definition of a loan or which the corporation is created, is not borrowing such a transaction can be to be taken as prohibited. " In Pearce embraced I am at a loss to conceive." v. Madison & Indianapolis R. R. Co., BUTLER, D. J., concurring, said upon (1853) 21 How. 441, the Supreme 83] PRIVATE CORPORATIONS. 95 jxjration formed for the purpose of constructing a railroad can- not engage in the business of running a line of steamers. 1 Neither can it engage in the banking business in order to raise a fund with which to construct or operate its road.* Authority in the charter of a railroad cor po ration to " obtain by purchase or ^runt * * * any steamboats * * * that the said direct- ors may deem necessary, profitable and convenient for this cor- poration to own, use and manage in connection with its said rail- roads " does not carry with it the power to buy off. an opposition lino of steamers with a view not of employing but of withdraw- ing them from the field of competition. 8 The power to issue to contractors in payment for work due negotiable certificates of indebtedness, payable in money or bonds, is included in the power granted a railroad corporation by its charter to build a road and issue bonds to pay therefor. 4 83. Raising money by borrowing notes and indorse- ment of them. In a leading New Jersey case, the president and directors of a railroad company agreed among themselves that they would execute their individual several notes to the company and the latter should raise money upon them for the purposes of the corporation. The note involved in this action was never directly negotiated by the company to raise money, but was indorsed by the company as a renewal of former such notes and finally delivered to one to whom the company was indebted for money, in payment of that indebtedness. It was insisted before the Court of Errors and Appeals that the pro- vision in the charter of the company " that the said corporation shall have power to borrow such sum or sums of money from Court of the United States held that t>. Eastern Counties Rail way Co., 11 C. the purchase of a steamboat by the B. 803; Head r. Providence Insurance railroad corporation, to be run in con- Co., 2 Craneh, 127; Bank of Augusta, ncction with its business, was not . Earle, 13 Pet. 519; Perriner. Chesa- authorized by its charter or within its peakc & Delaware Canal Co., 9 How. power as necessary or incident to its 172. business, and that there could be no ' McCarty r. Roots, 21 How. 482. recovery upon the notes given for its 'Waldo r. Chicago R. R. Co., 14 purchase. The court cited in support VVis. 575, 580. of ilicir ruling: MacGregor p. The * Morgan & Rayuor, Trustees, r. Official Manager of the Deal & Dover Donovan, (1877) 58 Ala. 241. Railway, 16Eng. Law&Eq. 180 ; Col- * Pusey t>. New Jersey West Lint man v. Eastern Counties Railway Co., R. R. Co., (1878) 14 Abb. Pr. (N. 8.) 10 Bcav. 1; East Anglian Railways Co. 484. 96 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 83 time to time, as shall be necessary to build, construct or repair said road, and furnish the said corporation with all the necessary engines and machinery for the uses and objects of the said com- pany, and to secure the payment thereof by bond or mortgage, or otherwise," was a limitation of the power of the company to borrow money for specified purposes, and in the mode designated, and was tantamount to a prohibition of the company's borrowing money for any other purpose or upon any other security than that specified. The court held that it was within the power of the company to raise money through borrowing these notes and indorsing them to others for its indebtedness. 1 1 Lucas v. Pitney, (1858) 27 N. J. or for its necessary purposes. It is Law, 221. Chief Justice GREEN in conceded that the corporation has the opinion rendered said that this such powers only as are expressly section of the charter " was designed conferred by charter or necessarily in- not as a limitation or restriction of the cident to those powers. If it may powers of the corporation, but as a lawfully contract debts, it would seem grant of additional power. * * * clear that it may enter into obligations The corporations are clothed with to pay those debts or borrow money powers, which, independent of that for that purpose. The power of in- provision, they could not have exer- curring debts in the course of its legit- cised. But there is nothing in the imate business, of giving notes, or provision which, by necessary implica- borrowing money for the payment of tion or by fair intendment, can be such debts would seem necessarily in- construed to limit the general powers cident to every corporation whose and capacities incident to every cor- business involved the expenditure of poration." On the part of the defend- large sums of money, and often upon ant, it was insisted that a corporation sudden and unforeseen contingencies, can make no contract which is not Such it is believed is the universal necessary to enable it to answer the custom of all important corporations object of its incorporation; that the whether private or municipal. The loaning of money, or the borrowing authorities in support of the practice of notes to be discounted in market, is are abundant. Our statute recognizes not necessary to the operation of a bodies politic or corporate as persons railroad company; and that, conse- by whom promissory notes and bills quently, the making or indorsement of exchange may be drawn, indorsed of commercial paper by such com- and accepted. Nix. Dig. 667, 4 pany as a security for money loaned (N. J.). The technical doctrine that a and the indorsement of notes bor- corporation can contract only under its rowed for the purpose of raising corporate seal, was long since ex- money were void acts. To this in- ploaed. In Munn v. The Commission sistment the chief justice said- "The Co?, 15 Johns. R. 44, it was held that simple inquiry is whether a railroad a corporation of limited powers might company has, as a necessary incident, engage to pay or advance money at a the inherent power of borrowing future day by the acceptance of a bill money for the payment of its debts of exchange. In Mott v. Hicks, 1 84] PRIVATE CORPORATIONS. 97 84. Evidences of indebtedness form. At common law a corporation has power to issue a bond or note to pay a debt. 1 The weight of modern authority supports the conclusion that private corporations, organized for pecuniary profit, may, like individuals, borrow money whenever the nature of their business renders it proper or expedient that they shall do so, subject only to such express limitations as are imposed by their charter. The power tc borrow carries with it, by implication, unless restrained by the charter, the power to secure the loan by mortgage. Accordingly, it may be regarded cs settled, that where general authority is given a corporation to engage in busi- ness, and there are no specid restraints in its charter, it takes the power as a natural person enjoys it, with all its incidents and accessories ; it may borrow mone^ to attain its legitimate objects, precisely as an individual, and bind itself by any form of obliga- tion not forbidden. 3 Unless restrained by legislative enactment Cowen, 513, it was held that a private no restraining act may make promis- corporation might give a negotiable sory notes and draw bills of ex- promissory note tor a debt incurred in change, where these are the usual its ordinary business. In Kcllcy v. and proper means to accomplish the Mayor of Brooklyn, 4 Hill, 263, it was purposes of their organization; that hell that a municipal corporation may such notes and bills arc to be pre- issuc negotiable paper for a debt con- sumed legal and valid where they are tracted in the course of its proper busi- not prohibited by law and are re- ness; and in delivering the opinion of ceived in good faith, and that they the court COWKN, J., said: " Inde- are invalid when given in violation of pendently of any statute provision, law, or when given for purposes a corporation may issue negotiable wholly foreicrn to those for which the paper for a debt contracted in the incorporation v^as created." course of its proper business. This is l McLane, Trustee, v. Placerville & a power incident to all corporations, Sacramento Valley R. It. Co., (1885) and no provision *n its charter, or else- 06 Cal. 606 ; citing Commonwealth v. where, merely directing a certain Smith, 10 Allen, 448; Comre. of form in affirmative words should be Craven . Atlantic & N. C. R. R. Co., so construed ar to take away the 77 N C. 288 ; Miller . New York & power. The same general principle Erie R. R. Co., 18 How. Pr. 374 ; will be found in Moss r. Oakley, 2 Dana r. Bank of United States, 5 Hill. 265; Barker e. The Mechanic Watts & 8. 223. Ins. Co., 8 Wend. 96; Furniss o. Gil- * MITCHELL, J., in Wright . Christ, 'l Sandf. Sup. Ct R. 58, Angcll Hughes, (1889) 119 Ind. 824; s. c., 21 & Ames on Corp. 257; Pierce on N E. Rep. 907 ; New England, etc., Railroads. 372. The result, of the Ins. Co. v. Robinson, 25 Ind. 686; authorities, to adopt the language of Jones ?. Guaranty, etc., Co., 101 U. a recent writer, seems to be that cor- 8. 622; Reichwald . Commercial porations carrying on business under Hotel Co., 106 111. 489; Booth . 13 98 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 85 to a specific mode of contracting, the contracts a corporation has capacity to make may be made in that manner or form in which a similar contract by an individual could be made. 1 A private corporation, authorized to " borrow money and issue their bonds therefor," may bind itself by simple as well as by sealed contracts. 2 85. More rules on this subject. There is a capacity in a corporation to enter into any obligation or make any contract essential for its purposes and for the transaction of its ordinary affairs. Such a power to contract existing, the power may be exercised by the corporation or its proper officers as a natural person can contract unless its charter presents some particular mode of contracting. 3 Promissory notes may be given by trad- Robinson. 55 Md. 419 ; Hays fl. Gallon seal, see Arnold v. Mayor of Poole, 2 Gas Light Co., 29 Ohio St. 330; Dowl. (N. S.) 574 ; Bowen . Morris, Memphis, etc., R. R. Co. v. Dow, 19 2 Taunt. 374; Paine v. Guardians of Fed. Rep. 388 ; Green's Brice's Ultra Strand Union, 8 Q. B. 326 ; Cox v. Vires, 223; 1 Moraw. on Corp. g 342, Midland Counties Railway Co., 3 343. Exch. 268 ; Lamprell v. Billericuy, 3 1 Trustees of University v. Moody, Exch. 306. How far thev confine (1878) 62 Ala. 389. BKICKELL, Ch. J. liability on promissory notes and bills said: "The technical rule of the of exchange to trading corporations ancient common law. that a corpora- only, see Mayor of Ludlow v. Charlton, tion could not manifest its intentions 6 Mees. & W. 815 ; Murray r. East by any personal act or oral discourse, India Co., 5 B. & Aid. 204 ; Broughton and that it spoke and acted only by its v. Manchester W. Wks.,3 Barnw. & common seal, if it ever obtained in this Aid. 1; Beverley . Lincoln Gas Co., country, is now obsolete." 6 Ad. & E. 829 : Rew v. Peltet, 1 A. s McCullough v. Talladega Insurance & El. 196 ; Church v. Imp. Gas Light Co., (1871) 46 Ala. 376; Bank of Co., 6 Ad. & E. 846. Columbia T. Patterson, 7 Cranch, 299; 3 McKiernan T. Lenzen, (1880) 56 Talladega Ins. Co. v. Landers, 43 Ala. Cal. 61. As to what officers of a cor- 115. That corporations may contract, poration may do in connection with as individuals do, in matters pertain- the affairs of a corporation, see Gillett ing to their business, see Smead v. v. Campbell, 1 Denio, 520, 522: Carey Indianapolis, etc., R. R. Co., 11 Ind. r. Giles, 10 Ga. 10; Phillips v. Camp- 104 ; Talman v. Rochester City Bank, bell, 43 N. Y. 271. As to what a gen- 18 Barb. 123. As to the power of a eral manager cannot do, see Stow v. corporation expressly or impliedly Wyse, 7 Conn. 219 ; Hawtayne v. authorized to borrow money being Bourne, 7 Mees. & W 595; Life & exercised by issuance of negotiable Fire Ins. Co. t. Mechanic Fire Ins. bonds, see Des Moines Gas Co. v. West, Co.. 7 Wend. 31; Knight v. Lang, 4 (1878) 50 Iowa, 16. For rules in E D. Smith, 381; Benedict v. Lansing, English cases as to liability of cor- 5 Denio, 283; Torrey v. Dustin Monu- porations upon contracts not under ment Association, 5 Allen, 327, 329; 85] PRIVATE CORPORATIONS. 99 ing corporations for any iiHK-litrdm-.-s contracted within the scope of their powers, and it may prima facie be presumed that any notes given by them are for an indebtedness within the scope of their powers. 1 The power of a corporation to create debts and to iiiiiki' promissory notes is an incident to the power conferred by statute of California " to make by-laws, * * * for the organization of the company, the management of its property, the regulation of its affairs, the transfer of its stock and for carrying on all kinds of business within the objects and purposes of the company." a The provision of the statute of California that " no corporation created or to be created shall by any impli- cation or construction be deemed to possess the power of issuing bills, notes or other evidences of debt upon loans or for circula- tion as money " has been construed not to prohibit tne borrowing of money by corporations and issuing the usual evidences of debt therefor. 8 The constitutional provision of California forbidding, except on certain conditions, the increase by corporations of their bonded indebtedness has been held not to forbid the execution of ncn-negotiable notes and mortgages by a corporation in considera- tion of the promise by the payee of the notes and mortgages to advance money and deliver lumber as needed by the corporation for improvement of the mortgaged property. 4 A building asso- ciation, the charter of wfiich vests it with such power as to enable it to borrow money and to make loans to its members with a view to accomplish the purpose of its formation, may employ the usual legal methods of effecting this purpose, subject to such restrictions as that it shall not issue paper currency, for instance. And, having the right to effect a loan, it, through its offi- cers, in their discretion, may give a promissory note for the purpose, and it may issue such a note for an intended indebted- ness. 5 Jt is competent for any manufacturing corporation organ- ized under the general laws of Minnesota to execute promissory notes as evidence of the debts it may lawfully contract. 6 As Despatch Line of Packets r. Bellamy 4 Underbill r. Santa Barbara Land, Manufacturing Co., 12 N. H. 205, 228; Building & Imp. Co., 98 Cal. 300; Luse v. Istbmus Transit Ry. Co., 6 8. c., 28 Pac. Rep. 1049. Oreg. 125. * Davis t>. West Saratoga Building 1 Qebbard r. Eastman, 7 Minn. 56. Union, (1869) 32 Md. 285. 'Smith t. Eureka Flour Mills Co., Sullivan . Murphy, 23 Minn. 6. (1856) 6 Cal. 1. In Bacon t>. Mississippi Insurance Co., *Magee . Mokelumnc Hill Canal 2 George (Miss.), 116, the Supreme A Mining Co., (1855) 5 Cal. 268. Court of Mississippi held that aoorpora- 100 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 85 under our general credit system, and the manner and modes of doing business, the success and prosperity of manufacturing cor- porations and other enterprises of like character would be greatly impeded and embarrassed, if not utterly destroyed, without the capacity and power to contract debts, borrow money and make and receive bills of exchange and promissory notes, these powers will be inferred where there are no prohibitions to the contrary in their charters. 1 A manufacturing corporation, declared by gen- eral law for the incorporation of such an one, " capable of buy- ing, purchasing, holding and conveying any lands or tenements, hereditaments, goods, wares and merchandise whatever, necessary to enable [it] to carry on their manufacturing operations * * * ," has po\yer to execute its promissory notes upon the purchase of such personal property or in liquidating the claims of its employees in its legitimate transactions. It also possesses power to borrow money for the same purposes and to bind itself in its corporate capacity by a written obligation for its payment. 2 A corporation authorized to construct a building for its use and purposes may accept an order drawn upon it by a tnaterialman for material furnished and payable out of money due such materiahnan. 3 There can be no recovery on a note given by a corporation on a contract beyond the scope of its power. 4 A corporation being authorized by its charter to incur indebtedness and give evidence thereof, one dealing in its securi- ties may, in the absence of notice to the contrary, assume that restrictions upon its power have not been violated. 5 A corpora- tion having power to loan money on and in the same manner as individuals bottomry, respondentia, etc., had no engaged in like business. And when power to borrow money, and prima they do so, and confine themselves to facie no power to make a promissory the purposes and objects of their in- note. As to making promissory notes corporation, they should not be by private corporations in the course deemed as transcending their au- of their legitimate business, see Erode thority, but should be regarded as v. Firemen's Insurance Co., 8 Rob. (La.) acting within the scope of those 244; Louisiana State Bank v. Orleans implied incidental powers necessary Navigation Co. , 3 La. Ann. 294. to the full and advantageous develop- 1 Oxford Iron Co. v. Spradley, (1871) ment of those which are expressly 46 Ala. 98; New York Firemen Ins. given." Co. v. Sturges, 2 Cowen, 664. "" Board of Trustees of Prairie Lodge Mead v. Keeler, (1857) 24 Barb. 20. v. Smith. (1880) 58 Miss. 301. It was further said by the court- "It Pearce v. Madison R. R., 21 How. is to be presumed that [corporations] 441. will conduct their operations in detail 5 National Park Bank . Gennan- Bubstantially upon the same principles American Warehousing, etc., Oo. T 86] PRIVATE CORPORATIONS. 101 tion may make a promissory note for a debt contracted in the course of its legitimate business, although not specifically author- i/.rd by its charter to contract in that form. 1 86. Bonds of a banking association. In a case before the Court of Appeals of New York, the court held certain evi- dences of debt, called bonds, payable at different periods, issued by this banking association, intended for sale in London, to raise money lor the uses of the association, bearing interest payable semi-annually in London, not naming the place for the payment of the principal, with the corporate seal impressed upon each bond, but without the use of wax or other tenacious substance, not to be within the prohibition of the restraining laws, and to be valid securities for the money loaned tliereon, even if regarded as unsealed obligations, and, therefore, in legal effect, mere prom- issory notes. 2 (1886) 58 N. Y. Super. Ct. 367; follow- ing Ellsworth r. St. Louis. Alton & Terre Haute R. R. Co.. 98 N. Y. 553. 1 Moss v. Oakley, (1842) 2 Hill, 265; citing Mott t>. Hicks, 1 Cow. 513; Barker v. Mechanic Fire Ins. Co., 3 Wend. 94. Later, in a case in the Chancery Court of New York, Attor- ney-General v. Life & Fire Insurance Co., (1842) 9 Paige, 470, the chancel- lor, WALWOKTH, held that a corpora- tion which was not prohibited by law from doing so, and without any ex- press power in its charter for that pur- pose, might make a negotiable promis- sory note, payable either at a future day or upon demand, where such note was in fact made or given for any of the legitimate purposes for which the company was incorporated. Ho further held that where such notes have been issued and put in circula- tion in violation of a restraining law, it seems the holder is bound to show that he received them in the ordinary course of business and pa::l f valuable consideration for thc*m, without notice of the illegal object for which they were issued, to entitle him to recover thereon as a bonafide holder. 1 Curtis v. Leavitt, (1857) 15 N. Y. 9. Speaking as to the power of corpora- tions to issue such paper, COMSTOCK, J., in his opinion, on page 66, said: "The right of corporations in gen- eral to give a note, bond or other en- gagement to pay a debt is so nearly identical, or so inseparably connected with the right to contract the debt that no doubt upon the question ought to be admitted. When a corporation can lawfully purclmse property or procure money on loan in the course of its business, the seller or the lender may exact, and the purchaser or bor- rower must have the power to give, any known assurance, which does not fall within the prohibition, express or implied, of some statute. The par- ticular restriction must be sought for in tin- charter of the corporation, or in some other statute binding upon it; but if not found in that examination, we may safely affirm that it has no exist- ence. This doctrine would seem to be clear in principle, and it is well settled in this state. Mott t>. Hicks, 1 Cow. 513; Barker o. Mechanic Ins. Co., 8 Wend.' 96; Jackson t. Brown, 5 Wend. 590; Moss r. Oakley, 2 Hill, 205; At- 102 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 87, 88 87. Power to secure their indebtedness. It is now well settled that corporations, like individuals, may borrow money for the conduct of their affairs, without express authority therefor, whenever the nature of their business may render it proper or expedient. And the power to borrow carries with it very gener- ally, unless expressly restrained, the power to secure the loan by mortgage. 1 Having negotiated a loan for the advancement of its best interests, a corporation may pledge, as security for the loan, unissued stock held by it in trust. 2 The power to sell such secur- ities for the payment of its debts, includes the power of the cor- poration to pledge securities owned by it for the same purpose. 3 The securities of a corporation may be lawfully pledged by the directors of a solvent corporation to secure individual demands of directors and others, du*e or to accrue, for money loaned to the corporation. 4 88. Limitation of indebtedness. A limitation by statute of the amount of debts of a corporation includes indebtedness to the directors as well as indebtedness to third parties. 5 In a case torney -General v. Life & Fire Ins. Co., Law, 221; Hackettstown v. Swack- 9 Paige, 470; Safford r.Wyckoff, 4 Hill, hamer, 37 N. J. Law, 191; Ridgway 442; Barry . Merchants' Exchange v. Farmers' Bank, 12 Serg. & R. 256; Co., 1 Sandf. Ch. 280. It would be a Oxford Iron Co. v. Spradley, 46 Ala. very illogical conclusion to hold that 98; Ala. Gold Life Ins. Co. v. Central, an indefinite number of corporations, etc., Assn., 54 Ala. 73; Union Bank T. authorized by a general law, do not Jacobs, 6 Humph. 515; Moss v. Harpeth possess the same right in this respect, Academy, 7 Heisk. 283; Commercial which they would have if the express Bank v. Newport Mfg. Co., 1 B. Mon. powers of each were derived from a 14; Bank of Chillicothe v. Chilli- special charter." cothe, 7 Ohio, pt. 2, 31; Hamilton v. 1 Booths Robinson, (1880) 55 Md. Newcastle R. R. Co., 9 Ind. 359; Rock- 419; Susquehanna Bridge Co. v. In- well v. Elkhorn Bank, 13 Wis. 653; surance Co., 3 Md. 305; Australian Thompson i>. Lambert, 44 Iowa, 239; Steamship Co. v. Mounsey, 4 K. & J. Bradley v. Ballard, 55 111. 413; Gause 733; Curtis v. Leavitt, 15 N. Y. 9; v. City of Clarksville, 7 Rep. 519; Beers v. Phoenix Glass Co., 14 Barb. Union Mining Co. v. Rocky Mountain 358; Mead v. Keeler, 24 Barb. 20; Nat. Bank, 2 Colo. 248; Magee v. Partridge v Badger, 25 Barb. 146; Mokelumne Hill Canal Co., 5 Cal. 258. Clark v. Titcomb, 42 Barb. 122; Barry * Combination Trust Co. t>. Weed, 2 r. Merchants' Exchange Co., 1 Sandf. Fed. Rep. 24. Ch. 280; Life Insurance Co. n. Me- 3 Leo v. Union Pac. Ry. Co., 17 Fed. chanic Ins. Co., 7 Wend. 31; Barnes Rep. 273. v. Ontario Bank, 19 N. Y. 152; Smith 4 Stout v. Yaeger Milling Co., IB v. Law, 21 N. Y. 296; Nelson P. Eaton, Fed. Rep. 802. 26 N. Y. 410; Holbrook v. Basset, 5 5 Tallmadge . Fishkill Iron Co., 4 Bosw. 147; Lucas r. Pitney, 27 N. J. Barb. 382. 89] PKIVATE OOBPOBATIOB8, 103 before the Court of Common Pleas of New York city, it has been held that where a corporation adopted a by-law providing that all contracts by it involving a liability for $500 or more must be in writing, executed by both the president and treasurer, and attested by the seal of the company, the company cannot be held liable on a lease to it reserving a rent exceeding $500, and executed by the president alone, without the seal of the com- pany ; and this whether the lessor had notice of the by-law or not. 1 And in such case, no ratification could be based on the treasurer's knowledge of the facts where his testimony that he refused to sign the lease was wholly uncontradicted. 8 The Kansas Supreme Court has held that a private corporation organ- ized under the statute of that state was bound by a contract within the scope of its business, by which an indebtedness greater than $500 was incurred, notwithstanding a provision in its charter that its indebtedness should not exceed $500, as this provision was merely directory, and the statute under which it was organ- ized did not require its indebtedness to have any limit other than the amount of its capital stock. 8 89. Debt limited by par value of capital stock. A street railway company, a Pennsylvania corporation, was authorized by its charter to borrow money not exceeding in amount " one-half of the par value of the capital stock." The capital authorized in the act of the legislature granting its charter was $1,000,000. Only ten per cent, or $100,000, of the authorized amount was paid in. The directory of the company by resolution authorized an issue of bonds, to be secured by mortgage to the amount of 1 Bohm r. V. Loewer's Gambrinus Brewery Co., (1890)16 Duly, 80; 8. c., 9 N. Y. Supp. 514, following Rath- burn r>. Snow, 8 N. Y. Supp. 925. See. also, Westerflcld r. Radde, 7 Daly, 326. 'Bohra v. V. Loewer's Gambrinus Brewery Co., (1890) 16 Daly, 80; 8. c. t 9 N. Y. Supp. 514. BISCHOFF, J., said: "An attempt was mudc by the plaintiff, upon the trial, to show a subsequent adoption or ratification of the president's act by the trustees, predicated upon the neglect of the trustees to repudiate the transaction when it was brought to their notice. * * * The trustees * * * as such, could not, pursuant to the pro- visions of the by-laws mentioned, have originally created any liability on behalf of the corporation exceeding five hundred dollars in amount; and it cannot be said that they can by im- plication do the acts prohibited in un- equivocal terras. Peterson P. Mayor, etc., 17 N. Y. 449; Brady c. Mayor, etc., 20 N. Y. 812-819." * Sherman Center Town Company r. Morris, 48 Kans. 882; s. c., 88 Pac. Rep. 569. 104 GENEEAL POWEE TO INCUE PECUNIAEY LIABILITY. [ 89 $250,000. A bill in equity having been filed by the common- wealth to restrain by injunction the issue of these bonds to the extent proposed, an injunction was decreed, from which an appeal was entered to the Supreme Court of the state. Before the latter the contention of the company was that the grant of power in their charter authorized an issue of bonds for the pur- pose of borrowing money to the amount of one-half of their authorized capital. The Supreme Court held adversely to this contention, and sustained the decree of the court which enjoined an issue of the bonds beyond the amount of 50,000, one-half of the amount of the stock actually paid in. 1 1 Commonwealth v. Lehigh Ave. measures his relative interest in the Ry. Co., (1889) 129 Pa. St. 405; s. c., whole. As between himself and the 18 Atl. Rep. 414, 498 ; 7 Ry. & Corp. corporation, or his fellow-subscribers, L. J. 42. WILLIAMS, J., for the court, or the public, his share of the upon the question of what constitutes whole stock is fixed by the proportion the capital stock of a corporation and which his actual contribution bears to its par value, discusses the question, the entire amount contributed by all quite in exlenxo as follows : " The who are associated in the enterprise, words stock and capital stock may * * * Does the corporation stand be defined as meaning the fund or on better ground than its members ? property belonging to a firm or cor- It claims the right to issue bonds be- poration, and used to carry on its cause of its stock. We must inquire, business. This is contributed by therefore, first, what is the amount those who embark in the business, of its stock ? And, next, what is the The articles of copartnership, or the par value of a share of that stock ? charter of the corporation, fix the We think the first of these questions maximum amount of stock that may is, in the light of the facts in this case, be issued, and this may properly be answered by repeated decisions of this spoken of as the proposed or au- court. Whether it be for the purpose thorized capital of the company, of adjusting and paying dividends When an organization is effected, sub- to stockholders, or of regulating the scriptions are made to the stock, by amount of taxes due to municipalities which the subscribers agree to take having the right and power to tax the and pay for certain sums or shares amounts of stock actually paid is the each. The total amount of the stock capital stock of the company. Citi- thus taken constitutes the subscribed zens' Pass. Ry. Co. v. Philadelphia, 49 capital of the company. Some of Pa. St. 251. Neither the cost of the these subscriptions may not be paid road, nor the authorized capital can and may be uncollectible, but when be made the basis of dividends or the amount subscribed, or called for taxation, but these must rest on the upon subscriptions, has been collected, amount of capital stock actually paid so far as collection is practicable, the in. Second & Third St. Pass. Ry. Co. amount so gathered into the treasury T. Philadelphia, 51 Pa. St. 465 ; Phila- constitutes the actual capital on which delphia v. Philadelphia & Gray's the business is undertaken. The Ferry Pass. Ry. Co., 52 Pa. St. 177; amount paid by each subscriber Philadelphia t>. Ridge Avenue Ry. Co., 90] PRIVATE CORPORATIONS. 105 90. When a statutory limitation of indebtedness does not apply. In a Minnesota case where the corporation, a mill- ing company organized under the general statute of that state, 102 Pa. St. 190. The company appellant proposes to exercise a power and incur a liability upon the basis of its capital stock, and for this purpose, as for purposes of taxation or pay- ment of dividends, its rights must be measured not by nominal or author- ized capital, but by the actual amount of capital paid in. The issuing of certificates of stock to the subscribers does not add to the common stock in the treasury or business of the cor- poration, nor does it increase the inter- est of the individual stockholder. He takes this certificate when issued, sub- ject to all the unpaid installments of the subscription and the terms and conditions on which the subscription was made. Its value to him, as be- tween him and the corporation, is what he has paid upon it ; no more, no less. That value may be increased or diminished in a commercial sense by the success of the business, the ability of the management, or other similar consideration, and such in- crease or decrease makes the market value greater or less than the amount he has paid upon it, as the case may bo ; but as between himself and the corporation or his fellow-stockholders the consideration of market value has no place. He must pay his subscrip- tion as calls are made whether the ven- ture prospers or fails. If the value of the stock is measured by what has been paid upon it, is the 'par value' measured in the same manner when the right of the corporation to do a given act is to be settled ? The par value of the stock of this corporation for purposes of taxation or payment of dividends, is, as we have already seen, the amount actually paid upon it, or one hundred thousand dollars, This is well settled by the cases we 14 have cited, which hold that, for the purposes enumerated, the par value has no necessary relation to cither the authorized or the market values, but is fixed by the amount actually paid, and is the equivalent or par of the value of the shares as shown by the stock account. The issuing of certifi- cates does not affect our question. If issued they cannot increase the money in the treasury, or confer any inde- pendent right on the stockholder. They simply afford evidence of the extent of his interest in a more con- venient form than the books of the company furnish, but leave him sub- ject to all the liabilities resting on him before they come into his hands. We see no good reason for dis tinguishing this case from the cases cited above, but regard it as substantially ruled by them. The [corporation here] has received just one hundred thousand dollars from the subscribers to its stock. So far as the paper books advise us, this is all it has ever asked for in the more than fifteen years of its corporate life, and all it expects to re- ceive. The other nine hundred thou- sand dollars of authorized capital arc uncalled and unpaid. The par value of all its shares taken together is one hundred thousand dollars, because that is the sum paid upon them, the value they represent. The par value of each share is fixed in like manner. Its value is the equal, or par, of the corponite capital it represents, which is the amount paid upon by the sub- scriber or applied to it out of the earn- ings of the corporation. * * * We have the fact on the record that but one-tenth of the nominal value [of the stock] has been paid. Thecor- poration is the party. It has one hun- 106 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [ 90 one of the original articles of incorporation of which provided that " the highest amount of indebtedness or liability to which said corporation, shall be subject shall not exceed $5,000," was sued upon a promissory note issued by it in payment of a balance upon settlement of an account, to one who was an officer of the company and a member of a banking firm through which the financial business of the corporation was largely done, and by him transferred before maturity to the bringer of this action, the corporation made the defense that the giving of the promissory note was ultra vires. The Supreme Court affirmed the order of the trial court giving judgment in favor of the plaintiff. 1 dred thousand dollars in its treasury and no more; yet it asks us to hold that the par value of its stock is one million dollars, and permit it to exer- cise an important power on that basis. This we decline to do. The par value of its shares is measured by the money it has received upon them, and not by the broken promises of those who subscribed for them." 1 Auerbach v. Le Sueur Mill Co., (1881) 28 Minn. 291; s. c., 9 N. W. Rep. 799. Reasoning in support of their judgment, the court said: "Where a private corporation has authority to issue negotiable securities, such in- struments, when issued, possess the legal character ordinarily attaching to negotiable paper, and the holder in good faith before maturity, and for value, may recover, even though, in the particular case, the power of the corporation was irregularly exercised or was exceeded; or, to state the legal proposition in its application to this case, this defendant having power to incur debts to a limited extent and to issue its negotiable notes therefor, the plaintiff, as a bona fide holder of the note in suit, may recover upon it, although, in this particular case, the indebtedness of the corporation at the Lime of giving this note already ex- ceeded the limits prescribed by its articles of association. Stoney v. Amer- ican Life Ins. Co., 11 Paige, 635; Mechanics' Banking Assn. v. New York & Saugerties White Lead Co., 35 N. Y. 505; Mclntire v. Preston, 10 111. 48; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Bissell v. Mich. Southern & Northern Ind. R. Co., 22 N. Y. 258, 289; City of Lexington v. Butler, 14 Wall 282; Moran v. Miami County, 2 Black, 722; Angell & Ames on Corp. 268; Field on Corp. 303; Green's Brice's Ultra Vires, 273, 274, 729. Al- though in such a case the corporation or its officers exceeded the corporate authority, and its contract would be, hence, in a sense, ultra Tires, yet other legal principles, besides those merely relating to the powers of the corpora- tion, come in to affect the result. It is true, a corporation is a being created by the law, and has properly no authority but such as is conferred upon it, expressly or by implication, by the law of its creation; yet it may become legally bound to observe and perform contracts which it had not authority to enter into. The ends of justice may require, as in this cast-, that the corporation which has ex- ceeded its powers should be estopped by its own acts from pleading, in defense of its assumed obligations, that they were ultra tires. "To ap- ply the principle of estoppel is not to enlarge the powers of the corporation; nor does it give warrant to a corpora- tion to disregard or violate the re- 90] PRIVATK CORPORATIONS. 107 stri' 'lions which have been expressly imposed upon it, or which exist in the absence of power conferred. It was said by the court in Bradley v. Bul- Urd. 55 111. 413: 'This doctrine [estoppel] is applied only for the purpose of compelling corporations to be honest, in the simplest and com- monest sense of honesty, and after whatever mischief may belong to the performance of an act ultra vires has been acomplished.' In Railway Co. 9. McCarthy, 96 U. S. 258, the court say: ' The doctrine of ultra vires, when invoked for or against a cor- poration, should not be allowed to prevail where it would defeat the ends of justice or work a legal wrong.' Whether the plea of ultra vires should be allowed as a defense to assumed obligations should not be determined without regard to the character and objects of the cor- poration, the nature of the powers conferred or withheld, the par- ticular character of the obligations assumed on contract entered into, the relations of the contracting parties, and the bona fide* of him against whom the doctrine of ultra tires is asserted. In this case the defense sought to be made to the note is that in giving it the article of the defend- ant's incorporation, limiting the amount of its indebtedness, was vio- lated. The debt was incurred in the ordinary prosecution of the business of the corporation. The defendant re- ceived and appropriated the money which was the consideration of the note, and having authority to issue negotiable paper, it put forth the note in question, negotiable, calculated to circulate as, and perform the office of, commercial paper, and expressing upon its face the obligation and promise of the maker to pay the bearer, at all events, the sum named. It has come into the hands of a bona fide purchaser, and simple justice, as well as plain principles of law, forbid that courts should listen to the plea that in this particular case the corpo- ration had not authority to issue its note. It ought to be and is estopped. To so hold does not weaken the sanc- tion of the law which restrains the ex- ercise of corporate power within the limits prescribed by the creative act. To refuse to recognize and enforce, when necessary to the attainment of justice and prevention of wrong, such contracts, made in violation of the corporate charter, is not to afford a remedy for the wrongful acts of the corporation. When, in a case like this, the unauthorized contract has been executed by the corporation, and it has reaped the benefits of it, public policy does not require the courts to refuse to administer justice between the parties in accordance with the plain principles of law. In such a case, the remedy for the violation by the corporation of its charter power lies elsewhere. We are here seeking to administer justice as between these contracting parties. If justice did not invoke the application of other princi- ples of law, the defense of ultra tires might be sufficient; but the doctrine Of estoppel, as a principle of law, is as positive and well recognized as is the law that a corporation may not exceed its corporate powers, and although the defendant exceeded its authority, it should be denied the right to assert the fact of its own wrong, when to allow its plea would work injustice and wrong to him who has been misled by its acts, perfonned within the general scope of its powers. What has been said should be regarded only as said with reference to this case, and should not be considered as stating a rule of law which should prevail generally in the case of contracts not negotiable. " CHAPTER III. POWER OF AGENTS AND OFFICERS PUBLIC CORPORATIONS. 91. General rules. 92. More general rules. 93. Illustrations of the duty and powers of municipal officers. 94. Ratification by municipal cor- porations of contracts made by their agents and officers. 95. Agents and officers of coun- ties generally. 96. Power of county officers in California. 97. Power of county boards in Illinois. 98. Power of county commission- ers in Indiana. 99. Power of supervisors of coun- ties in Iowa. 100. Power of county commission- ers in Kansas. 101. Power of County Courts in Kentucky. 102. Power of supervisors in Mich- igan. i. Power of County Courts in Missouri. 104. Power of county supervisors in New York. 105. Power of county commission- ers in Pennsylvania. 106. Power of county board in Wisconsin. 107. Power of township trustees in Indiana. 108. Power of selectmen of towns in Massachusetts. 109. Power of selectmen of towns in New Hampshire. 110. Power of supervisors of town- ships in Pennsylvania. 111. Power of selectmen and agents of towns in Vermont. 112. Power of town officers in Wisconsin. 113. Power of officers of school districts. 91. General rules. Municipal officers have no general authority to bind the corporation. Their authority as agents is special. 1 The contracts of such officers, entered into with its knowledge, though not expressly authorized, will bind the corpo- ration. 2 In like manner as individual and private corporations, municipal or public corporations may make contracts through their officers or agents, appointed properly for the purpose, in all matters that appertain to the corporation. And such contracts may be by parol. 3 Parol contracts made by authorized agents of a municipal corporation, within the scope of its purposes, are express promises of the corporation. 4 But contracts not within 'Ross v. City of Philadelphia, 115 3 Duncombe t>. City of Fort Dodge, Pa. St. 222; s. c., 8 All. Rep. 398. (1874) 38 Iowa, 281; City of Indianola 1 Allegheny City v. McClurkan, 14 v. Jones, 29 Iowa, 282. Pa. St. 81. 4 San Antonio v. Lewis, 9 Tex. 69. 91] PUBLIC CORPORATIONS. 109 the scope of their authority are not enforceable against the corpo- ration. 1 For instance, under the ordinances of a Maryland city, as appeared in this case, the city commissioner could make con- tracts for grading and paving, and assess taxes for the same in two classes of cases, to wit : (1) Upon application of the proprietors of a majority of front feet, where the street had been condemned \ and (2) upon the like application of all the proprietors of ground fronting on the street, where it had not been officially condemned. The Court of Appeals held that without such an application the city commissioner was entirely destitute of the official character and power, in and by which alone he could take any legal proceeding or make any valid contract for grading and paving, and the power of the mayor to approve of his determinations to grade and pave, and of his contracts for the same was limited likewise and controlled by the same conditions ; therefore, it followed that a contract made by the city commissioner for grading and paving a street not formally condemned, upon the application of the owners of a majority of feet fronting on it, and not of all the proprietors of ground on it, was an invalid contract, and not binding on the city. 2 The govern- ment or other public authority of a municipality will not be bound by acts of public agents, unless it manifestly appears that the agent is acting within the scope of his authority, or he has been held out as having authority to do the act, or has been employed in his 1 Addis t. City, 85 Pa. St. 379; Wahl tion to grade and pave the contract v. Milwaukee, 23 Wis. 272. was made, was the public agent of a Mayor & City Council of Balti- municipal corporation, clothed with more v. Eschbach, (1861) 18 Md. 276. duties and powers specially defined In this case the Court of Appeals of and limited by ordinances bearing the that state have expressed themselves character and force of public laws, ig- fully upon the principles governing norance of which can be presumed in the contracts of public agents in these favor of no one dealing with him m words : " The fact thi^t the contract matters thus conditionally within his made related to a subject within the official discretion. For this reason the scope of his powers, does not make it law makes no distinction between the obligatory on the [municipality] if effect of the acts of an officer of a cor- there was a want of specific power to poration and those of an agent for a make it. Although a private agent, principal in common cases. In the acting in violation of specific instruc- latter the extent of authority is neces- tions, yet within the scope of a general sarily known only to the principal and authority, may bind his principal, the agent, while in the former it is a mat- rule as to the effect of a like act of a ter of record in the books of thecorpo- public agent is otherwise. The city ration or of public law." commissioner, upon whose determina- 110 POWER OF AGENTS AND OFFICEES. [ 92 capacity as a public agent to make the declaration or representa- tion for the government. 1 92. More general rules. The legislature of a state invest- ing a public corporation with the power to do certain acts, the governing board of the corporation will have an implied right to use the tit and appropriate means. For instance, where the County Court of a county under the authority conferred upon it to subscribe to the stock of a railroad corporation may make an order for the subscription, they may subsequently make an order appointing an agent to enter the subscription upon the books of the railroad corporation as a proper method for completing the subscription. 2 Where a city has lawful authority, say to con- struct sidewalks, involved in this authority would be the right to direct the mayor, and the chairman of the committee on streets and alleys, to make a contract on behalf of the city for doing the work. 3 So a municipal corporation, a city, may employ a third person, not an officer or regularly constituted agent, to negotiate for it in procuring a right of way for a ditch, for instance. 4 It is well settled that public officers or agents are held more strictly within the limits of their prescribed powers than private general agents not only because the extent of their power is more easily seen, but because the rights of large communities are in greater need of diligent guards than those of individuals, whose 1 Mayor & City Council of Baltimore ficers, done beyond the scope of their v. Reynolds, (1863) 20 Md. 1. It was authority. Acts of ratification by such said by the court: "Cities and other bodies politic should be direct, explicit, purely municipal corporations or unequivocal, with full knowledge of bodies politic which are allowed to as- the facts." surae some of the duties of the state, * Hannibal & St. Joseph R. R. Co. in a partial or detailed form, having v. Marion County, (1865) 36 Mo. 294. neither property nor power for the The court said: "The County Court purposes of personal aggrandizement, * * * has the control and manage- can be considered in no other light ment of the property, real and per- than as auxiliaries of the government, sonal, of the county. It is the agent and as secondary and deputy trustees of the county, and may lawfully and and servants of the people. McKim T. of right do whatever is necessary to Odom, 3 Bland Ch. (Md.) 417; Ang. & carry out and execute the trusts AmesonCorp.il. Agents themselves, reposed in it." not principals, answerable to their 'Hitchcock v. Galveston, (1877) 96 constituents, they are not to be pre- U. S. 341. sumcd to recognize and individually 4 Stewart v. City of Council Bluffs, ratify and confirm the acts of their of- (1882) 58 Iowa, 642. 92] PUBLIC CORPORATIONS. Ill selfishness is quite apt to hold in frequent review the acts of all < inployees. 1 It is well settled that the fact that the contract iiisule by a public agent, related to a subject within the general scope of his powers, does not bind his principal, if there was a want of specific power to make it. Although a private agent acting in violation of specific instructions, yet within the scope of his general authority, may bind his principal, the rule as to the effect of a like act of a public agent is otherwise. 2 From this it follows that one who contracts or deals with the agents or officers of a municipal or public corporation must, at his peril, take notice of the limits of their powers. 8 The United States Supreme Court has approved the rule as declared by Judge DILLON in his work on Municipal Corporations, section 283, in these words : " As & general rule, it may be stated that not only where the corporate power resides in a select lody, as a city council, but where it has been delegated to a committee or agents, then, in the absence of special provisions otherwise, a minority of the select body or of the committee or agents, are powerless to bind the majority or do any valid act. If all the members of the select body or com- mittee, or of all of the agents are assembled, or if aU have been duly notified, and the minority refuse or neglect to meet with the others, a majority of those present may act, provided those present constitute a majority of the whole number. In other words, in such a case, a majority part of the whole is necessary to constitute a quorum, and a majority of the quorum may act. If the major part withdraw so as to leave no quorum, the power of the minority to act is, in general, considered to cease." 4 1 Pareel r. Barnes & Bro., (1868) 25 Starin r. Genoa, 23 N. Y. 489, 452; Peo- Ark. 261. pie v. Mead, 36 N. Y. 224; Dodge t>. 'Ibid. Mayor, etc., of Baltimore County of Platte, 82 N. Y. 218; . Reynolds, (1862) 20 Md. 1; Dela- United States <. City Bank of field . State of Illinois, (1841) 26 Columbus, (1858) 21 How. 856; Wend. 192. DcVoss r. Richmond, (1868) 18 Gratt. 1 Mayor, etc., of Baltimore . Mus- (Va.) 339; Lewis r. Harbour Co. grave, (1877) 48 Md. 272; State ex rel. Comrs., 8 Fed. Rep 191. Mayor, etc., r. Kirkley, 29 Md. 85; 4 Brown r. District of Columbia, Horn v. Mayor, etc., 30 Md. 218. See, (1888) 127 U. S. 579, 586. This rule is also, The Floyd Acceptances, (1868) 7 supported by the following cases: Wall. f>06; Marsh r. Fulton County, Day r. Green, (1849) 4 Cush. 438; (1870) 10 Wall. 676; Clark v. DesMoincs, Fisher r. Attluborough. (1849) 4 Cush. (1865) 19 Iowa, 199, 210; Treadwell t>. 494 ; Kingsbury t>. School District, Commissioners, (1860) 11 Ohio St. 183; (1846) 12 Met. 99; Coffin t>. Nantucket, Gould c. Sterling. 23 N. Y. 464; (1850) 5 Cush. 269; Damon c. Granby, 112 POWEK OF AGENTS AND OFFICERS. [ 93 93. Illustrations of the duty and powers of municipal officers. A city comptroller, being required to perform " such duties in relation to the finances " as " shall be prescribed by ordinance," would be authorized, upon an ordinance properly passed giving him the power, to negotiate and dispose of city bonds. It is his official duty, when such bonds are in his hands in shape to be negotiated, to keep them safely, until he lawfully disposes of them, and an unauthorized disposition of such bonds will subject him and sureties to liability upon his bond for the proceeds. 1 The common council of a city being given the power by its charter to audit and allow accounts, and the comptroller being only permitted by the charter to receive, examine and report upon them, the comptroller has no power to modify a con- tract on the part of the city. 2 A director of the poor appointed by the council of a city, his duties and powers being expressly such as officers of like kind in townships, has no power to bind the city by a contract with a surgeon to perform a surgical opera- tion upon a pauper for a fixed sum. 3 A city charter providing that no moneys could be lawfully paid out of its treasury, except upon warrants regularly drawn according to the charter, its treas- urer cannot justify any payments of moneys made by him other- wise, as to contractors, for instance, doing work for the city. 4 A mayor and council of a city have no authority to contract with a city treasurer that the latter may use the funds of the city and pay a percentage therefor ; such a contract would be illegal and void, and would not authorize the treasurer to so use the funds. 5 A city cannot be made liable, by a resolution of the city alder- men, for the expense of defending contempt proceedings against its aldermen who have been convicted of contempt in disobeying an injunction, the conviction not having been reversed. 6 In entering into a contract for the grading of a street a street com- missioner of a city has no power to contract, except according to (1824) 2 Pick. 345, 355; State v. Jersey 3 Barber v. City of Saginaw, (1876) City, 27 N. J. Law, 493; Charles . 34 Mich. 52. Hoboken, 27 N. J. Law, 203; Dey u. * McCormick v. Bay City, (1871) 23 Jersey City, (1869) 19 N. J. Eq. 412 ; Mich. 457. Mayor, etc. , of Baltimore v. Poultney , 5 Manley 0. City of Atchison, (1872) (1866) 25 Md. 18. 9 Kans. 358. 1 Stevenson t>. Bay City, (1872) 26 West . City of Utica, 71 Hun, 540; Mich 44 s. c., 24 N. Y. Supp. 1075. 1 Advertiser & Tribune Co.v. Detroit, 43 Mich. 116; s. c., 5 N. W. Rep. 72. 94] PUBLIC CORPORATIONS. 113 the resolution of the common council directing the doing of the work tinder his direction, and the proposals and estimates received in pursuance of the advertisement of the same. 1 There being no limitation of the power of a city to make purchases for fitting up rooms for the use of city officers, and no particular manner for making contracts for such a purpose prescribed in its charter, the city council may confer the power on a committee, as the act to be performed would be a mere business act, and not of the class relating to the government of the city, which they could not delegate. 2 Where an order was given by a single 'member of a committee appointed by a^cjty council to perform a business act, for work to be done and goods furnished, the New York Court of Appeals held that the city, having enjoyed the benefit of the same, was liable for the work and goods on a quantum ineruit? Under a city charter in California authorizing the library board " to con- trol and order the expenditure of all moneys at any time in the library fund," and " generally to do all that may be necessary to carry out the spirit and intent of this charter in establishing a public library and reading room," the Supreme Court of that state has held that the library board might appropriate money to pay the expense of a delegate to a congress of librarians. 4 94. Ratification by municipal corporations of contracts made by their agents or officers. A contract, neither immoral nor unlawful, entered into by an agent of a municipal corpora- tion, and such as it might make itself, may be ratified by the corporation, as by an individual, either formally or by its con- duct. 5 The contract of a municipal corporation, which is invalid when made, as in violation of some mandatory requirement of its charter, can be ratified only by an observance of the condi- tions essential to a valid agreement in the first instance. 8 But where the forms and conditions prescribed are not intended as a 1 Bonesteel t>. City of New York, City of Findlay t>. Pertz, (U. 8. C. (1860) 22 N. Y. 162. affirming Bone- C. A. 1895) 66 Fed. Rep. 4 J7. steel v. City of New York, 6 Bosw. Gutta-Percha & Rubber Manuf. 550. Co. . Village of Ogalalla. (Neb. 1894) Kramrath v. City of Albany, (1891) 59 N. W. Rep. 513; citing Town of 127 N. Y. 575; 8. C., 28 N. E. Rep. Durango r. lYnninirt.m, 8 Colo. - 400. c., 7 Pac. Rep. 14; McCrocken t>. City Ibid. of San Francisco, 16 Cal. 623; San 4 Kelso v. Teale, (Cal. 1895) 89 Pac. Diego Water Co. r. City of San Diego. Rep. 948. 59 Cal. 522; Cory c. Board, 44 N. J. 15 114 POWER OF AGENTS AND OFFICERS. [ 94: limitation upon the powers of the corporation, a compliance with such conditions is not essential to a binding ratification. 1 A cor- poration retaining and using money borrowed for it by its officer in excess of his authority ratifies the transaction arid is liable. 2 A public corporation cannot, by subsequent ratification, make good an act of an agent which it could not have directly author- ized. 3 A contract made in behalf of a municipal corporation, void in its inception from want of authority in the officer to make it, cannot be validated by the subsequent approval of the council. 4 A school district, by its action in completing a school building, left unfinished by an absconding contractor, by furnishing the build- ing with desks, seats and other necesS&iry schoolhouse furniture, by occupying the building for school purposes and insuring the Law, 445; Keeney v. Jersey City, 47 der the board of finance, to make the N. J. Law, 449; s. c., 1 Atl. Rep. 511; loan, and that there could be a recov- Newman t>.. City of Emporia, 32 Kans. ery upon the note without first dispos- 456; 8. c., 4 Pac. Rep. 815; McBrian ing of the collaterals. As to what v. Grand Rapids, 56 Mich. 103; s. c., 22 would show a valid contract by ratifl- N. W. Rep. 206; McDonald v. Mayor, cation on the part of the county, see etc., 68 N. Y. 23; Smith v. City of Leon County v. Vaiin, (Tex. 1894) 27 Newburgh, 77 N. Y. 130; Bank v. S. W. Rep. 258. South -Hadley, 128 Mass. 503. 8 Hodges v. City of Buffalo, 2 Denio, 1 Gutta-Percha & Rubber Manuf. 110; Halstead v. Mayor, etc., of New Co. . Village of Ogalalla, (Neb 1894) York, 3 N. Y. 430; Boom . City of 59 N. W. Rep. 513. An action to re- Utica, 2 Barb. 104; Cowen r. Village cover the value of goods sold to the of West Troy, 43 Barb. 48. When a rat- village, ification will bind the corporation, see * Willis v. St. Paul Sanitation Co., Peterson v. Mayor, etc., of New York, (1893) 53 Minn, 370; s. c., 55 N. W. 17 N. Y. 449; People v. Flagg, 17 N. Rep. 550. In White v. City of Rah- Y. 584; 8. c., 16 How. Pr. 36. In way, 11 Fed. Rep. 853, it appearing Scott's Exrs. v. Shreveport, 20 Fed. that the treasurer of a city, under the Rep. 714, it was held that the agent of board of finance, borrowed of a bank the city, having no authority to bind a sum of money and the city ratified the city by giving a note, for lack of the loan made by its agent by a re- power in the city to raise money to do- newal of the note from time to time, nate to & railroad company, the obli- and by payments upon it at different gation could not be made binding on times, and when the note was executed the corporation by any subsequent act by the treasurer he pledged as security of the municipal authorities. for its payment bonds of the city, sub- * Ruggles v. Collier, (1869) 43 Mo. sequently substituting therefor other 353. As to ratification of contract of ten-year bonds of the city, and there an agent by a municipal corporation, remaining a sum due and unpaid upon see McCloskey r . City of Albany, 7 the note, it was held in the federal Hun, 472. Where it cannot be court that under the laws of New Jer- inferred, see Burns 0. Mayor of New sey the treasurer was authorized, un- York, 5 T. & C. 371. 95] PUBLIC CORPORATIONS. 115 same, will ratify and make binding upon the district a contract for constructing the school building void because made by only one member of the school board. 1 So a school district which had received, retained and used for a long period of time school fur- niture bought for it by the members of the school district board, acting separately without any meeting of the board, has been hcM to have ratified the purchase and a recovery allowed upon the contract against the district. 3 he Appellate Court of Mis- souri has held that, as the board of directors of a school district can act only when assembled in a meeting as a board, and neither two nor all can bind the district by a contract, the fact that fur- niture purchased by them under a contract made outside of a board meeting had been placed in the schoolhouse and used would not amount to a ratification of this illegal contract. 8 95. Agents and officers of counties generally. The character of the agency which the officers of a county hold in connection with its financial affairs is well expressed and defined by the Iowa Supreme Court in an early case when the county judge was charged with the management of the affairs of a county in that state. They said : u The analogy between this officer and an agent will hold good but a little way. It does not hold good in any valuable sense. It is true that the statute in creating him styles him the general agent of the county. But this is not to institute this relation properly. It was to declare him to be the general rather than the special agent. At the I>e8t he is but a quasi agent. Properly shaking, he has no principal, and so far as he has, this principal only appoints him and has no further power over him. He does not derive his powers from the county but from the law, and the county cannot revoke them. It cannot act itself in any case. He is the head and hand of the county. In short, he is an officer of the law, deriving his powers from the law, and governed by it." 4 The governing boards of counties are known under different titles in the different states. 1 School District No. 89 in Brown County r. Sullivan, (1892)48 Kans. 624; 8. c., 29 Pac. Rep. 1141. 1 Union School Furniture Co. . School District No. 60 of Elk County, (1898) 60 Kans. 727; 8. C. 82 Pac. Rep. 868. 'Thomas Kane & Co. t>. School Dist. of Calhoun, (1893) 48 Mo. App. 408. * Clapp t. County of Cedar, (1857) 5 Iowa, 15, 55. a case involving the au- thority of a county judge in tho issuance of county bonds in payment of a subscription to the stock of a rail- road company. 116 POWER OF AGENTS AND OFFICERS. [ 95 County Courts in some, board of county commissioners in others ; supervisors in some and boards of chosen freeholders in others, as well as other titles. We will give some illustrations in this chapter of the powers of these different officers in the financial management of the counties from different state decisions which may guide in determining the powers of similar officers in any other state. The County Court in Arkansas may levy a tax for the payment of a judgment recovered against a county for a valid debt evidenced by warrants duly issued by the county authorities. 1 In affirming an order for a peremptory writ of mandamus to compel a county treasurer to pay certain warrants issued by order of a board of county commissioners, the Colorado Court of Appeals has held that a county treasurer is not clothed with power to pass on the legality of the action of the governing body of the county. " Power to determine the validity of all claims," they said, is intrusted to the board. When they have audited and allowed a claim, and a warrant is issued in accord- ance with their determination, we cannot see that the statute has clothed the treasurer with the supervisory power to determine the validity of their acts. 2 County commissioners cannot legally transact county business except at a regular session of the county board or one specially called by the county clerk, of which notice is given in the mode provided by law. 3 The money in the hands of a county treasurer in Nebraska under the revenue bond road laws of that state, being held in trust by the treasurer for the road districts, the board of county commissioners have no authority 1 Bush v. Wolf, (1891) 55 Ark. 124; what cases and under what circura- s. c., 17 S. W. Rep. 709. stances such funds shall be paid out, * Beeney, County Treasurer, v. IT- unless it be in those cases where fixed win, (Colo. App. 1895) 39 Pac. Rep. 900. rights are conferred by statute. In Leading up to their conclusion, the and of itself this fact should be de- court used this language: As we said cisive of the present inquiry. Wher- in Commissioners v. Lee, 3 Colo. App. ever a broad, universal and sweeping 177; s. c., 32 Pac. Rep. 841: " Under power is thus given to a governing the statutory plan which divides the body it cannot be conceded that, by state into counties and regulates the implication, any other body, whether government of those territorial sub- it be a court or one resembling the divisions all power to fix, control, de- board of county commissioners, should termine, or in any manner dispose of likewise have power to dispose of the the funds of a county, is devolved on public revenues." the board of county commissioners. 3 Morris v. Merrel, (Neb. 1895) 62 N They alone have the right to disburse W. Rep. 865. the public moneys and to decide in 96] PUBLIC CORPORATIONS. to draw warrants against such funds. 1 Under the New Jersey statutes in regard to such matters, a board of chosen freeholders are not empowered to make an excessive appropriation for some particular class of expenditures that it, with the surplus, may make up deficiencies in other classes of expenditures. 1 Under the statute of New Jersey, a board of chosen freeholders can improve any ordinary highway under their control only with money obtained from the sale of road bonds. 8 A county com- missioners' court in Texas by electing, with knowledge of a con- tract of a county judge to purchase county bonds for the perma- nent school fund, to carry out its provisions and to hold the bonds, has been held to be a ratification of the contract. 4 The Wash- ington Supreme Court has held that a board of county commis- sioners in that state, having power to contract for the services of a county physician, though their term of office be about to expire, may contract with a physician for one year extending into the term of office of their successors. 5 The different statutes of Utah, the one which empowers the County Court in Utah to lay out and maintain public roads and perform other acts from which indebtedness must arise ; another which provides that no county shall incur any indebtedness or liability in any manner or for any purpose to an amount exceeding, etc.; another, that the County Court must not contract liabilities except in pursuance of law, and the one which provides that warrants drawn by order of such court must specify the liability for which they are drawn, have been held by the Supreme Court of that territory to confer by implication on the County Court the power to create indebted- ness against the county. 6 96. Power of county officers in California. A board of supervisors of a county have no power to create a debt or liability on the part of the county for any purpose except as provided by law. 7 And no order made by a board of supervisors is valid or binding unless it is authorized by law ; thus, if they allow claims 1 Oakley r. Valley County, (Neb. (1894) 86 Tex. 234; a. c., 24 8. W. 1894) 59 N. W. Rep. 868. Rep. 272. City of Paterson r. Board of Webb t>. Spokane County, (Wash. Chosen Freeholders, (N. J. 1894) 29 1894) 87 Pac. Hep. 282. All. Rep. 831. Fenton r. Blair, (Utah, 1895) 89 1 Ibid. Pac. Rep. 485. 4 Boydston t. Rockwall County, ' Foster e.Coleman, (1858)10Cal. 278. 118 POWER OF AGENTS AND OFFICERS. [ 96 not legally chargeable to a county, neither the allowance nor the warrants drawn therefor create any legal liabilities. 1 They are authorized to erect a county jail without a law authorizing the levy of a special tax therefor, and the expenses of such erection, as among the expenses of a current year, may be paid for out of the money raised by the general tax which the board are author- ized to levy. And a contract entered into by a board of super- visors for this purpose, for and on behalf of the county, and signed by the chairman of the board, would be the contract of the county. 2 So far as concems the examination arid settlement of accounts and claims against a county, its board of supervisors are a quasi judicial body, and the allowance and settlements of such a board is an adjudication of the claims, and is conclusive. And an auditor of a county cannot assume to set up his judgment in opposition to that of a board of supervisors in respect to the issuance of a warrant on an account against the county, except in cases where the board have exceeded their powers. 4 Nor can he refuse to issue a warrant when the board of supervisors has ordered its issue, because the person in whose favor it is to be drawn, and whose account has been allowed, has committed a fraud on the county in relation to procuring the contract on which the warrant is to be issued. 5 If by a contract of a board of supervisors for the erection of a county jail it be provided that the work and labor be paid for in installments, on the certificate of the architect that a certain sum has been expended, an account giving the sum total of an installment, without " all the items of the claim " certified by the architect, would be a sufficient compli- ance with the statute (Pol. Code Cal. 4072) to authorize the board to allow the same. 6 It cannot set apart a portion of the revenue of the county as a fund for current expenses. 7 They have no authority to allow an unaudited claim against a county, except within one year after the claim accrues and becomes due. 8 The board must first give public notice of a special meeting at which it proposes to settle with the county treasurer, and specify 1 Linden . Case, (1873) 46 Cal. 171. 4 Babcock v. Goodrich, (1874) 47 CaL s Babcock v. Goodrich, (1874) 47 Cal. 488. 488. Ibid. 1 El Dorado Co. v. Elstner, 18 Cal. 6 Ibid. 144; Tilden v. Sacramento Co., 41 Cal. ' Laforge 0. Magee, 6 Cal. 285. 68; Col usa County v. De Jarnett, 55 8 Carroll v. Siebenthaler, 37 Cal. Cal. 373. 193. 97] PUBLIC CORPORATIONS. 119 in the notice that such business will be transacted ; otherwise they cannot settle with the officer. 1 Unless specially authorized by law, the board cannot allow the salary of a county treasurer out of county funds. 3 A county treasurer, authorized to adver- tise for bids for the surrender of bonds of the county, in order that he may redeem them with money in the treasury, lias no authority in the advertisement to insert a condition upon which bids will be received, which is not to be implied from the duty to advertise, and which is not necessary to the exercise of his author- ity, such as that the bonds must accompany the bid. 8 The County Government Act of California authorizes the county boards of supervisors to issue bonds, and provides that the bonds shall be delivered to the county treasurer, by whom they shall be sold to the highest bidder. Under the section of that act, which further authorizes these boards to do " all other acts and things * * * which may be necessary to the full discharge of the duties of the legislative authority of county government," they have been held to have no power to employ an agent to procure bids to be made for such bonds. 4 97. Power of county boards in Illinois. The governing authorities of a county, elected by the people and becoming their agents for the management of the financial affairs of the county, when they act within the scope of their authority, how- ever indiscreet the action, it is binding upon the county. In an Illinois case, the agents making the contract for a county jail for a price in excess of what was ordered by the County Court, yet the County Court, acting as such, having received the jail and appropriated it to the use of the county, and acknowledged that the county owed the contractors the balance due upon the con- tract price, this final action of the County Court was held to bind the county to pay the full amount due the contractors, not- withstanding the fact that those making the contract exceeded their authority so far as the price fixed for the cost of the build- ing was concerned. 5 Only such powers can be exercised by County Courts, when sitting for the disposition of county busi- 1 El Dorado Co. r. Reed, 11 Cal. 131. 4 Smith e. Loe Angeles County, 'County of San Joaquin r. Jones, (1894) 99 Cal. 638; s. c., 84 Pac. Rep. 18 Cal. 827. 439. Mills r. Belhncr, (1874) 48 Cal. * County of Jackson r. Hall, (1870) 1-.M. 58111.440. 120 POWER OF AGENTS AND OFFICERS. [ 97 ness, as have been conferred on them by express law or that it may be necessary to exercise in order to carry into effect the powers granted to them. So, where an act to enable counties to liquidate their debts provides that the County Courts or other governing boards may levy a special county tax for that purpose, the county board has no authority to take up its outstanding orders and give bonds in the place of them, bearing interest. Such obligations cannot be issued without express statutory authority. Another statute, under which the board would be acting in such case, would confine the court to a liquidation through a levy of taxes for that purpose. 1 A county board having author- ity to contract for the repair of a county court house and build- ing of fire-proof vaults, in the absence of any restrictions of law as to the amount of the price they should pay or its mode of pay- ment, it is open to such board to contract to pay for such work in interest-bearing orders as well as in non-interest-bearing orders. 2 The governing authorities of a county, intrusted with exclusive power over the county revenues and their collection, if, in their judgment a tax -already ordered be found to be unnecessary, have a right to rescind the order and arrest the collection of such tax. 3 They are not authorized to allow in a settlement with him to a collector more than the sum fixed by law as fees or commissions, and an allowance of the kind does not bind the county, nor is the county estopped by the action of the board to object to such allowance. 4 It being their duty to protect the county's interest, they have the power to appoint agents, to employ counsel, and make legal contracts for procuring information and evidence necessary and proper in defense of suits against the county. 5 The power given by statute to the board of county commission- ers to construct a court house, for instance, and connected with it the power to make contracts for its construction, carries with it of necessity the power to exercise its discretion of settling and adjusting claims against the county arising from such construc- 1 County of Hardin T. McFarlan, 8 People ex rel. Chase v. County (1876) 82 111. 138. Court of Macoupin County, (1870) 54 'County of Jackson t>. Rendleman, 111. 217. (1881) 100 111. 379, holding such orders 4 Board of Supervisors of Cumber- valid and the interest collectible. The knd County n. Edwards, (1875) 76 111. court distinguished County of Hardin 544. t>. McFarlan, 82 111. 138, 141, and Hall B Gillett ?. Board of Supervisors of . Jackson County, 95 111. 352. Logan County, (1873), 67 111. 256. 98] PUBLIC CORPORATIONS. 121 tion, and in case, under this power, in the use of their discretion, a board has settled and compromised a claim about which there was dispute, in the absence of anything showing fraud or cor- ruption on their part, a court of equity has no jurisdiction to prevent the consummation of the agreement of the board for a compromise by process of injunction. 1 98. Power of county commissioners in Indiana. The board of county commissioners in Indiana is a body corporate and politic, under the statute. The statute authorizes the board to make contracts, and it may make them by parol in some cases, and be bound thereby ; but it cannot make contracts of all descriptions and for all purposes for which natural persons may. It is confined in making contracts to the powers expressly granted to it by the act of its creation, and to the implied powers, incidental and necessary to the execution of such expressed pow- ers and the performance of the duties enjoined upon it. For these purposes, it may make contracts, and it will be bound to perform them the same as individuals. 2 The law of Indiana con- ferring no powers, and enjoining no duty, upon the board of commissioners of a county to aid in the arrest, prosecution or 1 Harms t. Fitzgerald, (1878) 1 the board in such a matter is final, see Bradw. (111.) 325. In support of this Supervisors of Orleans t>. Bowen, 4 rule, see Attorney -General r. Aspin- Lans. 24, 38; Shank v. Shoemaker, 18 nil. 2 Mylne & C. 618; Parr . At- N. Y. 489; Russell r. Cook, 3 Hill, 504; torney-General, 8 Clark & F. 409; Stover t>. Mitchell, 45 111. 218; County Attorney -General r. Poole, 4 Mylne & Comrs. of Lucas County r. Hunt, 5 C. 17; Attorney- General v Lirhfield, Ohio St. 488. 18 Sim. 547; Attorney-General u. Nor- * Hight r. Board of Comrs. Monroe wich, 16 Sim. 225; Mooers . Smed County, (1879) 68 Ind. 575; citing ley, 6 Johns. Ch. 28; Livingston r. Seibrecht t>. City of New Orleans, 12 Hollenbeck, 4 Barb. 10, 14 ; Meserole La. Ann. 496; Douglass r. Mayor & t. Mayor & Common Council of Bd. of Aldermen of Virginia City, 5 Brooklyn. 8 Paige, 198; Gillespio r. Nev. 147; Hayward r. Davidson, 41 Broas, 23 Barb. 870; Andrews c. Ind. 212; McCabe r. Board of Corn- Board of Supervisors Knox County, missioners of Fountain County, 46 70 111. 65; City of Galena r. Cor with, Ind. 880; Burnett c. Abbott, 51 Ind 48 111. 423; Brush r. City of Carbon- 254; Gordon t>. Board of Comrs. dale, 78 111. 74; Conrad r. Trustees of Dearborn County, 52 Ind. 822; Board Ithaca, 16 N. Y. 168; Storrs t. City of of Comrs. Jackson County t>. Apple- Utica, 17 N. Y. 104. As to the power white, 62 Ind. 464; Board of Comrs. of county board, see Prest. and Trus- Jennings County c. Verbarg, 63 Ind. tecs of Town of Petersburg t. Map- 107. pin. 14 111. 193. That the decision of 16 122 POWER OF AGENTS AND OFFICERS. [ 98 conviction of a person charged with the commission of crime, either by an offer of reward or by the employment of detective or professional skill, a contract by euch a board to pay a reward 1 for the arrest of a criminal has been held to be beyond its powers and not enforceable against the county. 1 A county board cannot authorize the county treasurer to employ an attorney to assist in the collection of delinquent taxes, at the county expense. 2 County boards have no authority to make allowances for services done or things furnished voluntarily for which they cannot law- fully contract. 8 Should such improper allowances be made, relief may be had from it by an appeal. 4 County boards may contract for an examination and adjustment of the accounts of a 1 Board of Comrs. of Grant Co. t>. that ' The boards of commissioners Bradford, (1800) 72 Ind. 455. The may make allowances at their discre- court considered the case within the tion,' etc., but, as was said, in Roth- principle of Hight v. Board of Com- rock v. Carr, 55 Ind. 334, this does missioners of Monroe County, (1879) ' not mean an arbitrary, uncontrolled, 68 Ind. 575, where it was held that unlimited discretion, contrary to law, such board had no power to employ a or without authority of law; for where person to aid the state's attorneys in there is no law there is no act to do, prosecuting, and procuring to be pros- and, therefore, no discretion to be ecuted, a person charged with crime, exercised.' The discretion, therefore, To the same effect, see Board of Comrs. must be according to and in subordi- Ripley County v. Ward, (1880) 69 lud. nation to the law, and not outside and 441, holding that the board had no in violation of it." English v. Smock, power to employ an attorney to assist 34 Ind. 115; s. c., 7 Am. Rep. 215. in the prosecution of one under indict- * * * "Where the board'of com- ment for embezzling county funds. missioners of their own motion do an 'Miller v, Embree, (1882) 88 Ind. act which under the law they may do 133. or not, as in the exercise of their 8 Ibid. discretion seems best, and the time 4 Board of Comrs., etc., v. Gregory, and mode of doing the act are not 42 Ind. 32; Grusenmeyer v. City of prescribed by law, no appeal lies from Logansport, 76 Ind. 549; Rothrock v. their decision in such a case. But Carr, 55 Ind. 334. See Waymire v. when they make an allowance which Powell, (1885) 105 Ind. 328, holding is illegal and appears so on its face, an allowance by a board of commis- any one aggrieved may appeal." In sioners to one or more of its members the cases of Nichols v. Howe, 7 Ind. 506; for services rendered in inspecting, Board of Comrs., etc., t. Boyle, 9 Ind. examining and measuring the abut- 296; Sims v. Board of Comrs., etc., 39 ments of a bridge which had been Ind. 40; Mofflt v. State ex rel., 40 built under a contract made with the Ind. 217; Board of Comrs., etc., f>. board, to be an illegal allowance, and Richardson, 54 Ind. 153, where such that any person interested had a right an appeal was denied, the allowances to appeal from such allowance. The were for services which might have court said: " [The statute] provides been made the subject of a contract. PUBLIC CORPORATIONS. 123 county treasurer. 1 The county commissioners have no power to declare, even by express contract, a man's taxes paid before they are assessed, and merely ministerial officers, such as the treasurer and auditor, have no such authority. 3 Among the powers of such boards fixed and designated by law is not the right to inter- fere with, or in any way affect, the course marked out for the col- lector or treasurer of the county. They can neither abridge nor enlarge the duties or liabilities of those officers. It follows that an order of such a board giving the collector of the county reve- nue a longer time for payment of the revenue of the year than the law prescribes, would be without authority, and inoperative. 8 A board of county commissioners, under the statutes, have no power to direct the county treasurer how, or where, he shall keep the county funds ; and if a county treasurer, under an order of such board, they having purchased an iron safe, keep the county funds in such safe, this order, being without authority, would not release the collector from his liability to the county to make good the loss, in case the funds be stolen from the safe. 4 County commissioners in Indiana are not empowered by the statute relating to proceedings to secure free gravel roads to order pay- ments of fees of attorneys rendered to the petitioners for such roads. 5 99. Power of supervisors of counties in Iowa. County boards of supervisors must act as a board in session in order to bind a county, they not being authorized to bind the county by a 1 Duncan c. Board of Comrs. of 4 Halbert r. State ex rel. Board of Lawrence County, (1884) 101 Ind. 403. Comrs. Martin County. (1864) 22 Ind. It was said: "The board of comiuis- 125. As to contracts in relation to sinners have very full powers in refer- bridges entered into by county boards encc to the management of the affairs or superintendents appointed by the of their respective counties. It is, for board, see Board Comrs. Carroll all financial purposes, the county, and County . O'Connor, (1894) 137 Ind. its contract in relation to the adjust- 622; 8. c.. 87 N. . Rep. 16; Smith r. ment of the finances of the county is Comrs., 6 Ind. App. 153. As to county the contract of the county, and valid board contracting with a physician for asnuch." See Hoffman r. Board, etc., services in attending the poor, Bee 96 lud. 84; Moon . Board, etc., 97 Woodruff r. Comrs. of Noble County, Ind. 176; Nixon v. State ex rel., 06 (1894) 10 Ind. App. 179; 8. c., 37 N. Ind. 111. E. Hep. T,tt. 1 Scobey r. Decatur County, (1880) Board of Comrs. of Rush County, 78 Ind. 551. < 'ole, (1891) 2 Ind. App. 475; 8. c., 'Coman r. State ex rel. Armstrong, 28 N. E. Rep. 772. (1836) 4 Blackf. (Ind.) 241. 12. Allen, 5 Kans. 213. South Berwick. 51 Me. 174, that towns *Neosho County v. Stoddart, 13 in that state had no power to offer' re- Kans. 207. wards for the arrest of criminals. 4 Ibid. Such seems also to be the rule in Illi- 'State ex rel. t>. Marion County, 21 nois. County of Crawford v Spenney, Kans. 419. 21 111. 288. But a contrary rule was Ibid. 126 POWEB OF AGENTS AND OFFICERS. [ 101 jails must be authorized by the county board, otherwise the county will not be liable for them. 1 A county having no poor- house may be bound by a township trustee to pay for medical services furnished to a poor person, who is a resident of the county and township, and who is temporarily a pauper. 2 The allowance of a claim against a county by its county commissioners is not final and conclusive. The board itself may re-examine it, and, on appeal, it may be examined and disallowed in whole or in part by the court to which the right of appeal in such cases is given. 8 Where a claim against a county has been disallowed in whole or in part by the countv commissioners, it is the right of the claimant to appeal to the District Court or to commence an original action for it. 4 Two members of a board of county com- missioners cannot enter into a contract to bind the county, outside of the county, without previous authority from the board. 9 Under the statute of Kansas empowering the Bounty commission- ers of a county " to purchase at their true value any and all bridges built upon the public highways of said county by any township or private person or persons, and pay for the same in county bonds," they have no authority to purchase such bridges and pay for them with county warrants or orders ; nor have they power to purchase such bridges at the original-cost of their con- struction, where that cost exceeds the " true value " of the bridges. 6 101. Power of County Courts in Kentucky. County courts have no power to impose a tax in aid of a railroad on the people of a county or tosubmit the question of taxation to popular vote without some special legislative enactment authorizing it. 7 Such courts have power to employ counsel to defend a suit against the counties and test the validity of a subscription of the counties to a private corporation and to bind the counties for a reasonable fee. 8 And in a suit by the attorney for the recovery 1 Roberts t>. Pottawatomie County, 10 v. Webb, (1891) 47 Kans. 104; 8. c., 27 Kans. 29. Pac. Rep. 825. 1 Board of Comrs. of Clay County v. 6 State of Kansas v. Pierce, (1893) Renner, 27 Kans. 225. 52 Kans. 521; s. c., 35 Pac. Rep. 19. Leavenworth County v. Keller, 6 7 B. G. & M. R. R. Co. t>. Warren Kans. 510. County Court, 10 Bush, 718. 4 Leavenworth County v. Brewer, * Garrard County Court t>. McKee, 9 Kans. 307. 11 Bush, 236. Board of Comrs. of Hamilton Co. 102] PUBLIC CORPORATIONS. 127 of his fee, the judgment of the County Court as to what was iciul for tin* count v. and the employment of counsel to effect the object cannot be questioned. 1 So have they power to employ counsel to resist the application of a railroad company for a mandamus to compel the court to subscribe for its stock and to issue the bonds of the county to pay the subscription ; and the County Levy Court should make provision for the payment of a reasonable compensation for the services rendered under such employments. 2 They may appropriate money toward paying the cost of additional buildings erected by a society which supports a portion of the poor children of the county, as the authority given them to purchase land and establish poorhouses is not com- pulsory and could not constructively abolish the power to provide for the poor in other modes. 3 The power given to employ phy- sicians to inoculate the poor does not empower them to employ a physician for the general treatment 01 the smallpox. 4 They are authorized to employ medical aid for the relief of poor per- sons afflicted with smallpox without regard to the color of such persons. 5 The county judge and justices, those constituting the tribunal in charge of county matters in Kentucky, are the judges of the need of a poorhouse, and may purchase land for such pur- pose and make the necessary improvements. 6 102. Power of supervisors in Michigan. Unless dis- tinctly authorized by legislation, a board of supervisors cannot incur debts or make engagements, except as the basis of benefit to the county it represents. 7 The power of raising money reposed in boards of supervisors is confined to raising it for none but necessary uses, and all loans negotiated by them must be for some of the purposes mentioned in the statute. 8 They cannot delegate to a committee or third parties such powers as the law requires to be submitted to their own discretion and judgment. 9 They cannot delegate to the county treasurer the auditing of 1 Ibid. Jones e. Pendleton County Court, 1 Washington County Court t>. (Ky. 1892) 19 8. W. Rep. 740. Thompson, 13 Bush, 341. ' Stamp r. Cass County, 47 Mich. 'Orphan Society of Lexington o. 380; 8. c.. 11 N. W. Rep. 183. Fayette County, 6 Bush, 415. * Davis r. Board of Supervisors of *Puscy P. Moade County Court, 1 Ontonagon County, 64 Mich. 404; s. Bush, 218. c., 81 N. W. Rep. 405. 1 Rod man r. Justices of Larue 'Maxwell r. Bay City Bridge Co., 41 County, 3 Bush, 145. Mich. 453; s. c., 2 N. W. Rep. 689; 128 POWEK OF AGENTS AND OFFICEBS. [ 103 accounts against the county. 1 A resolution of a board of super- visors providing for the raising of money to be paid over to the towns, without any definition of purposes, and to be spent under a town officer's direction, would be invalid, as the board must exercise its own judgment in expending money for roads under its control. 2 There is a presumption that the action of a board of supervisors in voting money for a bridge or for county build- ings is lawful. 3 In allowing pay for services as to which the law is silent, a board of supervisors Las considerable discretion, which it must exercise if a proper case, in its judgment, arises. 4 "Where the determination of a board of supervisors is conclusive not only as to the propriety of making an allowance, but as to the amount, mandamus will not lie to control their action. 5 Neither will man- damus lie to compel a board of auditors to allow a demand rejected by it on the ground of non-performance of the services charged for. 6 103. Power of County Courts in Missouri. County Courts in Missouri are the administrative agents of the counties, and can only exercise the powers conferred on them by statute. 7 Their acts within the course prescribed by the statutes are bind- ing upon the county ; if beyond, they are not binding. 8 They may make verbal contracts, 9 but cannot bind the counties to all the contracts they may choose to make. 10 If an order of record of a County Court show the subsequent ratification and approval of a contract made by an agent, under a mere verbal appoint- ment, the contract will, notwithstanding the irregularity, be as binding upon the county as if the appointment had been properly People v. St. Clair County Officers, 15 6 People v. Wayne Auditors, 10 Mich 85. Mich. 307. 1 Vincent v. Meeosta County Super- 7 State v. Shortridge, (1874) 56 Mo. visors, 52 Mich. 340; s. c., 17 N. W. 126. Rep. 938. 8 Saline County v. Wilson, (1875) 61 9 Attorney-General v. Bay Super- Mo. 237; Sturgeon . Hampton, (1885) visors, 34 Mich. 46. 88 Mo. 203. County Courts as agents. 'Stockle v. Silsbee, 41 Mich. 615; s. State ex rel. Quincy, Mo. & Pac. Ry. c., 2 N. W. Rep. 900. Co. t>. Harris, (1888) 96 Mo. 29; B. c., 4 Lee v. Board of Supervisors of 8 S. W. Rep. 794. Ionia County, 68 Mich. 330; s. c., 36 Hase v. Warren County, (1877) 3 N. W. Rep. 83. Mo. App. 567. * Mixer v. Manistee County Super- I0 Alderson v. St. Charles County, visors, 26 Mich. 422. (1879) 6 Mo. App. 420. 103] PUBLIC COKPORATION8. 199 made in the first instance. 1 Contracts with County Courts must be proved by the record alone, and cannot be varied, contradicted or destroyed by oral evidence of the intention of the judges.* Their contracts cannot bind parties with whom they profess to contract by simply reciting the alleged contracts on their records. The assent of the contracting party must appear. 8 They have no implied power to levy a tax. The power must be clearly and expressly given by statute. And if the statute imposes conditions upon which it is to be exercised, those conditions must be observed before the exercise of the power to levy a tax would be lawful. 4 They cannot alter the assessment of taxes to build school houses on the mere ground that a school house was unneces- sary, 5 but may compromise disputed claims for taxes. 6 They may contract for insurance upon the county buildings against lire or lightning. 7 They would have no authority to employ counsel at the expense of the county to litigate a question as to whether a scheme of separation had been adopted, the effect of which was to abolish the County Court, but in which the county asserted no claim adverse to that of either party ; 8 but may, by an order of record, employ attorneys to aid the prosecuting attorney in any civil business, upon such terms as they may deem proper, if, in the judgment of the courts, the interests of the counties require it. 9 They have no power to issue county certificates of indebted- ness; 10 neither is it in their power to discount county warrants in payment of a county debt." They have no authority to issue a a warrant for money expended by the sureties of a defaulting and absconding county treasurer in bringing him back to the county. 12 In case a county treasurer pays a warrant when there is no money in the fund on which it is drawn, he cannot recover 1 Walker t>. Linn County, (1880) 72 Mo. 650. County of Johnson . Wood. (1884) 84 M.I. 489. Riley t>. Pettis County, (1888) 96 Mo. 818; s. c., 9 8. W. Rep. 906. 4 State ex rel. Clinton County v. Hiinnilnl & St. Joseph R. R. Co., (1885) 87 Mo. 230. In re Petition of Powers, (1873) 53 Mo. 218. 8t. Louis, Iron Mt & So. Ry. Co. . Anthony, (1881) 78 Mo. 481. 17 ' Walker t>. Linn County, (1880) 72 Mo. 650. Henley t>. Clover, (1878) 6 Mo. App. 181. Thrasher t. Greene County, (1885) 87 Mo. 419. '"Smallwood r. Lafayette County, (1882) 75 Mo. 450. 11 Bauer t>. Franklin County, (1878) 51 Mo. 205. "Hooper . Ely, (1870) 46 Mo. 505. 130 POWEB OF AGENTS AND OFFICERS. [ 104r the amount from the county ; and it does not matter that the payment be made at the instance of the County Court, and upon their promise that the amount would be made good, nor that the warrant was received from the treasurer and canceled by the court. 1 104. Power of county supervisors in New York. A county cannot be bound by any acts of a board of supervisors, except within the limits of the express power conferred upon them by statute. 2 A county may be bound by a majority of the board of supervisors, lawfully convened, unless it be otherwise expressly provided by law. 3 Such boards having no inlierent power to borrow money or to issue negotiable paper, must have statutory authority, express or implied, to do so. 4 Money having been properly raised for a legitimate object, a board of super- visors of a county may change its appropriation, and devote it to another object within the scope of their powers. 5 Under a power given a board of supervisors to provide for a perrnament location of an armory, by erecting it, they may hire a building for that purpose for a term of years. 6 The execution of its mechanical and physical work may be delegated by a board of supervisors when acting as a mere business corporation in the same manner as by any other corporation. 7 A building committee authorized by a resolution of a board of supervisors " to advertise for sealed proposals," the work " to be let to the lowest responsible bidder, the building committee, together with the architect, to furnish the necessary plans and specifications," would not be authorized to enter into a contract, but simply to take the steps preliminary to the execution of one. 8 A board of supervisors has no authority to contract, in advance, for necessary printing for county officers, but they are bound to audit an account for such printing. 9 And 1 Cook D. Putnam County, (1879) 70 7 People v. Supervisors of Rens- Mo. 668. selaer, 52 Hun, 446; s. c., 5 N. Y. *Cbemung Canal Bank v. Super- Supp. 600. visors of Chemung, 5 Denio, 517. 8 Ibid. 3 People v. Brinkerhoff , 68 N. Y. 259. 'People v. Supervisors of Cortland. 4 Parkers. Supervisors of Saratoga, 58 Barb. 139; s. c., 40 How. Pr. 53. 106 N. Y. 392; s. c., 13 N. E. Rep. As to the principle, see People . 308. Supervisors of New York, 21 How. 'People c. Baker, 29 Barb. 81. Pr. 288; People v. Supervisors of People ex rel. Stockwell v. Earle, New York, 22 How. Pr. 71. (1874) 47 How. Pr. 370. 104] PUBLIC CORPORATIONS. 131 they cannot bind a county for the payment of the expenses of a litigation by an individual to establish his rights to an office. 1 They have no power to control the disbursements of the poor fund in the hands of the county treasurer. 8 The general power of supervisors of a county to maintain actions includes the power to compromise a doubtful claim on which an action has been brought. 8 Under the power conferred by statute upon the supervisors of a county to provide for the erection of bridges, they may appoint commissioners to carry out the work. 4 A board of supervisors may pass upon and audit a claim for repairs to a county building in case the facts proved raise an inference that the committee of the board ordering the repairs to be made were authorized to do so by the board, and gave directions for the repairs by one of its members. 5 A board of supervisors, where no deh'nite or fixed sum is prescribed as compensation for services rendered for a county, is vested with discretion, and may allow such sum as may seem just. 8 In the statutory power of a l>oard of supervisors to examine, settle and allow all accounts chargeable against a county, is implied the exercise of judgment and discretion, and they have the right and power to reject a claim for sufficient reasons. 7 A board of supervisors, in case they have been induced by misconception of fact to audit and allow a claim against a county, may reconsider and reverse their action in the matter. 8 Supervisors should ascertain whether the county is liable for services rendered at the request of an overseer of the poor who has confessed judgment for the same before they allow the claim against the county. 9 They cannot allow a claim against a county on their own notions as to its being an equitable one. 10 Supervisors of Richmond County . Ellis, (1875)59 N. Y. 620. People r. Demarest, 16 Hun, 123. Supervisors of Orleans County v. Bowen. 4 Lans. 24. 4 People r. Meach, 14 Abb. Pr. (N. 8.) 429. Cogan r. Mayor, etc., of New York. 5 Hun, 291. People ex rel. f. Supervisors of St. Lawrence County, 80 How. Pr. 178. 1 People . Supervisors of Dutchess County, 9 Wend. 608; People t>. Supervisors of Warren County, 1 How. Pr. 116. People ex rel. r. Supervisors of Broonie County, 65 N. Y. 222. Gere c. Supervisors of Csyuga County, 7 How. Pr. 255; People t>. Supervisors of Delaware County, 12 How. Pr. 60. 10 Chemung Canal Bank . Super- visors of Cbemung County, 5 Denio, 617. As to the duty of supervisors in auditing claims against a county, see People ex rel. . Supervisors of St. Lawrence County, 80 How. Pr. 178. 132 POWER OF AGENTS AND OFFICERS. [ 105-107 They have no power to indemnify a justice of the peace against the expenses of his defense in impeachment. 1 105. Power of county commissioners in Pennsylvania. A county is not bound by a contract made by one county com- missioner. 11 But two of the commissioners may bind the county by a contract made in their official capacity, though not at their office. 8 County commissioners in Pennsylvania have power to purchase everything necessary for the accommodation of persons employed in conducting a general election. 4 But they cannot bind a county by a prior agreement to pay costs on a nolle prosequi with leave of court. 5 To bind a county by an informal agreement made by two of its commissioners within the scope of their powers, such agreement must be expressly or impliedly ratified and confirmed by its commissioners acting as a board. 6 They may also bind a county by a contract for the removal of an insane prisoner to a hospital and his maintenance therein. 7 County commissioners can only contract with counsel to repre- sent the county in litigation for a reasonable compensation. 8 106. Power of county boards in Wisconsin. A county board may bind the county by contracts as to matters within their control, but not as to matters intrusted to a particular officer.* A county board may, by resolution, confer upon a committee of its number the power to purchase a poor farm. 10 And the county will be bound by the action of such committee in making a pur- chase of a poor farm and accepting the deed and liable for the price of the same without any further action of the county board ratifying the purchase. 11 107. Power of township trustees in Indiana. Township trustees may levy a tax to build school houses. 12 And a contract 1 People v. Lawrence, 6 Hill, 244. 1 Allegheny County v. Western 8 Trdchler v. Berks County, 2 Grant's Pennsylvania Hospital, 48 Pa. St. Cas. (Pa.) 445. 123. 'Jefferson County v. Slagle, 66 8 County v. Barber, 97 Pa. St. Pa. St. 202. 455. 4 Commonwealth v. Commissioners * Beal . St. Croix County, 13 Wis. of Philadelphia, 2 Serg. & R. 193. 500. 8 Berks County v. Pile, 18 Pa. St. I0 French v. Dunn County, 58 Wis. 493. 402. Township v. County, 2 Wood- "Ibid, ward's Dec. (Pa.) 194. " Adamson v. Auditor, 9 Ind. 175. 107] PUBLIC CORPORATIONS. 133 of township trustees for building such houses is binding on the township. 1 An order of a board of trustees of a township signed by the clerk and president of the board, requiring the treasurer to pay a fixed sum for building a school house, was in this case held to be a valid demand against the township.' A township trustee has no authority to borrow money or to execute notes in the name of the school township. 8 The trustee of the school township in this case borrowed money from a bank and executed notes of the corporation for the loan. He deposited the money in the bank in his own name and drew upon it as an individual. Tin- Supreme Court of Indiana held that this was a transaction between him and the bank, and that the township was not liable upon the note. 4 On the petition for a rehearing of this case the court adhered to the opinion that the trustee of a school corpora- tion was a special agent of very limited authority ; that not only was he a special agent, but that he was one whose authority was only such as the public statute conferred upon him. 5 1 Crist v. Brownsville Township, 10 Ind. 461. Heal v. Jefferson Township of Grant County, (1860) 15 Ind. 431. Union School Township v First National Bank of Crawfordsville, (1885) 103 Ind. 464; Bicknell . Widner School Township. 73 Ind. 501; Wallis . Johnson School Township, 75 Ind. 888; First National Bank v. Union School Township, 75 Ind. 361; Pine Civil Township v. Huber Manufactur- ing Co., 83 Ind. 121; Reeve School Township r. Dodson, 98 Ind. 497. 4 Union School Township t>. First Nat. Bank of Crawfordsville, (1885) 103 Ind. 464. It was said: "The trustee, in the management of the financial affairs of the school township, is a special agent with limited statu- tory powers. He has no general au- thority to bind the corporation. His acts create a binding obligation against the school township only when he does the acts which the law authorizes, and does them in the manner which it pro- scribes. All who deal with him arc bound to take notice of the scope of his authority * * *." The court said in Axt v. Jackson School Town- ship, 90 Ind. 101: "In dealing with such trustee the appellant was bound to take notice of his fiduciary charac- ter, and to know that he could only bind his township by his words and deeds which were authorized by law." It was not in [this trustee's] power, by checks, notes or other instruments, to bind the school corporation unless the claim for which they were given ex- isted against the township, and in this case no claim did exist. Even if the trustee had been guilty of fraud the school corporation would not have been bound. Lowell Five Cents Sav- ings Bank v. Inhabitants of Winches- ter, 8 Allen, 109; Beuoit r. Inhabitants of Conway, 10 Allen, 528; Dickinson t. Inhabitants of Conway, 12 Allen, 487; Kelley t. Lindsey, 7 Gray, 287; Rail- road Nat. Bank r. City of Lowell, 109 Mass. 214. Union School Township t>. First National Bank of Crawfordsville, (1885) 102 Ind. 464, 478. ELLIOTT. J., speaking for the court, said: "That 134 POWER OF AGENTS AND OFFICERS. [ 108, 109 108. Power of selectmen of towns in Massachusetts. A town cannot be bound by an unauthorized oral promise of its selectmen to pay bounty to a soldier. 1 Where the inhabitants of a town have by vote authorized their treasurer to borrow money for the adjustment of a state tax for the reimbursement of boun- ties to volunteers, and the tax had been adjusted without the necessity of borrowing money, it was held that the treasurer's authority to borrow money under that vote of the inhabitants ceased upon the adjustment of the tax. 2 Selectmen have no authority, merely virtute officii, to make a contract on behalf of a town for the hiring of a building in which town meetings may be held. 3 Selectmen of a town have no authority to bind the town by an offer of a reward for the apprehension and conviction of a person who has not been charged with a crime by complaint or indictment. 4 109. Power of selectmen of towns in New Hampshire. Selectmen of towns have no general authority to bind the town by contract. 5 They cannot borrow money upon the credit of the town. 6 Being general agents for towns in respect to pecuniary matters, unless restrained by specific instructions, they are war- ranted in paying any existing debts of towns which, in the exer- cise of a sound discretion on their part, should be paid. 7 They this conclusion is a just one cannot be authority that is not possessed by his doubted by one who considers the na- principal. It is perfectly obvious, ture of a school corporation and the therefore, that one who deals with a character of the authority of its agent, school trustee must, at his peril, ascer- the trustee. The corporation is itself tain that the trustee is acting within organized for a limited and local pur- his authority. It is incumbent upon pose. It is not a corporation with gen- a person seeking to hold the corpora- eral powers; it has neither the general tiou liable for a debt created by the power to contract debts nor to buy trustee in the name of the corporation, property. Its power is to conduct the to affirmatively show that it was one local school affairs, and to do this with he had authority to confer." the money derived from the revenues ' Barker v. Chesterfield, (1869) 102 set apart for school purposes. There Mass. 127. is, in strictness, no power in the cor- * Benoit v. Inhabitants of Conway, poration to obtain or to expend money (1865), 10 Allen, 528. derived from any other source than 3 Goff v. Rehoboth, (1846) 12 Met. 26. the school revenues. Wallis v. John- 4 Day v. Otis, 8 Allen, 477. son School Township, 75 Ind. 368. Andover v. Graf ton, 7 N. H. 298. Thus is the power of the corporation Rich v. Errol, 51 N. H. 350. itself circumscribed, and its agent, the ' Sanborn v. Deerfleld, 2 N. H. 251 trustee, can by no possibility possess 110] ITULIC CORPOKA i ; I;;.'- may, in some cases, bind the town by a promissory note, but the holder must show that in giving the note the selectmen acted within the scope of their authority. 1 They may institute a suit in the name of a town to recover back usurious interest. 8 Nego- tiable notes, the property of a town, may be sold and transferred by selectmen. 8 Adjustment of suits or controversies of a town, not being in their power, as selectmen, they cannot bind the town to the payment of money for such an adjustment by a written contract. 4 A town may be bound by its selectmen for medical services in vaccinating, but not for medical services rendered per- sons sick with smallpox, who are not paupers. The health officers of a town have no authority to bind the town for medicines and medical services furnished to inhabitants who are not paupers. 5 1 10. Power of supervisors of townships in Pennsyl- vania. A township cannot be bound by one of its supervisors in a matter requiring deliberation, consultation and judgment. Such a matter must be determined by a majority of the board at a regular meeting. 6 Nor can it be bound by a contract made by one supervisor, without the assent of his colleague, with an attorney for a year at a fixed sum. 7 A township may be bound by a mere ministerial act of a single supervisor, such as the employment of hands and giving due bills for the amount of work done on its roads. 8 In a matter where the township is bound by law to per- form the contract made by a single supervisor, it is in the power of this single supervisor to contract if the other refuse his assent.* A supervisor has no authority to bind a township by his agree- ment to pay a bounty for enlistment in United States service. 10 1 Andover P. Grafton, 7 N. H. 298. Dull v. Ridgway, 9 Pa. St. 272; 1 Albany r>. Abbott, 61 N. H. 157. McNeal t>. Allegheny Township, 1 West r. Errol, 58 N. H. 233. Am. Law Reg. 124. 4 Underhill v. Gibson, 2 N. H. 352. 4 Pottsville v. Norwegian Township, * Wilkinson . Albany, 28 N. H. 9; 14 Pa. St. 543. As to contracts that Farmington t>. Jones, 30 X. II. 271; Me- cannot be made by a single supervisor Intire t>. Pembroke, 53 N. II. 462. which will bind the township, see Township v. fcibboncy, 94 Pa. St. Cooper r. Latnpetur Township, 8 534. As to liability of a township for Watts, 125: McNeal v. Allegheny a contract made by its supervisors Township, 1 Am. Law Reg. 124; Bat- within the apparent scope of their au- ten . Brandy wine, 8 Clark, (Pa.) thority, sec Cook c. Deerflcld, 64 Pa. 462. St. 445. I0 Scarce o. Township, 27 W. N. C. f Boban v. Township, 4 Kulp. (Pa ) (Pa.) 213. 234 136 POWEB OF AGENTS AND OFFICERS. [ 111 Supervisors of a township may borrow money for the purpose of repairing roads and building bridges, and confess judgment against the township for the amount borrowed. 1 Supervisors of townships have p}wer to contract for making new roads ordered to be opened and building the necessary bridges. 2 It is within the general powers of the supervisors of a township to contract for the erection of a township bridge in place of one destroyed by a freshet. 3 They may bind the township by a promise to repay voluntary subscriptions to a bounty fund. 4 And in case supervisors agree to a division of the charge of the affairs of the township, by apportioning to each a certain part of the district, the acts of each, within the limits assigned to him, will be bind- ing on the township. 5 Supervisors have no right to take up an old certificate of indebtedness issued by the township and issue a new one to the assignee of the original payee. 6 in. Power of selectmen and agents of towns in Ver- mont. A town cannot be bound by a contract made by one selectman, without the knowledge or consent of the others. 7 In case it be shown that the three selectmen of a town agreed together as to the mode in which the business of the town should be transacted and the business was intrusted by two of them to the third one, and he made the contracts with reference to the business of the town, a jury would be justified in finding such assent on the part of the others, or any of them, as to make the act of the one contracting the act of the majority and binding upon the town. 8 Selectmen of a town have no right to receive money collected by a sheriff on an execution in favor of a town and discharge him, it being the duty of the sheriff to pay it to the town treasurer. 9 Selectmen have no authority to draw town 1 Maneval p. Township, 9 Pa. Co. Ct. (Pa.) 385, where the supervisors had Rep. 28. divided their district, the township * Childs v. Brown Township, 40 Pa. was held liable for stone purchased by St. 332. one of the supervisors for the use of * Oakland Township r. Martin, 104 the township, and the other super- Pa. St. 303. visors had not dissented from the 4 Juniata Township r. Reamer, 2 W purchase. N. C. (Pa.) 91. Snyder Township t>. Bovaird, 122 * Commonwealth t. Supervisors of Pa. St. 442; a c., 15 Atl. Rep. 910. Colley, 29 Pa. St. 121; Hope well t>. ' Hunkins v. Johnson, 45 Vt. 131. Putt, 2 W. N. C. (Pa.) 46. In Shep- 8 Curette v. Bolton, 46 Vt. 228. pard t Township, 4 Del. Co. Rep. Middlebury r. Rood, 7 Vt. 125. PUBLIC CORPORATIONS. 137 orders in their own behalf in settlement of their own private claims against the town ; nor are such orders made effectual by the allowance of the town auditors. 1 Selectmen of a town may submit to arbitration a claim against the town, for instance, for building a bridge, under the statutory powers given them " to audit, and in their discretion to allow, the claim of any person against the town for money paid or services performed for the town." 3 So they may submit to arbitration claims against their towns for damages sustained upon the highways of the towns. 8 The selectmen of a town have the power to settle and stop a suit against a party brought to recover a penalty for not removing an obstruction out of the highway under an order of the selectmen. 4 And the general authority of the selectmen over the subject would not be limited by a vote of the town " to direct the town agent to manage the law suits as he thinks best.*' 8 A town having appointed an agent for the purpose of " compromising " a claim for damages in the laying of a highway, the agent may refer the claim to arbitration. 8 A town agent, appointed to defend and prosecute suits, has no authority as such to bind the town by a promise to pay a certain sum on settlement of a suit against the town to recover for an injury occasioned by insuffi- ciency of a highway. 7 A town would be bound for professional services of the town agent, who is an attorney, where he is author- ized as town agent to employ an attorney to prosecute and defend 1 Davenport P. Johnson, 49 Vt. 403. In Burnham v. Strafford, 53 Vt. 610, an action of assumpsit brought by a selectman against the town, the evi- dence tended to prove that he borrowed for the town a sum of money and gave a town order for the same, to which he attached his own name and the names of the other two selectmen, and paid the money into the town treasury; that the town denied his authority to give the order and refused to pay it, and denied that he hud paid the money into the treasury, or that the town ever received any part of it; and upon this refusal and denial on the part of the town, the selectmen took up the order by paying the holder the amount for 18 which it called. The Supreme Court held that, although he could not re- cover for the amount paid to take up the order as for money paid at the town's request, the town having re- pudiated the order, nor upon the order itself, it not being negotiable, yet, if in fact he paid into the treasury the sum originally borrowed and he had him- self repaid the loan, he could recover in this action. 1 Dix r. Dummerston, 19 Vt. 262. * Hollister t>. Pawlet, 43 Vt. 425. 4 Town of Cabot t>. Britt, (1863) 86 Vt. 849. Ibi.l. Schoff r. Bloomfleld. 8 Vt 472. 1 Clay r. Wright, 44 Vt. .588. 138 POWER OF AGENTS AND OFFICERS. [ 112, 113 suits on behalf of the town. 1 In road cases, where the town ugent provides no counsel and makes no objection to the employ- ment of counsel by the selectmen of a town, it is within the scope of the implied powers of the selectmen to protect the inter- ests of their town by the employment of counsel at the charge of the town in such cases. 2 And the assent of the town agent to such employment of counsel by the selectmen may be presumed where he neglects to employ counsel and no dissent on his part is shown. 8 112. Power of town officers in Wisconsin. The officers of a town when transcending their lawful authority cannot bind the town. 4 A town may be bound by a contract which it is authorized to make by the joint act of two supervisors. 9 A town board of supervisors is not authorized to compromise and dis- charge an existing valid judgment in favor of the town, without full payment in money or its equivalent. 6 A town board may, without special authority from the electors, defend a suit against the town, or take an appeal therein. 7 The chairman of a town board may be directed by such board to execute a subscription or bond authorized to be issued by the town, and the act of the chairman will be essentially the act of the board. 8 113. Power of officers of school districts. School dis- tricts can be bound by their directors by their official acts, and of these acts the minutes of the board are the best evidence. 9 They cannot, by contract, divest themselves of powers conferred for a public purpose. 10 School directors have an absolute discretion as to the necessity of erecting new school houses and of borrowing money to pay for them. 11 Where a committee has been appointed by a school board to get up plans for a new school building and submit them to the board for approval, the committee would be authorized to contract with an architect for plans and specifica- 1 Langdon r. Castleton, 30 Vt. 285. 8 Hewitt v. Town of Grand Chute, 7 8 Burton v. Norwich, 34 Vt. 345. Wis. 282. 3 Ibid. "Wachob v. Bingham School Dis- 4 Hubbard v. Lyndon, 28 Wis. 674. trict, 8 Phil. 568. * Beaver Dam v. Frings. 17 Wis. 10 Conley v. Directors of West Deer, 398. 32 Pa. St. 194. 'Butternut v. O'Malley, 50 Wis. 329. "In re School Directors, 3 Kulp, 7 Haner v. Town of Polk, 6 Wis. (Pa.), 104; In re School Directors, 2 350. Pa. Co. Ct. Rep. 497. $ 1 13] PUBLIC CORPORATIONS. 139 tions. 1 Contracts with a school teacher cannot be made except by a vote of the school board ; one made by the president and secretary of the board cannot be enforced.* AB incidents to their power to sell, directors of school districts have power to mortgage the real estate held by them. 8 Where school officers are authorized to make contracts only with the assent of a majority of the electors, a contract made by them without such assent would be void. 4 The officers of a school district may make a valid contract with a qualified teacher extending beyond their own term. 5 A valid contract with one of their number for the purchase of a site for a school house in exchange for bonds may be made by commissioners to receive and negotiate bonds and purchase school sites, the vendor not acting in the transac- tion as a commissioner. 6 A school district may avoid a contract between a school board and one of the members of the board for the erection of a school house by the latter. 7 Directors of a school district voting for a misapplication of the public funds are personally liable therefor to the township. 8 Where it was found that a school board had conspired with a contractor to defraud the district in the erection of a school building, it has been held in Iowa that under the statute authorizing such boards to employ counsel in suits brought against any of the school officers to enforce the provisions of the school law, they had no power to employ counsel in a suit to enjoin them from accepting and pay- ing for the scnool building. 9 A de facto trustee of a school dis- trict may bind the district by his contract with a teacher for the schools. 10 The officers of school districts are limited to the pur- poses named in the statute prescribing their powers in the matter of raising or expending funds of the school district. In an action against members of a school board of education, for instance, for damages to the business reputation of parties by 1 McKeesport District t>. Miller, 1 Pickett t. School District, 25 Wis. Pennypacker (Pa.), 510. 651. School District r. Padden, 89 Pa. Dickinson Township t>. Linn, 86 St. 895. Pa. St. 481. Morrisville School District, 8 Phil. Scott . Independent District of 181. Hardin County, (Iowa, 1894) 59 N. W. 4 Peck *. School District, 21 Wis. Rep. 15. 516. "O'Neil r. Battie, (1892) 62 HUH, Webster t>. School District, 16 Wis. 618; a c., 18 N. Y. Supp. 255. See, 316. also, O'Neil P. Battie, 61 Hun, 622; Cady r. Watertown, 18 Wis. 822. & c., 15 N. Y. Supp. 818. 140 POWER OF AGENTS AND OFFICERS. [ 113 reason of a refusal on their part to entertain a bid of such par- ties for furnishing supplies for the schools on the ground that such parties had before dealt dishonestly with the district, the school board would not be authorized to expend the moneys of the district in defending the suit, it being such a matter as the district itself has no interest in. 1 A member of a district school board having no school funds in his hands, not being its treasurer, it has been held in New Hampshire could not recover of the dis- trict the money he had paid to a teacher hired by himself to teach one of the schools and for board he had furnished the teacher on the ground that he could contract only on the credit of the school money of the district and not on the credit of the district itself. 2 Directors of a school district in Iowa have power to borrow money to discharge a debt which has been legitimately created, and may pledge the credit of the district for that pur- pose. But the obligation evidencing the debt can only bear six per cent interest. 3 The district board of primary school districts in Michigan may contract with qualified teachers for such term as shall be determined by the qualified voters of the district at the annual school meeting thereafter to be held. 4 The presump- tion that a contract with a teacher was authorized by a vote of the school board pursuant to the statute of Wisconsin upon the subject will be raised by the fact that the officers constituting the board signed it. And the mere fact that the officers were not together when they signed it would not tend to disprove that it was so authorized. 5 1 Hotchkiss v. PJunkett . (1891) 60 * Cleveland v. Amy, (1891) 88 Mich. Conn. 230; s. c., 22 All. Kep. 535. 374; 8. c., 50 N. W. Rep. 293. 8 Wheeler v. Alton, (L H. 1892) 23 5 Dolan v. Joint School District No. Atl. Rep. 89. 13, Towns of Utica & Freeman, 'Austin V District Township of (1891) 80 Wis. 155; s. c., 49 N. W. Colony, (1879) 51 Iowa, 102; s. c., 49 Rep. 960. N. W. Rep. 1051. CHAPTER IV. POWER OF AGENTS AND OFFICERS PRIVATE CORPORATIONS. 114. Agency in general. 115. Rules as to an agent's acts. 116. To what the powers conferred on an agent may be extended. 117. Illustrations of the binding force of an agent's act. 118. Power of general agents. 119. When the authority of a general agent will not bo implied. 120. Power of officers generally. 121. The same subject continued. 122. Power of directors general rules. 123. Directors for the first year. 124. Directors do facto. 125. Illustrations of the power of directors. 126. More illustrations on this sub- ject. 127. Illustrations of a lack of power in directors. 128. When notes will be held to have been authorized by a board of directors. 129. Waiver by directors of their power to repudiate a con- tract. 180. Power of trustees of a corpora- tion. 131. Power of officers of a corpora- tion to employ attorneys. 182. When officers may use bonds as collateral. 138. When the execution of a note is not authorized. 184. Execution of promissory notes and transfer of choses in action. 185. Notes signed by officers of cor- poration. 186. Power of bank officers. 187. Power of a bank cashier. 188. When the authority of ita cashier cannot be questioned by a bank. 139. Indorsement of a draft by cashier and president of a bank. 140. Power of a treasurer of a sav- ings bank. 141. Power of officers of mining corporations. 142. General rules as to the power of a president. 143. Rule as to evidence in such cases. 144. Power of president as to trans- fer of assets. 145. When a president's act is bind- ing. 146. Illustrations of the power of a president. 147. Illustrations of a lack of power. 148. What would show the author- ity of a president. 149. Question of authority for the jury. 150. Power of a president as to exe- cution of notes. 151. In what cases the authority of a president may not be ques- tioned. 152. Giving a judgment note New Jersey. 158. The same subject Illinois. 154. Where contract of purchase in- cludes giving a judgment note. 155. What raises a presumption of authority. 156. Power of officers acting con- jointiy. 142 POWER OF AGENTS AND OFFICERS. 157. An illustration on this subject. 158. One holding several offices. 159. Note executed by a secretary. 160. Power of superintendents, etc. 161. A manager's power. 162. Manager of a foreign corpora- tion. 163. Authority of a manager. 164. What is not within the duties of a cashier of a corporation. 165. Auditing board of a corporation. 166. Power of a treasurer generally. 167. Power of a treasurer as to trans- fer of a note. 168. Power of a treasurer as to exe- cution of a note. 169. Authority of a treasurer to bor- row money by means of ster- ling contracts. 170. Power of a treasurer to indorse in name of corporation a note for accommodation. 171. Power of a treasurer to indorse a note of another corporation. 172. When a corporation will be bound by a note executed by its treasurer. 173. When a corporation is bound by acts of its treasurer. 174. When a corporation will not be bound by the act of its treas- urer. 175. Another illustration of such a case. 176. When contracts of a chief en- gineer will bind a railroad corporation. 177. Ratification by corporation of agent's acts general rules. 178. Modes of ratification. 179. Illustration of ratification of conduct of agent. 180. What does not amount to a ratification. 114. Agency in general. A corporation can only act through a duly authorized agent or committee. 1 Authority may be conferred by a single resolution of the directors for action in a class of cases as well as by a separate resolution in each case.* Though a corporation must, in general, act through its common seal, yet it may appoint an agent whose acts, within the sphere of his powers, do not require any such appendage to impart to his acts validity. 8 The powers of an agent of a corporation are such as he is allowed by the directors or managers of the corporation to exercise within the limits of the charter. The silent acqui- escence of the directors or managers may be as effectual to clothe the agent with power as an express letter of attorney. 4 A cor- poration will be bound by a promissory note executed by its agent should he act within the sphere of his power or his act be subsequently ratified. 5 An agent of a corporation acting within the scope of his authority may bind his principal in the same way 1 Merchants' Union Barb Wire Co. v. Rice, (1886) 70 Iowa, 14; s. c., 28 N. W. Rep. 494. * Elwell v. Dodge, 33 Barb. 336. 'Everett v. United States, (1837) 6 Port. (Ala.) 166; citing Bank of Colum- bia . Patterson, 7 Cranch, 299; Me- chanics' Bank of Alexandria v. Bank of Columbia, 5 Wheat. 326; Fleckner v. United States Bank, 8 Wheat. 339, 358. Olcott e. Tioga R R. Co., 27 N. Y. 546. 6 Butts v. Cuthbertson, 6 Ga, 166, 114] PRIVATE CORPORATIONS. 143 X as if he were the agent of a natural person unless the charter expressly provides otherwise. 1 Should an agent of a corporation having authority to execute a mortgage and affixes to one he executes anything which the law recognizes as a seal when affixed by a natural person, it will be presumptively a good execution by the corporation. 2 A contract in writing may be binding on a corporation though a private seal of one its officers be used instead of the corporate seal, and though no record may be found authorizing the officer to make the contract if proven by other evidence that he had such authority or that the corpora- tion ratified his act afterwards. 8 The authority of an agent to bind a corporation by a contract for borrowing money may be inferred from proof of the character of the agency, the acts of the agent and the knowledge of the officers and directors of his iiabit to make similar contracts and their acquiescence in the same and the fact of the money being applied to the use of the corporation. 4 Whatever the purpose of the agency, an agent of a corporation may be appointed without the use of a seal. 5 The appointment of an agent by a corporation may be inferred from the permission, or acceptance, of his services. 6 If one has long acted in the capacity of managing director of a corporation with- out objection, and his services as such have been invariably accepted, it matters not, as against strangers, whether or not he has received a specific appointment to such position from the directors. 7 It is not necessary that the authority be given by a formal vote in matters where the acts of the agent of a corpora- tion in the transfer of personal property require no formal instrument under seal, as in the sale or mortgage of personal 1 City of Covington r. Coviugton & vote entered upon their record book. Cincinnati Bridge Co., (1873) 10 Bush they appointed an agent to execute a (Ky.), 09. mortgage deed of real estate to secure Johnston c. Crawley, 25 Ga. 310. a creditor. The appointment of the 1 Eureka Company . Bailey Com- agent, though not otherwise evidenced pany, (1870) 11 Wall. 488. or authenticated by the corporate seal, 4 Allen t>. Citizens' Steam Naviga- was held valid for the purpose in- lion Co , 22 Cal. 28. In Savings tended. See, also, Beck with r. Wind Bank of New Haven r. Davis, 8 sor Manufacturing Co., 14 Conn. 603. Conn. 201, it appeared that the * Fitch r. Lewistou Steam Mill Co., directors of a corporation, by the 80 Me. 84; s. c., 12 Ail. Hep. 782. charter, had the power of disposing of Burgess r. Pue, 2 Gill (Md.), 254. ita property and of appointing such ' Walker r. Detroit Transit R. Co., agents as should be requisite for per- 47 Mich. 888; 8. c., UN. W. Rep. forming ita business, and that, by a 187. POWER OF AGENTS AND OFFICEES. [ 114 property. 1 The authority of an agent of a private corporation to bind it by a contract for borrowing money may be shown without proof of a resolution of the managing board directly con- ferring the authority or of any formal ratification of the contract by such board. His authority may be inferred from proof of the character of the agency, of the acts of the agent or other knowledge of the officers and directors of such habit to make such contracts and their acquiescence in the same and the fact of the money being applied to the use of the corporation. 2 The authority to an agent of a corporation to contract in its behalf, either under seal or otherwise, need not be conferred at a meet- ing of the directors unless that is the usual mode of their doing such an act. Should the board adopt the practice of giving assent to the execution of contracts by their agents, assent so given is of the same force as if done at a regular meeting of the board. 3 Where an act of incorporation does not require that the appointment of an agent of the corporation shall be by written instrument, and it does not appear to have been so made, the appointment may be proved by parol. 4 It is not necessary to enter on the minutes of a corporation a vote or resolution of the directors appointing an agent. His appointment may be infer- red from the permission or acceptance of his services by the cor- poration. 5 The appointment as well as the authority of an agent of a corporation may be implied from the adoption or recognition 'Fitch v. Lewiston Steam Mill Co., mouth n. Koehler, 35 Mich. 22. As 80 Me. 34; s. c., 12 Atl. Rep. 732. to proving by parol evidence their As to formally authorizing the acts official capacity, see Cahill v. Kal. of officers being or not being neces- Mut. Ins. Co., 2 Douglass (Mich.), sary, see Calvert v. Idaho Stage Co., 124; Druse v. Wheeler, 22 Mich. 439. (1894)25 Or. 412; s. c., 36 Pac. Rep. 4 Hamilton v. New Castle & Dan- 24; Brown t>. Grand Rapids Parlor ville R. R. Co., (1857) 9 Ind.359; Rich- Furniture Co., 58 Fed. Rep. 286; s. c., ardson v. St. Joseph Iron Co. , 5Blackf. 70. C. A. 225; Burch v. Paper Co., (Ind.) 146; Madison v. Ross, 3Ind. 236 141 111. 519; s. c., 31 N. E. Rep. 420. Cincinnati, etc., Co. v. Clarkson. 7 Ind. 9 Allen v. Citizens' Steam Naviga- 595; Jones v. Milton, etc., Co., 7 Ind. tion Company, (1863) 22 Cal. 28. 547. 'Bank of Middlebury v. Rutland & 5 Burgess v. Pue, 2 Gill (Md.), 254; Washington R. R. Co., 30 Vt. 159; Warren V. Ocean Insurance Co., 16 Me. Stark Bank t. U. S. Pottery Co., 34 439; Jones, Admr., etc., u. Trustees Vt. 144; State ex rel. Page v. Smith, Florence Wesleyan University, 46 Ala. 48 Vt. 266. As to appointment of 626; State Bank v. Comegys, 12 Ala. agents of corporations by parol, see 772. Jhons v. People, 25 Mich. 499; Tay- 115] PRIVATE CORPORATIONS. 145 of his acts by the corporation. 1 So, also, from the course of deal- ing and from contemporaneous and subsequent acts on the part of the corporation. 3 An agent of a corporation will not be per- sonally liable upon a contract in his own name under seal with another person where, in the body of the contract, it is stated that the agent contracted in behalf of the body corporate. 8 115. Rules as to an agent's acts. The power of an agent of a corporation, unless otherwise shown, will be limited to the business of the corporation, connected with or relating to the object and design of the charter of the corporation. 4 And he can only make such contracts as the corporation can lawfully make. 8 If the acts of an agent of a corporation are some within, and some beyond, the corporate powers, the corporation may ratify his acts so far as they were within its powers. 6 Agents of a corporation are not required, by any rule of the common law, to act by deed in behalf of their principals, where they might act themselves by parol. 7 Though not reduced to writing, their contracts bind a corporation. 8 Wherever a corporation is acting within the scope of the legitimate purposes of its institution, all parol contracts made by its authorized agents are express promises of the cor- poration ; and all the duties imposed on them by law, and all benefits conferred at their request, raise implied promises, for the enforcement of which an action will lie. 9 The acts of agents of corporations, within the ordinary line of their duty, bind corpora- tions without any formal vote. 10 The name of the corporation as 1 Kiley v. Forsee, (1875) 57 Mo. 890; Bangor Boom Corporation t>. Whit- Southgate t>. Atlantic & Pacific R. R. ing. (1848) 29 Me. 123. Co., (1875) 61 Mo. 89. As to imply- ' Buncombe Turnpike Co. . McCar- ing an agency for a corporation son, 1 Dcv. & Bat. (N. C.) 300. from facts and circumstances, see 'City Bank of Baltimore . Bate- Northern Central Ry. Co. . Bastian, man, 7 H. & J. (Md.)104; Union Bank 15 Md. 494. t>. Ridgely, 1 H. & Q. (Md.) 826. 1 Washington Mut. Fire Ins. Co. t>. *Bank of Columbia t>. Patterson, St. Mary's Seminary, (1873) 52 Mo. 7 Cranch. 299, 306; Eastman t>. Coos 480. Bank, 1 N. H. 23; Smith t>. Nashua & McDonough t>. Templeman, 1 H. Lowell Railroad, 27 N. H. 88; Olid- &J. (Md.)156. den . Unity, 33 N. H. 571; Great 4 Pennsylvania, Del. & Maryland Falls Bank r. Farmington, 41 N. H. Steam Navigation Co. t. Dandridge, 8 83; Andover t>. Kendrick, 42 N. H. G. & J. (Md.) 243. 824. Downing p. Mount Washington lo Foot t. Rutland & Whitehall R. Road Co., 40 N. H. 280. R. Co., 82 Vt. 688. As to acts of 19 146 POWER OF AGENTS AND OFFICERS. [ 116 the contracting party should be in the body of the contract, where an agent would bind the corporation only in making a contract in its behalf, and the agent should sign it as agent or officer. 1 A committee appointed by a corporation, having made a settlement of matters between the corporation and third par- ties, and it appearing that the corporation had received the check of the third party from its committee, it has been held was suffi- cient to justify the trial court in submitting the question of rati- fication of the committee's action by the corporation to the jury. 2 An attorney at law representing a corporation in a suit in the courts, must have special authority to compromise the same. But, in case he makes such a compromise, the facts of which may be known to the officers of the corporation intrusted with its affairs, and they frequently advise with the attorney about the matter, and make no objection to it, and the corporation accept the benefit of the compromise, as by receiving the money agreed to be paid it, this would amount to a ratification of the attorney's acts. 3 Authority to give a negotiable promissory note for the amount advanced is not included in an authority to advance money for a corporation. 4 A corporation will not be bound by the acts or knowledge of one of its officers in a matter in which he acts for himself and deals with the corporation as if he had no official relations with it. 5 116. To what the powers conferred on agents may be extended. The authority to give to the lender of money bor- agents of corporations being done in Guttschlick, 14 Pet. 19; Bank of U. 8. the line of such agency in order to v. Dandridge, 12 Wheat. 67; Bank of bind the corporations, see Queen v. Sec- Columbia v. Patterson, 7 Cranch, 299; ond Ave. R. R. Co., (1872) 35 N. Y. Fleckner v. U. 8. Bank, 8 Wheat. 339. Super. Ct. 154. There can arise no pre- ' Hamilton v. New Castle & Dan- sumption that an agent Las authority to ville R. R. Co., (1857) 9 Ind. 359; transact business, which the corpora- Hankins v. Shoup, 2 Ind. 342. tion is not authorized by its charter to 2 Merchants' Union Barb Wire Co. engage in. Alexander n. Cauldwell, v. Rice, (1886) 70 Iowa, 14; a. c., 28 (1881) 83 N. Y. 480. As to corporations N. W. Rep. 494. being bound by the acts of their agents a Wetherbee v. Fitch, (1886) 117 111. made in the ordinary discharge of 67; s. c., 7 N. E. Rep. 513. their duty, though not authorized, or * Webber v. Williams College, (1839) executed, under corporate seal, see 23 Pick. 302. Mechanics' Bank v. Bank of Columbia, 5 Platt v. Birmingham Axle Co., 5 Wheat. 326; Fanning v. Gregoire, (1874) 41 Conn. 255. 16 How. 524; Bank of Metropolis v. 11*! | PRIVATE CORPORATIONS. 147 rowed, or to the seller of things purchased, the ordinary securities of a corporation is included in a general power conferred upon an agent of a railroad corporation to borrow money on its behalf, in sucii sums, for such length of time and at such a rate of interest as he may think proper, and to purchase iron rails, locomotives, machinery, etc., as he may deem advisable, and, in order to do so, to make, execute and deliver obligations, bills of exchange, contracts and agreements of the corporation. 1 And the authority from a corporation to an agent to give a company "note" has been held to authorize drawing a bill of exchange on a person who had no funds, and where the company would not by law be chargeable with damages on dishonor. 2 While a factor employed by the general agent of a corporation to sell its manufactured goods and to purchase stock has power to buy on credit, he is not authorized to give the note of the corporation for the purchases he makes on its account. 8 An agent of a manufacturing corpora- tion was empowered by its by-laws to manage the affairs of the corporation committed to his care, and to exercise the powers committed to him according to his best ability and discretion, and promptly to collect all assessments and other sums that should become due to the corporation, and to disburse them according to the order of the board of directors, who were made a board of control over him. The Supreme Court of Judicature of Massachusetts held that the agent, the board of directors not interposing to control his proceedings, had authority to employ workmen to carry on the business of the corporation, and to pay them with its funds, or, not being in funds, to give the notes of the corporation in payment. 4 An agent of an incorporated manu- facturing company, authorized by its by-laws to raise money and create liability on its part, may also waive demand and notice on a note indorsed by such company, and this, too, after the note has been negotiated. He may waive demand and notice to pro- cure delay of payment of the note and bind the corporation, although, in procuring delay, he may also be the agent of the maker. And the fact that he agreed to pay more than the legal rate of interest for such delay would prevent a recovery against 1 Hatch t?. Coddington, (1877) 95 U. Emerson r . Providence Hat Manu- 8. 48. factoring Co., (1815) 12 Mass. 237. 'Trippr. Swanzey Paper Co., (1882) 4 Bates c. Keith Iron Co., (1848)7 18 Pick. 291. Met. 224. 148 POWER OF AGENTS AND OFFICERS. [ 117 the company, upon their indorsement, of the amount legally due. 1 117. Illustration of the binding force of an agent's acts. In a New York case it appeared that the president of a Pennsylvania corporation, a coal company, was, during all the time of the transactions involved in the action, the actual manager of the business of the corporation, and, with the nominal treasurer of the corporation, owned all its stock, except a few shares held by persons employed in the office of the company, sufficient to qualify them for directors, and thus to make and maintain a corporate organization. As president, he drew the drafts and indorsed the checks and other commercial paper of the company, and directed all the financial affairs of the corporation with the knowledge of the other directors and stockholders. The com- pany's business, the sale of coal mined by them, for cash and on credit, at wholesale and retail, was quite large in one of the cities of New York. The president of the coal company addressed a letter to the president of a bank it that city informing him that a certain person was " the authorized agent of the [corporation] for the sale of its coal at [that city]," and then added : " Any paper he may take for coal sold for said company he is authorized to indorse as the agent of said company, and get it discounted at your [the Marine] bank, and that any and all such paper so indorsed which you may discount for him the said company will see paid. " [Signed by] [his name], President" This was an action by the bank against the company on its indorsement of a number of these notes discounted by it, which were not paid by the makers, and for an overdraft made by this agent. The Supreme Court of New York, in General Term, sustained the conclusion of a referee in the suit awarding a recovery to the bank. 2 'Whitney v. South Paris Manufac- dorse them for the defendant. The turing Co., (1855) 39 Me. 316. letter [above quoted] gave the [bank] * Marine Bank of Buffalo T. Butler notice of [his] authority as agent of Colliery Co., (1889) 52 Hun, 612; the defendant to sell its coal at Buffalo, 8. c., 5 N. Y. Supp. 291. Arguendo, to take notes for coal sold, to indorse it was said: "The notes were evi- such notes for the defendant and to dently discounted by the [bank], procure their discount at the [bank], relying upon the apparent au- The authority of [the writer] to write thority of Hubbell, the agent, to in- the letter and to bind the defendant 118] PRIVATE CORPORATIONS. 149 118. Power of general agents. A general agent of a cor- poration has power to direct and control its general business, to make contracts which will bind the corporation in the ordinary course of its business, and to borrow money for such purpose on thereby is clearly established by the undisputed evidence of the manner in which the business of the corporation was conducted. During all the years covered by the transactions in question the president of the corporation was permitted to be, and to hold himself out to the world as being, the general manager and director of its business. The act in question was within the scope of the authority thus practically accorded to him, and the defendant cannot set up its by-laws, never pub- lished to the world and habitually dis- regarded by itself, as countervailing the authority thus publicly conferred. Martin v. Niagara Falls Paper Manu- facturing Co., (1887) 44 Hun, 130, 138; Martin v. Webb, 110 U. 8. 7; 8. c., 8 Sup. Ct. Rep. 428. That the notes were within the terms of the letter has been found by the referee on un- disputed evidence. They were given for coal sold by the agent for the de- fendant. That some of them were taken in renewal of notes given when the coal was sold, does not change the character of the indebtedness, nor of the evidence of it. Moreover, the [bank] had a right to rely on the rep- resentations of the agent, not of the existence of his authority to procure discounts, but that the notes offered by him for discount were within the scope of that authority, and the [cor- poration] is estopped to deny th.-it those representations were true. Bank of Batavia t>. New York, L. E. & \V. Railroad Co., 106 N. Y. 195; 8. c., 12 N. E. Rep. 433. In that cast- th.- court says: 'It is a set tied doctrine of the law of agency in this state that where the principal has clothed his agent with power to do an act upon the existence of some extrinsic fact necessarily and peculiarly within the knowledge of the agent, and of the existence of which the act of execut- ing the power is itself a representation, a third person, dealing with such agent in entire good faith, pursuant to the apparent power, may rely upon the representation, and the principal is estopped from denying its truth to his prejudice.' In this case the extrin- sic fact that the notes were given for coal, upon which the authority of the agent depended, and which were solely within his knowledge, was represented not only by the presentation of the notes for discount, but by the repeated assurances of the agent that he never did and never should present notes of any other character. The fact that the indorsements were made in the name of E. 8. Hubbell, agent of the Butler Colliery Company, and not in the name of the corporation by E. 8. Hub- bell, agent, though not strictly con- fined to the language of the authority, was within its spirit and intent, and was ratified by a long course of dealing on the part of the [corporation], with, full knowledge of the manner in which the business was done, and with full enjoyment of the fruits of the transac- tion." A counterclaim on the part of the corporation for moneys received by the bank from the corporation's agent and afterwards drawn out and, as was alleged, misappropriated by him, was also disallowed by the referee below. The court said: " The same principles [applied to support this disallowance]. The authority of the agent to open and maintain the account with tho [bank] and to draw against it for thn purposes of bis agency, being estab- 150 POWER OF AGENTS AND OFFICERS. [ 118 its credit. 1 But such a general agent, though clothed with the power to contract debts and borrow money on the credit of the corporation, has no power, in virtue of such an agency merely, to make a mortgage on the property of the corporation, real or per- sonal. 3 An agent appointed by the directors of a corporation to superintend and carry on its business, has no power, as such agent, to pledge or mortgage the machinery used by the corpora- tion for the security of a loan. 8 A director may act as the agent of a corporation, with the knowledge of the board, and independ- ently of his duties as director, and his acts will bind the corpora- tion. 4 Corporations may be bound by contracts of their general agents clearly within the scope of their employment, but no fur- ther. 5 The general agent of a corporation is not authorized to give its note for a debt due from a previous unincorporated com- pany to which the corporation succeeded. 6 An agent of a cor- poration, performing the daily routine of his business, under the supervision and control of a board of directors, would not be authorized, as agent, to create a lien upon the entire property of the corporation to secure advances of money to it. 7 Managing officers of a corporation may, without an express delegation of power, or a formal resolution to that effect, employ attorneys to represent the corporation in litigation, or for counsel in its busi- ness affairs. 8 The general agent of a corporation organized for lished by the letter of authority and 4 Holmes v. Board of Trade, (1883) 81 the course of dealing between the Mo. 137. parties, the [bank], in the absence of 5 Odiorne v. Maxcy, (1816) 13 Mass. notice to the contrary , or of facts to 178. put it upon inquiry, had the right to 6 White v. Westport Cotton Manu- assume that the acts of the agent in facturing Co. , (1822) 1 Pick. 215. this connection were what they pur- 7 Whitwell v. Warner, 20 Vt. 425. As ported to be, viz., in the execution of to power of managing agents, see Stow his power as agent. The [bank] was, v. Wyse, 7 Conn. 214, 219; Hawtayne. therefore, entitled to credit for all Bourne, 7 Mees. & W. 595; Life & Fire moneys drawn by the agent in the Ins. Co. v. Mech. Fire Ins. Co., 7 ordinary course of the business and Wend. 31; Knight v. Lang, 4 E. D. apparently within the scope of his Smith, 381; Benedict v. Lansing, 5 authority as agent." Denio, 283; Torrey v. Dustin Monu- 1 Stokes v. New Jersey Pottery Co. , ment Assn., 5 Alien, 329; Despatch (1884) 46 N. J. Law, 237. Line of Packets v. Bellamy, 12 N. H. * Stow v. Wyse, 7 Conn. 214; C. & N. 205, 228; Luse v. Isthmus Transit Ry. R. R. Co. v. James, 24 Wis. 388. Co., 6Oreg. 122. 8 Despatch Line of Packets v. Bel- 8 Southgate v. Atlantic & Pacific R. lamy Manufacturing Co., 12 N. H. 205. R. Co., (1875) 61 Mo. 89. 119] PRIVATE CORPORATIONS. 151 / purchasing timber land, converting tin- timlx-r into lumber and selling it, and for carrying on a trading establishment, has an implied power from the nature of his business to give the nego- tiable note of the corporation in payment for labor ia getting out such lumber. 1 119. When the authority ot a general agent will not be implied. A corporation engaged in a mining business in Michi- gan had its financial office in New York. Its general agent in Michigan was accustomed to indorse the company's paper for collection or discount, and to draw on the treasurer in New York for the current needs of the corporation, and his drafts were duly paid. He executed several notes in the name of the corporation. In an action upon these notes it was held by the Supreme Court of Michigan that a general agent, without being specially empowered so to do, had no authority to make notes in the name of his principal. Also that the facts stated above as to what he 1 Tappan . Bailey. (1842) 4 Met 529. Jury, 44 La. Ann. 803; 8. c., 11 So. As to power of officers and agents to Rep. 236; Smith v. Car Heater Co., 64 niiikc; contracts, see Blanding r. Da- Hun, 639; Glover t>. Lee, (1891)140111. venport, I. & D. R. Co., (1894) Iowa", 102; a c., 29 N. E. Rep. 680; Matson 55 N. W. Rep. 81; Curnan v. Delaware v. Alley, (1892) 141 111. 284; a c., 81 N. & O. R. Co., 138 N. Y. 480; s. c., 34 E. Rep. 419, affirming 41 111. App. 72; N. E. Rep. 201; National Cordage Co. Hamm r. Drew, 83 Tex. 77; Johnson r. Pearson Cordage Co., 55 Fed. Rep. r. Switch Co., 59 N. Y. Super. Ct. 812; Huntsville Belt Line & M. 8. Ry. 169; Koch t>. Association, 137 111. 497; Co. t>. Corpening. (1892)97 Ala. 681; B. a c., 27 N. E. Rep. 530; Bank of At- c., 12 So. Rep. 295; Moore*. H. ticac. Manufg. Co., 49 Hun, 608; Bank Oans & Sons' Manufg. Co., (1892) 113 of Yolo r. Weaver, (Cal. 1893) 31 Pac. Mo. 98; s. c., 208. W. Rep. 975; Nich- Rep. 160; Tradesmen's Nat. Bank r. ols. Scranton Steel Co., 137 N. Y. Lumber Co., 64 Hun, 635. That offl- 471; 88 N. E. Rep. 561; Teitig r. Boes- cers of a corporation are special and man, 12 Mont. 404; a c., 81 Puc. Rep. not general agents of the corporation, 871; Thompson P. Stanley, (N. Y. and their powers being limited by the Super. Ct. 8p! T. 1892) 20 N. Y. charter and by-laws, see Adriance r. 8upp. 317; Chemical Nat. Bank t. Roomc, 52 Barb. 399. As to their Wagner, (Ky. 1894) 20 S. W. Rep. 535; power to bind it within the scope of Levey*. New York Central & Hudson their authority, see Alexander*. Brown. River R. Co., 24 N. Y. Supp. 124; 9 Hun, 041. As to power of an agent Humes r. Decatur Land Improvement of a joint-stock corporation formed & Furnace Co., (1898) 98 Ala. 461; a r., under the laws of Connecticut, see 18 So. Rep. 868; Tuller r. Arnold, Wood t>. Wiley Construction Co., (Col. 1894) 88 Pac. Rep. 445; Reynolds (1887) 56 Conn. 87; & c., 18 All. Rep. & Henry Construction Co. r. Police 187. 152 POWER OF AGENTS AND OFFICERS. ($120 was accustomed to do in the business could not imply authority in him to make such notes. 1 120. Power of officers generally. Where persons are named in the statute of incorporation who may bind the corpora- tion, no others can act as the agents of the corporation in the par- ticulars designated in the statute. 2 While the records of a cor- poration are the best evidence as to who its officers are, it may be shown by parol that one was an agent of the corporation and what his duties as such were. 8 Powers may be conferred upon Mountain Nat. Bank, 1 Colo 531; 2 Colo. 565, 570; In re German Mining Co., 19 E. L. &E. 599; Hawtayne v. Bourne, 7 M. & W. 595; Carpenter v. Biggs, 46 Cal. 91; Lawrence v. Geb- hard, 41 Barb. 575; Sewanee Mining Co. r>. McCall, 3 Head, 619; Silliman n. Fredericksburg, O. & C. R. R, 27 Gratt."l20; Emerson v. Providence Hat Co., 12 Mass. 237; Hammond v. Mich- igan State Bank, Walk. Ch. (Mich.) 214; Grover & Baker Sewing Ma- chine Co. P. Polhemus, 34 Mich. 247, 249; Reynolds v. Continental Ins. Co., 36 Mich. 131; Lyell . Sanbourn, 2 Mich. 109; Marquette & Ontonagon R. R. Co. v. Taft, 28 Mich. 289; Kal. Nov. Mfg. Co. n. McAlister, 36 Mich. 327. As to corporations authorizing agents to make or indorse notes, see Olcotte. Tioga R. R., 40 Barb. 179; Melledge v. Boston Iron Co., 5 Gush: 158; Whiter Westport Cotton Mfg. Co.,1 Pick. 215, 219; Odiornea. Maxcy, 13 Mass. 178; Kelly v. Fall Brook Coal Co., 4 Hun, 261; Sedgwick . Lewis, 70 Pa. St. 217; Pahlman v. Taylor, 75 111. 629; Bird v. Daggett, 97 Mass. 494; Bridgeport City Bank v. Empire Stone Dressing Co., 30 Barb. 421; Central Bank T>. Empire Stone Dressing Co., 26 Barb. 23. * Landers v. Frank St. Meth. Epis. Ch. of Rochester, 97 N. Y. 119. 3 Leekins n. Nordyke & Marmon Co. , (1885) 66 Iowa, 471; a. c., 24 N. W. Rep. 1. 1 New York Iron Mine v. First National Bank of Negaunee, (1878) 39 Mich. 644. COOLET, J. , in the opinion, said upon the subject: "It was not disputed by the defense that the cor- poration had power to make the notes in suit. The question was whether it had in any manner delegated that power to [its general agent]. We cannot agree with the plaintiff that the mere appointment of general agent confers any such power. * * * In McCullough v. Moss, 5 Denio, 567, the subject received careful attention, and it was held that the president and sec- retary of a mining company, without being authorized by the board of directors so to do, could not bind the corporation by a note made in its name. Murray v. East India Co., 5B. & Aid. 204; Benedict v. Lansing, 5 Denio, 283, and The Floyd Accept- ances, 7 Wall. 666, are authorities in support of the same view. The plain- tiff, then, cannot rest its case on the im- plied authority of the general agent; the issuing of promissory notes is not a power necessarily incident to the conduct of the business of mining, and it is so susceptible of abuse, to the injury, and indeed, to the utter de- struction, of a corporation, that it is wisely left by the law to be conferred or not as the prudence of the board of directors may determine." See, also, Tripp tJ. Swanzey Paper Co., 13 Pick. 293; Union Gold Mining Co. r. Rocky 120] PRIVATE CORPORATIONS. 153 the officers of a corporation by a course of conduct of the corpo- ration with its officers and the public which they would not have as such officers but for the usages of the corporation. 1 A corpo- ration will be bound by the acts of one of its officers performed at his office, and where they have been numerous and long con- tinued this justifies a presumption that they were done under instructions of the managers of the corporation. 3 Courts of equity will not interfere with the actions of officers of corporations who may be vested with discretionary powers by statute to correct mere errors of judgment, the power conferred not having been illegally nor unconscientiously executed. 8 One owning a majority of the stock of a corporation cannot act for the corporation in selling leases, for instance, that it may own, unless specially authorized, as a corporation can only act through its officers or by expressly delegating power to others. 4 One openly and notoriously exercising the functions of a particular agency of a corporation will be presumed to have sufficient authority from the corporation to so act. 5 The authority of an officer of a cor- poration to make a contract in its behalf may be inferred from the fact of the corporation's knowing that he is making such contract, and that it availed itself of whatever benefit arose from the contract. 8 A corporation will be liable upon contracts made by its officers and agents with other persons if these officers or agents, in their negotiations, so act as to induce the persons with whom they make such contracts to believe that they are acting for the corporation, notwithstanding the fact that they were in reality not acting for it. 7 Officers of a corporation have no power to bind the corporation as surety for their private debts. 8 A corporation will not be bound by the release of a debt given to a 1 Winsor r. La Fayette County Bank, t>. Billups, 35 Miss. 618; Parish r. (1885) 18 Mo. App. 665. Wheeler, 22 N. Y. 494; Noyes t. R. & Beers t>. Phoenix Glass Co., 14 B. R. R. Co., 27 Vt. Ill; Bissell t>. M. Barb. 358. 8. & N. I. R. R. Co., 23 N. Y. 258; Philips v. Wickhnra. 1 Paige, 590. Perkins r. Portland, Saco & Ports- 4 Hopkins r. Roscclarc Lead Co., mouth R. R., 47 Me. 590; Barry r. (1874)72111.373. Merchants' Exchange Co., 1 Sandf. 1 Singer Manufacturing Co. t>. Hold- Ch. 280. 289; Goodwin t>. Union Screw fodt, (1877) 86 111. 455. Co., 84 N. II. 878. Chicago Building Society e. Crow- 1 Wilson Sewing Machine Co. r. HI, (1872) 65 111. 458. citing Bradley P. Boyington, (1874) 78 111. 584. Ballard, 55111. 418, 417; Bufflt*. Troy & Culver t>. Real Estate Co., 91 Pa. Boston R R Co., 86 Barb. 420; Abby St. 867. 20 154 POWER OF AGENTS AND OFFICERS. [ 121 debtor by one of its officers without authority. 1 A corporation cannot be bound by the act of an officer in a case where he pro- fesses to represent only himself and to deal with the corporation as if he had no official relation to it. 2 Under a resolution of the directors of a corporation, directing its officers to use certain notes in liquidating the liabilities of the corporation, the officers may give such notes as collateral security with the note of the corpo- ration itself in payment of its debts. 8 The long usage of officers in issuing stock in exchange for the debt of a corporation for more than two years after the resolution of the board giving them the power had been rescinded, has been held to have implied an authority to make the exchange as effectually as an express reso- lution. 4 A corporation will not be bound by the declarations of its secretary as to the amount due on a mortgege held by it unless it be shown that the secretary had authority to bind it. 5 121. The same subject continued. The president of a corporation will be authorized to purchase the materials to be used in the business of the corporation, and to borrow money for it and give its note for the money borrowed, by a vote of the directors clothing him with full power and control of its business. 6 Where a contract is one which the board of a corporation has power to authorize its president to make or ratify it after it has been made, the burden, if it is claimed to have been unauthor- ized, is on the corporation to show that it was not authorized or ratified by its board. 7 A manufacturing corporation cannot be 1 Land Co. v. Sloan, 109 Pa. St. can sanction or ratify. Forbes . San 532. Rafael T. Co. , 50 Cal. 340. As to a note * Winchester v. Baltimore & Sus- signed by president and secretary, see quehanna R. R. Co., 4 Md. 231. Duggan v. Pacific Boom Co., (Wash. 3 Brookman v. Metcalf, 5 Bosw. 1893) 34 Pac. Rep. 157. As to a presi- 429. dent's authority, see Crowley v. Qene- 4 Lohman v. New York & Erie R. see Mining Co., 55 Cal. 273; Union R. Co., 2 Sandf. 39. Mut. Life Ins. Co. v. White, 106 111. 67. 5 Johnston . Building Associa- 7 Patterson v. Robinson, (1889) 116 tion, 104 Pa. St. 394. N. Y. 193; 8. c., 22 N. E. Rep. 372; 6 Castle v. Belfast Foundry Co. , 72 citing Bank of Vergennes . Warren, Me. 167. What is within the scope of 7 Hill, 91; Gillett v. Campbell. 1 Den. the business intrusted to a president of 520; Elwell v. Dodge, 33 Barb. 336; a corporation. Seeley v. San Jose In- Chemical National Bank v. Kohner, 85 dependent Mill & Lumber Co., (1881) N. Y. 189, 193; Smith v. Hull Glass 59 Cal. 22. What kind of a transaction Co., 11 C. B. 897, 9?9: Lee r. Pittsburgh a board of directors or stockholders Coal & Mining Co., 56 How. Pr. 373; 121J PRIVATE CORPORATIONS. 155 bound by a contract of one who is a stockholder and director and overseer of part of its business, to aid in the extension of a rail- road. 1 The treasurer of a savings bank, by virtue of his office merely, has no implied authority to transfer to a purchaser a promissory note belonging to the bank. 3 A vote of a newly- afflrmed in 75 N. Y. 601. See, also, Pattoson t. Ongley Electric Co., (1895) S7 I Inn, 462; 8. c., 84 N. Y. Supp. 209; citing Jourdan v. Railroad Co., 115 N. Y. 881; 8. c., 22 N. E. Rep. 153; Oakes p. Water Co., 148 N. Y. 430; 8. c., 38 N. E. Rep. 461. 1 New Ha veil & Northampton Co. . Hayden, (1871) 107 Mass. 525. As to authority of officers to make contracts, see Baker r. Harpster, 42 Kans. 511; 8. c., 22 Pac. Rep. 415; Western Union Tel. Co. v. Yopst, 118 Ind. 248; 8. c., 20 N. E. Rep. 222; Read v. Buffum, 79 Cal. 77; 8. c., 21 Pac. Rep. 555: Eureka Iron Works t. Bresnahan, 60 Mich. 332; 8. c., 27 N. W. Rep. 524; Merrill p. Consumers' Coal Co., 114 N. Y. 210; 8. c., 21 N. E. Rep. 155. Holden v. Upton, (1883) 134 Mass. 177. As to what authority, ex ojftcio, an officer has, see Farmers' Bank v. McKee, 2 Barr, (Pa.) 318; Hallowell & Augusta Bank r. Hainlin, 14 Mass. 178, 180; Crump v. United States Mining Co.. 7 Gratt. 352. Where it would not be assumed that the treasurer of a board of trustees of a corporation had no authority to make an indorsement upon a note. Bayers r. First National Bank, (1883) 89 Ind. 230. In Blake r. Holloy, 14 Ind. 383, it was held that a corporation might authorize its proper officer to assign a note by delivery, and perhaps it would be within the general powers of officers of a railway corporation to assign, in such manner as they might deem expedient, its choses in action. In Schallard r. Eel River Steam Navigation Co., (1886) 70 Cal. 144; 8. c., 11 Pac. Rep. 591). it was held that a mortgage executed in the name of a corporation by its president and secretary and having the corporate seal attached, must be presumed to have been executed in pursuance of a due authorization to such officers, and the burden of proof was on the cor- poration to show the contrary. Also, that when- the circumstances sur- rounding the execution of the mort- gage showed the existence of proper resolutions of authorization and sup- ported the presumption of its authori- tative execution as shown by affixing the corporate seal, and the signatures of the proper officers, the mere fact that such resolutions did not appear in the proper book of the corporation was not sufficient to disprove their existence and invalidate the mortgage. See, also, Southern California Colony Association /. Bustamente, 52 Cal. 192-196. Where acts of officers and agents in making contracts have been held to bind the company. Powder River Live Stock Co. t. Lamb, (Neb. 1894) 56 N. W. Rep. 1019; Greig r. Riordan, 99 Cal. 816; 8. c., 33 Pac. Rep. 913; Carrigan p. Port Crescent Imp. Co., 6 Wash. 590; 8. c., 34 Pac. Rep. 148; Oro Mining & Milling Co. v. Kaiser, (1894) 4 Colo. App. 219; 8. c., 85 Pac. Rep. 677. Agreement of officers that will bind a corpora- tion. Outtcrson r. Fonda Lake Paper Co., 66 Hun, 629; . c., 20 N. Y. Supp. 980. When a note signed by the president, secretary and two direct- ors will be held to be the note of tin- corporation. In re Pendleton Hard ware & Imp. Co., (1893) 24 Ore. 880; s. (.. 38 Pac. Rep. 544. See, also, r. Hank, 54 N. J. Law. 208; Davis r. Lee Camp No. 1, C. V. (Vn. 1894) 18 8. E. Rep. 889; Cross r. 156 POWEK OF AGENTS AND OFFICERS. [ 121 formed manufacturing corporation contemplated the payment of royalties to and the purchase from an existing corporation in addition to tools and material of " all the other personal estate of said corporation, giving in payment therefor " a certain number of shares of stock in the new corporation to be issued to the president of the old corporation as trustee for the parties in interest, any balance of such shares remaining " after paying the liabilities " of the old corporation to be issued to the treasurer of the new corporation. A written contract, purporting to be made between the two corporations, was signed by their presidents, who were the principal creditors of the old corporation, by which the new corporation, in consideration of the transfer of all the stock, tools, materials and machinery of the old one, and of its agreement to license the new one under all its patents, agreed to pay, besides royalties, all the debts of the old corporation. No director or stockholder of the new corporation besides the presi- dent, knew anything of the particulars in which the contract departed from the terms of the vote. The Supreme Court of Massachusetts held, in an action on the contract, that there was no evidence for a jury of the authority of the president of the new corporation to make or sign the contract or of its ratifica- tion. 1 A corporation cannot be bound by a contract made by a promoter of the corporation in obtaining a subscription of stock before the organization of the corporation. But after its organi- Anglo- American Banking Co. (1894) mary A. U. B. v. Martin, 39 Kans. 79 Hun, 424; s. c., 29 N. Y. Supp. 750; s c., 18 Pac. Rep. 941; Griffith 960; Merchants & Farmers' Bank v. v. Chicago, B. & P. R. Co., 74 Iowa, Hervey Plow Co., 45 La. Ann. 1214; 85; s. c., 36 N. W. Rep. 901; Mer- s. c., 14 So. Rep. 139; Prindle v. chants' Nat. Bk. of Chicago v. Detroit Washington Life Ins. Co., 73 Hun, Knitting & Corset Works, 68 Mich. 448; s. c., 26 N. Y. Siipp. 474; Pren- 620; s. c., 36 N. W. Rep. 696; New tice v. United States & Central Ameri- York, P. & N. Ry. Co. t>. Bates, 68 can Steamship Co., 58 Fed. Rep. 702. Md. 184; s. c., 11 Atl. Rep. 705; Getty Whether or not the acts of officers or v. C. R. Barnes Milling Co., 40 Kans. agents bind the corporation. Stanley 281; s. c., 19 Pac. Rep. 617; East v. Sheffield, L. I. & C. Co., 83 Ala. Rome Town Co. v. Brower, 80 Ga. 260; 8. c., 4 So. Rep. 34; Whitaker v. 258; s. c., 7 S. E. Rep. 273; Bank of Kilroy, 70 Mich. 635; s. c., 38 N. W. Attica v. Pottier & Stymus Mfg. Co.. Rep. 606; Little v. Kerr, (N. J.) 14 49 Hun, 606; s. c., 1 N. Y. Supp. Atl. Rep. 613; Templin t>. Chicago, B. 483. & P. R. Co., 73 Iowa, 548; s. c., 35 N. Bi-spool Sewing Machine Co. v. W. Rep. 634; St. Louis, Fort Scott Acme Manufacturing Co., (1891) 153 & W. R. Co. tJ. Grove, 39 Kans. 731; Mass. 404. s. c., 18 Pac. Rep. 958; Topeka Pri- 122] PRIVATE CORPORATIONS. 157 zation the corporation may ratify it and be estopped from deny- ing its liability upon such a contract. 1 122. Power of directors general rules. The directors have control of the ordinary management of a corporation. 8 But a corporation cannot be bound by the acts of individual directors. 8 A board of directors may, under their power to make by-laws, delegate their authority to a quorum composed of less than H majority of their number, notwithstanding a declaration in the charter of the corporation that its powers shall be exercised by a board of directors, consisting of a specified numl>er. 4 A director who is permitted to act as such after he has sold all his stock in a corporation is a director de facto, and the proceedings of the board, in which he takes part, are valid as to third persons.* To bind a corporation by an express promise, the individual direct- ors must be authorized ; otherwise they have no power to bind it.' A corporation will be bound by the action of its directors, though acting separately, if in the usual sphere of directors. 7 The acts 1 Joy v. Manion, 28 Mo. App. 55. tracted by the corporators before in- See Fawcett c. New Haven Organ Co. , corporation, see Hutchinson t>. Surrey 47 Conn. 226, as to the circumstances Consumers' Gas Light & Coke Associ- under which a contract made by a sec- ation, 78 Eng. C. L. 689; White r. retary and treasurer was held not to Westport Cotton Co.. 1 Pick. 215: In bind the corporation. W hen contracts re The Independent Assur. Co., 30 L. made by officers are not binding on J. Rep. (Eq.) 222. corporation. Banks v. New York *Qenesee County Savings Bank t. Club, 68 Hun, 92; s. c., 22 N. Y. Michigan Barge Co., 52 Mich. 438; Supp. 727; Bank of New York t>. a C., 17 N. W. Rep. 790; 18 N. W. American Dock & Trust Co., (1893) Rep. 206. 70 Hun, 152; 8. c., 24 N. Y. Supp. 'Lockwood v. Thunder Bay River 406. For a full discussion on this sub- Boom Co., 42 Mich. 537; 4 N. W. Rep. Ject, see Edwards p. Carson Water Co., 292. (Nev. 1893) 84 Pac. Rep. 881. When Hoyt P. Thompson, 19 N. Y. 207. authority of officers to indorse a note Wile & Brickner Co. . Roch- of the corporation is shown. National ester & K. F. Land Co., (1898) 4 Bank of Battle Creek P. Mallan, (1887) Misc. Rep. 570; 25 N. Y. Sup-.,. 794. 87 Minn. 404; s. c., 84 N. W. Rep. See, also, Despatch Line of Packets . 901; First National Bank of Rock Bellamy Mimufg. Co., 12 N. H. 205; Island, Illinois, t>. Loyhed, (1881) 28 In re Mohawk & H. R. Co., 19 Wend. Minn. 896; 8. c., 10 N. W. Rep. 421; 185. Farmers' Nat. Bank of Valparaiso, Workhouse . Moore, 95 Pa. St. Ind., v. Sutton Manufacturing Co., 408. (1892) 52 Fed. Rep. 191; s. c., 6 U. S. 'Foot c. Rutland & Whitehall R. App. 812; 8 C. C. A. 1. As to corpo- R. Co., 32 Vt. 633. rations not being liable for debts con- 158 POWEB OF AGENTS AND OFFICERS. [ 122 of a board of directors of a corporation, evidenced by a written vote, as completely bind the corporation, and are as complete authority to its agents, as the most solemn acts done under the corporation seal. 1 The power of directors to bind a corporation by their contracts may be exercised by a majority of the board. It is not necessary that all the doings of a board of directors should be entered on their records. The corporation will be bound by any verbal order or direction, in which a majority of the board concurs in relation to any matter of business intrusted to them. 2 An act purporting to be the act of a board of directors at a meeting of such board may be presumed to be the act of a majority of the board, unless shown to the contrary. 3 Other circumstances proving the consent of directors to a contract, it is not necessary, to bind the corporation, that the records of the board should disclose a formal vote of the directors. 4 The power placed by a charter in the directors cannot be limited by a by-law of a corporation. 5 A charter of a corporation providing that the president is entitled to all the powers and privileges of a director, and requiring seven directors to make a quorum, the president and six directors would constitute such a quorum. 6 In the absence of a special provision in a charter of a corporation upon the subject, less than a majority of the board of directors have no power to transact business. Their acts are absolutely void and the corporation cannot ratify them. 7 That it is provided in a charter of a corporation that a majority of the directors pres- ent at a regular meeting would be competent to decide on all business, is not a declaration that a minority of the directors, however email, may act as a board. 8 There is no power in the directors oi a corporation to bind it by an agreement for extra 'Campbell v. Pope, (1888) 96 Mo. 4 Nashua & Lowell Railroad Co. v. 468; a c., 10 8. W. Rep. 187. Boston & Lowell R. R. Co., 27 Fed. * Cram v. Bangor House Proprietary, Rep. 821. (1835) 12 Me 354 In Trott v. Warren, Union Insurance Co. v. Keyser, 32 (1834) 11 Me. 227 it was held that a N. H. 313; Campbell v. Merchants contract, made by a minority of a & Farmers' Insurance Co., 37 N. H. committee of a corporation, and not 35. assented to by a majority, nor by the Bank of Maryland v. Ruff, 7 Q. & corporation, was not valid. J. (Md.) 448. Despatch Line of Packets v. Bel- 'Price v. G. R. & I. R. Co., (185J& lamy Manufacturing Co., 12 N. H. 13 Ind. 58. 206. "Ex parte Willcocks, 7 Cow. 402. 123] PRIVATE CORPORATIONS. 159 compensation, not made at a meeting of the board. 1 Directors of a bunk, in case a deficit in the funds appears by the accounts of its cashier, have authority to make a settlement with such officer. 2 A corporation having power by its charter " to make contracts in writing, and signed by the president and secretary, or by such other officer or officers as the directors may appoint for that purpose," the directors may authorize the president alone to sign for the company. Proof of the formal vote of the directors giving him such authority is not necessary. 8 After seven years' acquiescence by a corporation in the lease of its property by its directors, something more must be shown than that it was executed in excess of the powers of the directors before the lessee will be required to surrender the profits he may have made upon it. 4 123. Directors for the first year. The New York Court of Appeals has considered the objections to the validity of a mortgage executed by a manufacturing corporation formed under the statute of 1848 relating to such corporations, that the persons acting as a board of directors for the mortgagee were not, at the time of passing the resolution authorizing the mortgage, stock- holders of the company, and were, therefore, not qualified under the statute to act as such directors. The court held the objec- tion not tenable, and ROGER, Ch. J., for the court, arguendo, said : " The provisions of the statute ( 3, chap. 37, Laws of 1848) requiring the stock, property and concerns of such company to be managed by directors who shall respectively be stockholders of tin- company, and who shall, except the first year, be annually 1 Stoystown & Qrecnsburg Turn- its by-laws to the directors to manage pike Road Co. r. Graver. 45 Pa. St. all its prudential concerns. :M> 4 Pneumatic Gas Co. v. Berry, (1884) * Frankfort Bank ?. Johnson, (1844) 113 U. 8. 822; s. c., 5 Sup. Ct. Rep. 525. 24 Me. 490. The court said: "A court of equity 'Topping v. Bickford, (1862) 4 does not listen with much satisfaction Allen, 120. In Sampson r. Bowdoin- to the complaints of a company that ham Steam Mill Corporation, 36 Me. transactions were illegal which had its 78, it was held that an action could be approval which were essential to its maintained against the corporation protection, and the benefits of which upon a document signed by its direct- it has fully received. Complaints that ore in that capacity certifying that the its own directors exceeded their holder of it had previously advanced authority come with ill grace when a specified sum of money for the cor- the acts complained of alone procured poration, under the authority given in its existence." 160 POWER OF AGENTS AND OFFICERS. [124 elected by the stockholders, do not apply to the original organi- zation of a company formed under said act. The language of section 1 of the act, by express terms, makes the persons named in the certificate of incorporation as such, directors of the com- pany for the first year of its existence, and confers upon such persons full power to act as directors in the performance of any corporate duty after the filing of such certificate. The corporate authority of such an organization must, from necessity, be coin- cident with the inception of its corporate existence, and antedate the acquisition by it of property, or the issue of stock certificates representing such property, it is conceded that the persons passing the resolution were those named as directors in the origi- nal certificate of incorporation, and the purchase of the property in question was one of the first official acts of the corporation ; that the property thus purchased of the plaintiff furnished the basis of capital upon which their corporate stock was distributed, and that certificates for its entire amount in payment of such purpose were issued and delivered to the plaintiff simultaneously with the conveyance of the property to the corporation by him and the delivery to him of the mortgage. It is quite obvious that the statute cannot be made effective under any other inter- pretation, and it is a primary rule of construction to give some effect to the expressions of the legislative will, if consistent with a reasonable interpretation of its language. If its provisions be BO construed as to require the existence of stockholders before there is a legal organization, it must necessarily defeat the cre- ation of any corporation under it, as it is quite manifest that stock cannot be owned in a corporation which has itself no legal existence. The terms of the act providing for the appointment of directors for the first year do not require such an interpreta- tion, and it is contrary to reason and settled rules of construction to ascribe to a statute such a meaning as will nullify its operation if it is capable oi any other interpretation." 1 124. Directors de facto. One who had been adjudged entitled to a premium on cattle exhibited at the fair of an agri- cultural society in Pennsylvania brought his action for irs recovery. It appeared that certain directors of the corporation who had, in proceedings quo warranto, been adjudged not to be the legal 1 Davidson v. Westchester Gas Light Co., (1885) 99 N. Y. 558, 565, 566. 125] PRIVATE CORPORATIONS. officers, had offered these premiums, and the corporation defen.lt. 1 on the ground that the acts of this board were nut binding upon tin-in, they not beinir directors dejure. The findings of the trial judge were that this board of directors u held the possession of the books of the corporation and the custody and control of its property, both personal and real. It was under their direction and management that the fair was held, and all purchases made for the purpose of holding the fair. They had custody also of all moneys paid as entrance fees, as well as all moneys received for admission. The premiums, for the recovery of which those suits were brought, were premiums offered by this board of directors." The judge held that the acts of the de facto directors were binding upon the corporation, which was affirmed by the Supreme Court. 1 125. Illustrations of the power of directors. It is within the power of a board of directors of a manufacturing corpora- tion, clothed with authority to manage its concerns, to authorize the agent of the corporation to raise money for his own use by 1 Zearfoss F. Farmers & Mechanics' officer de facto as fully and effectually Institute of Northampton County, as regards the public and third por- (1893) 154 Pa. St. 449; 8. c., 26 Atl. sons as by an officer de jure,' in all Rep 211. In the opinion per curiam matters within the scope of the corpo- it was said: "Contracts entered into ration's ordinary business." To the by a corporation de facto are binding contention that there is a distinction after having been executed by either between de facto officers of public cor- party. 2 Morawetz on Corp. gg 750, porations and . t>. Gas Company, 1 Pears. (Pa.) 118; Stevens, (1889) 18 Colo. 684; 8. c., 22 Martin r. Railway Co., 87 Leg. Int. 182. Pac. Rep. 828. The court, In the 1 Wood r. Whelcn, (1879) 98 111. 158. opinion, discussed the question 'Aurora Agr. & Hort. Society of whether the contract was within the Aurora t>. Paddock, (1875) 80 111. 268. scope and authority of the officers ' Milwaukee & Northern Illinois R. making it and binding upon the cor- K. Co. v. Field, 12 Wis. 840. poration as follows: "As we have 164 POWER OF AGENTS AND OFFICERS. [126 tions for stock, payable " in such manner as the board of direct- ore should direct," may receive payment in promissory notes. 1 Under the authority of the president and directors of a corpora- tion to manage the affairs of the corporation they may make an already seen, the corporation was organized for the purpose of buying and selling lands, horses, cattle, etc., also all other business incidental to stock raising. [The president and secretary] were general officers of the company, and must be presumed to have the powers usually conferred upon such officers. In addition to this, they were duly empowered to purchase the Gebhardt stock, etc., [for which purpose the money loaned was to be used], and this authority must be held to be as broad as the transaction. The power to purchase necessarily carried with it the power to obligate the company to pay, not- withstanding the fact that a by-law of the company forbade the contracting of any debt for the company except by order of the board of directors. Plaintiff was not a member of the company, and his rights cannot be affected by a by-law restricting the general powers of the officers of the company, of the existence of which by-law he is not shown to have had notice. Moraw.Priv.Corp. 500; Ang. & A. Corp. 370, note a; Flint v. Pierce, 99 Mass. 68-70; Royal Bank of India's Case, L. R. (4 Ch.) 252; Maher v. City of Chicago, 38 111. 266." The question of the payment for services of the agent negotiating the loan in stock of the company also received the atten- tion of the court in this case. They said, upon that question: "It is not necessary that shares in a corporation be paid for in cash. It has been held that the managing officers for a cor- poration may, in their discretion, issue full paid-up shares for real estate, labor and materials useful in carrying on the corporate business. In fact, such payment may usually be made in money or its equivalent, and, if in the latter, the transaction cannot be impeached for error of judgment on the part of the officers of the company as to the value of the services or property. GjOod faith and the exer- cise of an honest judgment meet the requirements of the law. Moraw. Priv. Corp. 426,429; Schenck v. Andrews, 57 N. Y. 133; Douglass v. Ireland, 73 N. Y. 100; Iron Co. v. Drexel, 90 N. Y. 87; Lorillard e. Clyde, 86 N. Y. 384. The [cases just cited] were all de- cided under the provisions of the act of 1853 of the state of New York, which act was amendatory to the provisions of a previous law of the state requir- ing that nothing but money should be received as payment for the stock of incorporated companies. By the amendment the trustees of such com- panies were authorized to purchase any property necessary for the cor- porate business, and in payment therefor to issue stock ' to the amount and value thereof.' Under this act it may now be considered as the settled doctrine in that state that the trustees, in taking property, must exercise their discretion, and that their judg- ment as to the value of the property, and the necessity for it will not be in- terfered with, in the absence of fraud. Thus it is said in Schenck v. Andrews, supra : ' They were the agents in be- half of the company, for that purpose, and the discharge of their duty called for the exercise of their discretion and judgment (having reference and due 1 Magee v. Badger, 34 N. Y. 247. _'7 1 I'KIVATE CORPORATIONS. 165 order requiring payment of an installment on tho stock. 1 A cor- poivtion cannot he held to liave contracted unless by such agents . Thunder Bay River Such a construction would defeat the Boom Co., (1880) 42 Mich. 536, 689; evident object of the law. which adhered to in Hartford Iron Mining rlcarly was to encourage the forma- Co. e. Cambria Mining Co., (1890) 80 tion of companies by the appropriation Mich. 491. of manufactories, mines and other * People ex rel. Content r. Metropol- proporty, proper for their business, itan Elevated Hy. Co., 28 Hun. 82. and at a fair valuation, instead of 4 Gillis r. Bailey, 21 N. II. 150. money as a capital therefor. No per- * Oliphant r. Woodburn Coal & Min- on could be expected to become a ing Co.. (1884) 68 Iowa. 832; e. c.. 19 stockholder and pay his money or N. W. Kep. 212. On this point, seo 166 POWER OF AGENTS AND OFFICERS. [ 127 Neither can they accept property for a (Stock subscription at a price largely in excess of its value. 1 And a subscriber who received the shares for such property originally, or a transferee of such shares with notice-, at the suit of any one injured thereby, may be. compelled to make up the difference in value. : Directors of a corporation alone cannot increase the capital stock of a cor- poration unless expressly authorized. The general power to per- form all corporate acts which they may have refers to the ordi- nary business transactions of the corporation, and does not extend to a reconstruction of the body itself, or to an enlargement of its capital stock. 3 The subscriber to the stock ot a railroad corpora- tion cannot be released from his liability for his subscription by its directors. 4 It is not within the power of officers of a corpo- ration to ratify an unauthorized act of their own. 5 No express promise of an individual director of a corporation, unless author- ized, will bind the corporation." A parol contract made by the directors of a bank is not binding on the corporation. 7 The stock of a member cannot be relieved by the president and directors of a corporation from forfeiture of its dividends by their advancing the money of the corporation to satisfy the conditions on which a forfeiture of dividends depends, as it is not in their power to do so. 8 The act of a president of a corporation, which the directors themselves have no authority to perform, cannot be ratified by the directors. 9 Where a charter, while giving the directors of a corporation the power to manage its stock, prop- erty and affairs, provides that the corporation should have the power to assess the stockholders in order to pay the corporation debts, its directors cannot exercise the power of assessment with- out authority from the corporation. 10 There is no power in a Sturges v. Stetson, 1 Biss. 246; Fos- 8 Railway Co. v. Allerton, (1873) 18 dick v. Sturges. 1 Biss. 255; Mann v. Wall. 233. Cooke, 20 Conn. 188; Fisk v. C., 11. I. 4 Bedford Railroad Co. v. Bowser, 48 & P. R. Co., 53 Barb. 472. 513; O'Brien Pa. St. 29. 0. C., R. I. & P. R. Co., 53 Barb. 568; B Hotchin v. Kent, 8 Mich. 526. Neuse River Navigation Co. . Com- Workhouse v. Moore, 95 Pa. St. missioncrs, 7 Jones Law (N. C.), 275. 408. 1 Osgood r. King, 42 Iowa, 478. ' Hughes v. Bank of Somerset, (1824) 'Jackson v. Traer, (1884) 64 Iowa, 5 Litt. (Ky.) 45. 469; s. c., 20 N. W. Rep. 764. Sec 'Marine Bank r. Biays. 4 H. & J. Bailey r. Pittsburg & Connellsville (Md.) 338. Gas, Coal & Coke Co., 69 Pa. St. 334; 'Cram's Appeal, 66 Pa. St. 474. Boynton v. Hatch, 47 N. Y. 225: Tall- ln Marlborough Manufacturing Co. v. madge r. Fishkill Iron Co., 4 Barb. 882. Smith, 2 Conn. 584. }'KI\ All < oKl'. .I:.\IJ< 107 Dimple director or vice-president of a railroad company, by virtue of bis office, to appoinT aireiit- t. sell the lands or the tim1>er on them. 1 Without special authority. ;i director, as such, cannot make notes binding the corporation. 3 The directors of a rail way corporation cannot give away it> >tock.' A committee of its directi'ix autlion/eM l>\ a railroad corporation to enter into a contract for the construction of its road, after the contract is exe- cuted, would have no power to modify the contract as originally made. 4 Directors, though they may compromise an existing claim, have no implied power to make new agreements radically modifying previous agreements which they did HOT make and had no power to make. 5 The directors of a corporation have no power to make a donation from, or misappropriate the funds of the corporation in viojation of the laws and rules regulating its mode of action. 6 $ 128. When notes will be held to have been authorized by a board of directors. In a case in the federal court for the district of Kansas it was urged that certain notes issued by a rail- road company were in violation of a by-law of the company, which prohibited the giving of notes, bonds, bills, acceptances, etc., by the company unless ordered by the board of directors. FOSTER, J., said upon this that " [one] note was made by positive order of the board of directors, and by the president and secre- tary, as therein directed. Some by-law of the company required notes to l)e made to the order of the president and secretary. This is a mere matter of form, and not material. The other notes were made [before the adoption of the by-law], and besides, the board of directors at their meeting [held nine months before their execution], directed that orders be drawn on the company for [their amount]. Orders are not notes, but that order of the board would, doubtless, have been good for acceptances, which stand on the same footing as notes under the by-laws." 7 1 Chicago & Northwestern R. Co. t. 'Metropolitan Klrvntrd Uv. James, 22 Wis. 194. .Manhattan Ky. Co., (Spl. Term Sup. 'Lawrence r. Ocbhanl, 41 Barb. Ct. 1W4) 14 Abb. N. C. 108: s. r., 11 575. Daly. ITS Thornton t. St. Paul, etc., R. R. 'Frankfort Hank r. Johnson, (1844) Co., 6 N. Y. Wkly. Dig. 309. '24 Me. 490. 'Western R. R. Co. r. Bayne, 11 ' Stewart r. St. I/ouis. Ft. S. A: W. R Hun, 166. Co., (1887) 41 Fed. Rep. 786. In Wile 168 POWER OF AGENTS AND OFFICERS. [ 129, 130 12$. Waiver by directors of their power to repudiate a contract. The officers of a corporation being made subject by the by-laws of a corporation to its board of directors, provided the board elect to exercise such control, should the board for some length of time tail to repudiate a contract made by the superintendent and treasurer of the corporation, their failure PO to act will be presumed to operate as a waiver of their power/ 130. Power of trustees of a corporation. The trustees of a corporation have authority to enter into contracts for the payment of money, under the corporate seal, in furtherance of & Brickner Co. r. Rochester & K. F. Land Co., (1893) 4 Misc. Rep. 570; s. t 1 ., 25 N. Y. Supp. 794. where notes were given by the corporation to two of its directors in payment for prop- erty purchased from them, the resolu- tion to purchase and to give the notes having been adopted at a directors' meeting when the vendors were pres- ent and were necessary to constitute a quorum, but they did not vote on the resolution, it was held that though the transaction was voidable as between the corporation and its directors, the notes so given were valid in the hands of a bona fide purchaser, who, before taking them, asked the corporation's secretary about them, and was in- formed that they had been authorized by the board of directors. The court distinguished People's Bank r. St. Anthony's Roman Catholic Church, 109 N. Y. 513; 8. c., 17 N. E. Rep. 408, in that in that case it appeared affirmatively that the officers who signed the note acted separately and not at a meeting of the board, and that 1 here was no corporate act as a basis of their authority so to do. 1 Indianapolis Rolling Mill Co. t. St. Louis, F. S. & W. R. Co., 26 Fed Rep. 140. Affirmed in Indianapolis Rolling Mill r. St. Louis, Fort Scott & Wichita Railroad, (1887) 120 U. S 256; 8. c., 7 Sup. Ct. Rep. 542, in which case the Supreme. Court of the United States said: "The rule of law upon the subject of the disaffirmance or ratification of the acts of an agent re- quired that if they had the right to disaffirm it they should do it promptly, and if after a reasonable time they did not so disaffirm it, a ratification would be presumed. In regard to this it appears that the board, when notified of what had been done by their agents, did not disaffirm their action at that time, but that the act or resolution of disaffirmance was 'passed about two years after notice of the transaction, and that if the suit brought in this case, can "be considered as an act of dis- affirmance. it came too late, as it was commenced some six months after they had knowledge of the release. It was stated in the somewhat analogous case of The Twin-Lick Oil Co. *. Mar- bury, 91 U. S. 592, 'the authorities to the point of the necessity of the exercise of the right of rescinding or avoiding a contract or transaction as soon as it may be reasonably done after the party, with whom that right is option;;.!, is aware of tne facts which gave him that option are numerous. * * * The more important arc as follows : Badger r. Badger. 2 Wall. 87 ; Harwood . Railroad Cc.. 17 Wall. 78 ; Marsh r. Whitmore. 21 Wai.. 178 - Tigers . Pike. 8 Cl. & Fin. 65C : Wentworth c. Lloyd. 32 Beav. 467; Follansbe ?. Kilbreth, 17 III 522 : s. l.'il] PRlv.vn OOBPORA riOl the hiiHiiess of the corporation. 1 A corporation may be bound l>v tlie contract of a Ooard of tru>tee> holding their office under a judicial deci.-ion .It-daring their title to the office. And the cor poration will not he relieved from its liability by a subsequent ; -al of this decision on appeal. 2 Under the law of California empowering the trustees of a corporation formed under the general laws of that state, to levy and collect, for the purpose of paying expenses incurred in the management of the corporation's husine-.-, aements HJHMJ the capital stock of the corporation not to exceed five per cent of such capital stock, provided no previous assessment then remained unpaid or uucollected, 8 such trustees, where the expenses incurred in the management have largely exceeded ten thousand dollars, may levy and collect Mich assessments upon the stock as will pay those expenses, notwith- standing a by-law of the corporation limiting the amount of the indebtedness they may incur to ten thousand dollars. 4 It is not beyond the power of the trustees of a secret society vested with general power to manage its property, to lease the lodge room to another society for use one night in each week. 5 131. Power of officers of a corporation to employ attor- neys. Attorneys and counsellors may be employed by the man- aging officers of a corporation without any specific authorization to that effect by formal resolution of the board of directors. 6 o., 65 Am. Dec. 691.' See, also, Gold corporation may make a contract, ami Mining Co. r. National Bank, 96 U. S. their power to draw the money on <;<> , Law r. Cross, 1 Black, 533." checks issued in payment under such 1 Clark r. Farmers' Woolen Manu- contract, sec Sheridan Electric Light lecturing Co., 15 Wend. 256. Co. v. Chatham National Bank, (1891) * Ebaugh r. German Reformed 127 N. Y. 517; R. c.. 28 N. E. Hep. 467. < liur.h, 8 E. I). Smith, 60. Western Bank of Missouri r. Gils- * Pub. Laws Cal. 1864, 402. trap, (1870) 45 Mo. 419. The Appel- 4 Sullivan r. Triunfo Gold & Silver hie Court of Missouri, in a ease when- Mining Company, (1866) 29 Cal. 585. one of the contentions was that no legal 'Phillip r. Aurora Lodge, No. 104, authority to prosecute the suit on \- I. O. G. T., (1882) 87 Ind. 505. See half of the corporation was shown. Miller /. Ch.-mre, 8 Edw. 899, where said: " The law in this state is sett led it was In-Ill that a mortgage executed by a course of uniform adjudications by five of nine chosen trustees might that no formal resolution of the board tie ] (resumed to have been executed of directors is prerequisite for the em- with the concurrence of a majority of ployment of counsel for u corpora- the board. I'mler what circumstances tiuii Western Bank r. (Jilstrap, 4"> an executive committee appointed by Mo. 411): Southgatc r. Kailroad, 61 a board of trustees of a manufacturing Mo. W); Thompson*-. School District, 22 170 POWER OF AGENTS AND OFFICERS. [ 132 132. When officers may use bonds as collateral. A manufacturing corporation having been placed in the hands of a receiver in Soutli Carolina, the master having found certain bonds in the hands of creditors to have a priority of lien, and his report having been confirmed, application was made upon the ground of newly-discovered evidence which it was claimed would show that the resolutions of the board of directors authorizing the issue of these bonds did not authorize such use of them as had been made with these particular creditors for an opening and recommitting of the report of the master. Upon the merits of the application the trial judge said it must fail, and gave these reasons : " The purpose with which the bonds in question were issued is declared in the preamble of the resolutions authorizing them to be ' to pro- vide commercial capital for the proper management of the busi- ness of the company.' This was to be accomplished by the sale of the bonds or by their use as collaterals. In the course of busi- ness it became necessary to raise money to buy cotton and to pay the employees of the mill or to stop. An application was then made to the bank * and the resident directors to advance 71 Mo. 495; Holmes . Board of Trade, ployed attorneys by the year and paid 81 Mo. 137. In the last case cited them in its stock; that the contract Judge HOUGH says: 'A contract for had been made by the president, with legal services may be made by the the approval of the board of directors, tacit or implied contract of the board and that plaintiff rendered the services of directors,' and in Thompson v. called for by his contract with the School District, supra, Judge SHEK- knowledge of the directors. The New WOOD says: 'Of course, if we con- York Court of Appeals held that the cede the power, without formal reso- evidence was sufficient to warrant a lution, to employ an attorney, the finding that the contract was approved usual results of such employment will of or acquiesced in by the directors, follow as a necessary consequence.' As to a president's authority or that of The question in that case was whether other officers to employ counsel, etc., the entry of the appearance of the cor- see Potter p. New York Infant Asylum, poration as a party defendant by at- 44 Hun, 367; Insurance Co. r. Oakley, torney was duly authorized." Presi- 9 Paige, 496; Bank r. Bank, 10 Wall, dent Mining & Milling Co. v. Coquard, 604; Root ?;. Olcott, 42 Hun, 536; (1890) 40 Mo. App. 40, 43. Merrill v. Rider Life Raft Co. r. Roach, 97 N. Y. Consumers' Coal Company, (1889) 114 378; Bridenbecker v. Lowell, 32 Barb. N. Y. 216, was an action of an attor- 9; Chemical Bank v. Kohner, 8 Daly, ney against a corporation to recover 530; Bank v. Butchers', etc. , Bank, 26 shares of its stock to which he alleged How. Pr. 5; Hooker r. Eagle Bank, 30 he was entitled for services for one N. Y. 86; Peterson F. Mayor, etc., 17 year under a contract made with its N. Y. 449; Mumford r. Hawkins, 5 president. It appeared that the corpo- Denio, 355. ration had from its organization em- 133] PRIVATE CORPORATIONS. 1 7 I tin- money needed, and to hold the bonds as collateral security until they could be sold outright. This arrangement was made and the money advanced, and the bonds deposited as collateral security with the bank and the resident directors. This * was done with the full knowledge and consent of the board <>!' directors, and the money used to carry on the mill, and all this was done before the bonds were taken by * * * tin- princi- pal moving creditor." He then refers to certain affidavits made in the case and said : " If true, then there has been no improper or unauthorized use of said bonds, and if they were not pledged by resolution of the directors duly assembled, the company, with their knowledge and approval or gratification [ratification ?], have received the benefit of the money advanced on the said bonds, and the transaction, in law or equity, must stand as against the said company and all creditors." l The Supreme Court affirmed this judgment, referring to the action of the judge in these words: "There can be no doubt whatever that one of the pur- poses for which the bonds were issued was to raise money to con- tinue the running of the mills, and there is quite as little that upon application [the creditors whose claims were preferred by the master] did advance largely for that very purpose. Debts were pressing, two of the directors were absent from the state, non-residents, and a majority, the other six, authorized, infor- mally, it may be, these bonds to be held by [them] as collateral security for advances made by them, as was done in the case of other advances, and upon the faith of this transaction the advan- ces were actually made and used to the relief of the company. Under these circumstances it seems to us that the circuit judge did not abuse his judicial discretion in holding [as he did]." ; 133. When the execution of a note is not authorized. In a Nevada case, where the execution of a note by a president and secretary of a corporation was held to have been unauthor- ized, the Supreme Court further held that where information <>f such act was not communicated to the trustees as a board, the trustees could not be held to have ratified the act by reason <>f the knowledge of a majority thereof acquired while acting as 1 Hubburd r. Campordown Mills, * Citing Kctrhmn r. Duncan. !M; t. (1887) 26 8. C. 581, 584; 8. c., 2 8. E. 8. 659; Claflin r. South Carolina K. K. Hep. 576. Co., 8 Fed. Rep. 118. 1 72 POWER OF AGENTS AND OFFICERS. [ 134 president and secretary ; also that the fact that the secretary made out a statement of the debts of the corporation in gross was not sufficient to give the stockholders notice that an unauthorized note was included therein, so that by their inaction they should be held to have ratified it, or to be estopped to deny its validity. 1 134. Execution . of promissory notes and transfer of choses in action. Authority to execute and issue promissory notes of a corporation need not be expressly given to its officers by the by-laws of the corporation or by formal resolution of its board of directors. 2 Such authority may be inferred from the acquiescence of the corporation in or its recognition of the acts of its accredited officers in the regular course of the authorized business of the corporation. 8 A note executed by an agent of a manufacturing corporation will not be presumed to have been authorized by the corporation. To render such a note valid against the corporation the powers of the agent must be shown. 4 The officers of a corporation have no power to authorize the exe- cution of a note as surety for another in respect to a matter having 1 Edwards v. Carson Water Co., the unauthorized acts of his or its (Nev. 1893) 34 Pac. Rep. 381. See, agents, every detail of the transac- also, Hotchin v. Kent, 8 Mich. 527; tioii must have been made known to Dabney v. Stevens, 40 How. Pr. 344; the principal. If, after obtaining such Story Ag. 243; Howell v. McCrie, knowledge, the principal fails to act, 36 Kans. 652; s. c., 14 Pac. Rep. 257; long and continued silence will be Combs t>. Scott, 12 Allen, 496; Mallory deemed an approval of the act, and v. Mallory Wheeler Co., 61 Conn. 141; such ratification relates back and is s. c., 23 Atl. Rep. 708; Despatch Line equivalent to a prior authority to of Packets v. Bellamy Mfg. Co., 12 N. make the contract." Citing 1 Dan. H. 205, 232; Lyndon Mill Co.v. Lyndon Neg. Inst. 316-319; Stark Bank v. Literary & Biblical Inst., 63 Vt. 581; United States Pottery Co., 34 Vt. 144, s. c., 22 Atl. Rep. 577; Owings v. 146; Story on Agency. 239; Bank v. Hull, 9 Pet. 629; Bohm r. Brewery Jones, 18 Tex. 816; Smith r. Tracy, Co., (1S90) 16 Daly, 80; s. c., 9 N. Y. 36 N. Y. 79, 82; French v. O'Brien, 52 Supp. 515; Murray *. Lumber Co., How. Pr. 394, 398; Combs. Scott, 12 143 Mass. 250; s. c., 9 N. E. Rep. Allen, 493, 497. See, also, Yellow 634; Fitzhugh v. Land Co., 81 Tex. Jacket Silver Mining Co. v. Stevenson, 310; s. c., 16 S. W. Rep. 1078; Dedham 5 Nev. 224, 228; Hillyer . Overman Institution for Savings v. Slack, 6 Silver Mining Co., 6 Nev. 51, 55. Cush. 408, 411. The Nevada court * First National Bank of Hannibal in Edwards t>. Carson Water Co., v. North Missouri Coal Co., (1885) 86 supra, give this as their understand- Mo. 125. ing of the law upon this subject: 3 Ibid. "That before an individual or cor- * Benedict v. Lansing, 5 Denio, 283; poration can be held to have ratified Lawrence v. Gebhard, 41 Barb. 575. 135] PRIVATE CORPORATIONS. 173 no relation to the corporate business, and in which the corpora- tion has no interest. 1 Such a transaction is not within the scope of its business, and a party receiving such note with notice of the circumstances under which it i.s given cannot recover oil it. 8 A corporation may authorize its proper officer to assign a note by delivery." The authority of an agent of a corporation to indorse a note may be shown by other evidence than the by-laws, as for instance, that a president and treasurer of the corporation was in the habit of negotiating notes of the corporation with the sanction of its finance committee. 4 An agent of a corporation may have authority to transfer a note by indorsement but has no authority to bind the corporation as indorser. 5 Express authority from a board of directors of a corporation is not necessary to enable its managing agent, to whom has been intrusted the management of the affairs of the corporation, to assign the choses in action belonging to it to its creditors, either in payment of, or as security for, the payment of a precedent debt. 6 Officers of a corporation, within their general powers, may assign its choses in action in such man- ner as they may deem expedient. 7 A corporation, it seems, would be bound by an assignment of its dues without recourse by one of its officers intrusted with the collection of its debts upon receiving the amount. 8 135. Notes signed by officers of a corporation. GIL- BERT, United States Circuit Judge, in sustaining a demurrer to the defense in an action upon the promissory note of a corpora- tion, that the president and secretary of the corporation had no authority from the corporation, either by by-law or resolution, to execute the note, and that the corporation received no benefit therefrom and did not ratify the same, declared these rules of law upon the questions involved, to wit : " The payee or indorsee of a negotiable promissory note, signed by the officers of a cor- poration as the note of the corporation, is not required to ascer- 1 Hall . Auburn Turnpike Com- McKiernan prima> facie valid. 3 The settlement of a defalcation to a bank, and the acceptance of a deed of real estate in satisfaction and release, are not transactions which fall within the ordinary powers of a corpo- ration which may be exercised by its agents or persons who are held out to the public as such. Power to do such acts must be conferred by the board of directors. 4 The president of the directory of a banking corporation cannot use its cash or credits, 1 American Exchange National Bank 3 Gibson v. Goldtliwaite, (1845) 7 Ala. v. Oregon Pottery Co., (1892) 55 Fed. 381. Rep. 265; citing Merchants' Bank v. 4 Bank of Healdsburg r. Bailhache, State Bank, 10 Wall. 644; Crowley v. (1884) 65 Cal. 327; Gashwiler v. Willis, Mining Co., 55 Cal. 273; 1 Dan. Neg. 33 Cal. 11; Blen v. Bear River Co., 30 lost. % 381. Cal. 603. Klemmc . McLay, (1885) 68 Iowa, 158; s. c., 36 N. W. Rep. 53. J] PRIVATE CORPORATIONS. 175 etc., tor tin- purpose of settling the demands of ite creditors, in the ab-ciice of authority conferred l>y IN charter, by-laws or reso- lution of the directory within their power to adopt. 1 And the affixing of tlie seal of tin- corporation to an unauthorized tran.-fer by its president of its assets cannot impart validity to the transfer. 2 The officers of a national hank, without express authority from its shareholder-, after tin; hank goes into liquidation, can only bind them I >y acts implied hy the duty . 4 jj 137. Power of a bank cashier. A cashier of a hank has no authority, by virtue of his office, to represent the bank at a meeting of the creditors of an insolvent, and to vote for syndic. A resolution of the board of directors can alone empower him to do so. 5 The cashier of a bank is held out to the world as its 1 Gibson r. Goltlthwaite, (1845) 7 of a president of a national banking Al:i. :*NI. Sec Haliowt'H & Augusta association to bind the association by Hank f. Humlin. 14 Mass. 180. an agreement to hold, without collect - Gibson r. Goldthwaite, (1845) 7 ing, n note which had been indorsed to Ala. 2S1. In Cross r. Anglo- American it at the president's request, for the pur- Banking Co., (1894) 79 Hun, 424; B.C.. pose of increasing the bank's assets 29 N. Y. Supp. 960; 61 N. Y. St. Repr. and enabling it to pass an expected ex- ->?(>, the president and chief executive animation of the inspector. of :i foreign banking corporation hav- 3 Richmond r. Irons, (1887) 121 U. ing its principal place of business in S. 27; s. e., 7 Sup. Ct. Rep. 788. In tin- city of New York, being author- Schroder r. Manufacturers' National i/.cil by its articles of incorporation Bank of Chicago, (1890) 133 U. S. 67; and by the action of its directors to s. c., 10 Sup. Ct. Rep. 238, it was held open its office in that city, was held that the rights of the shareholders could presumptively to have authority to not be affected by the acts of the presi- purchase the furniture necessary to dent, done after the bank had gone equip the office of the corporation, into liquidation. there being no by-law of the corpora- * Rhodes e. Webb, 24 Minn. 292. tion or resolution of the directors lim- s Reed r. Powell. (1845) 11 Rob. iting his power, or requiring that no (La.) 98. The court said: "The di- cxpenditureH should be made except rectors are the general agents and under a resolution of the board of administrators of the corporation, and directors. In First National Bank of by the charter are empowered to Whitehall r. Tisdale, (1881) 84 N. Y. appoint such officers and sub-agents 665, it was held to be beyond the power as may be necessary for the tranaac- 176 POWER OF AGENTS AND OFFICERS. executive officer intrusted with its notes and bills, and the collec- tion and transfer of them in the ordinary course of its business. And in case of promissory notes held by banks an indorsement by the cashier of the bank, in his official character, is sufficient, at least prima facie to pass the title of the bank thereto. 1 The cashier of a bank, in the course of his ordinary duties and by virtue of the general power appertaining to his office, has a right to transfer the paper securities of the bank, in payment of its debts. 9 tion of its business. The powers and duties of these officers are defined by the charter and by-laws of the bank. Within the sphere of their respective duties they represent the corporation, and bind it by their acts; but in all matters and things not properly be- longing to their office they cannot rep- resent or act for the corporation unless specially or generally author- ized so to do by a resolution of the board. Thus, the cashier, who is intrusted with the transaction of the banking business of the corporation, needs no special authority to do and perform any act required for the proper management and dispatch of the same; but when it becomes neces- sary for the corporation to appoint an agent for any particular purpose, or to do any other thing not properly be- longing to the duties of his office, he has no better right to act than any other person. To say that he can make such an appointment, or do any other act on behalf of the corporation, because it is a mere act of administra- tion, would be to make the cashier its general agent and administrator, in- stead of the board of directors. " See, also, Union Bank v. Bagley, 10 Rob. (La.) 43; Clinton Company T. Kernan, 10 Rob. (La.) 176; Union Bank t>. Jones, 4 La. Ann. 236. 1 Haynes, Liquidator, r. Succession of Beckman, (1851) 6 La. Ann. 224; Fleckner . United States Bank, 8 Wheat. 360; Wild r. Bank of Passa- maquoddy, 3 Mason, 505, 507; Mer- chants' Insurance Co. v. Chauvin, 8 Rob. (La.) 49. s Everett v. United States, (1837) 6 Port. (Ala.) 166. The court quoted the language of Mr. Justice STORY in Fleckner v. United States Bank, 8 Wheat. 358, as clearly recognizing the right of the cashier as stated in the text. That language was as follows: ' ' The cashier is usually intrusted with all the funds of the bank, in cash, notes, bills, etc., to be used from time to time, for the ordinary and extra- ordinary exigencies of the bank. He receives directly or through the sub- ordinate officers, all moneys and notes. He delivers up all discounted notes and other property, when payments have been duly made. He draws checks from time to time, for moneys, whenever the bank has deposits. In short, he is considered the executive officer, through whom, and by whom, the whole moneyed operations of the bank, in paying or receiving debts, or discharging or transferring securities, are to bo conducted. It does not seem too much, then, to infer, in the absence ol all positive restrictions, that it is his duty as well to apply the negotiable funds, as the moneyed capital of the bank, to discharge its debts and obligations." The cashier of a bank has no authority to pay a de- positor in notes belonging tc the bank by transferring them to him. Schneit- man *. Noble, (1888) 75 Iowa, 120. 138] PRIVATE CORPORATIONS. 177 138. When the authority of its cashier cannot be ques- tioned by a bank. Under the facts disclosed in a case before tin- I'nited States Supreme Court, it was held by the court tluit the binding force of an agreement made by the cashier of the liunk, in reference to the indebtedness of one of the debtors of the bunk, including the cancellation of the debtor's old notes and trust deeds made by him to secure them and the acceptance of new ones could not be disputed by the bank. 1 Martin c. Webb, (1884) 110 U. 8. thority to do so being in writing or 7. The ruling was based upon the appearing upon the record of the pro- principles stated by Mr. Justice ceedings of the directors. His au- HAKLAN, speaking for the court, in thority may be by parol and collected these words: "It is quite true from circumstances. It may be * * * that a cashier of a bunk has inferred from the general manner in no power by virtue of his office, to which, for a period sufficiently long bind the corporation except in the dis- to establish a settled course of busi- charge of his ordinary duties, and that ness, he lias been allowed, without the ordinary business of a bank does interference, to conduct the affairs of not comprehend a contract made by a the bank. It may be implied from the; cashier without delegation of power conduct or acquiescence of the cor- by the board of directors involving poration, as represented by the board the payment of money not loaned by of directors. When, during a series the bank in the customary way. of years or in numerous business United States Bank v. Dunn, 6 Pet. transactions, he has been permitted, 51 ; United States v. City Bank of without objection and in his official Columbus, 21 How. 356; Merchants' capacity, to pursue a particular course Bank t>. State 1 Bank, 10 Wall. 604. of conduct, it may IK- presumed, as Ordinarily, he has no power to dis- between the bank and those who in charge a debtor without payment, nor good faith deal with it 'upon the basis to surrender the assets and securities of his authority to represent the cor - of the bank. And, strictly speaking, poration, that he has acted in <-<>n- he may not, in the absence of authority formity with instructions received conferred by the directors, cancel its from those who have the right to con- deeds of trust given as security for trol its operations. Directors cannot, money loaned certainly not, unless injustice to those who deal with the the debt secured is paid. As the bank, shut their eyes to what is going executive officer of the bank, he trans- on around them. It is their duty to acts its business under the order and use ordinary diligence in ascertaining supervision of the board of directors, the condition of its business, and to He is their arm in the management exercise reasonable control and super- of its financial operations. While vision of its officers. They havesome- thesc propositions are recognized in thing more to do than, from time to the adjudged cases as sound, it is clear time, to elect the officers of the bank, that a banking corporation may be and to make declarations of dividends. represented by its cashier at least That which they ought, by proper where its charter does not otherwise diligence, to have known as to the provide in transactions outside of general course of business in the bank, his ordinary duties, without his au- they may be presumed to have known 23 178 POWER OF AGENTS AND OFFICEBS. [ 139 139. Indorsement of a draft by cashier and president. An English corporation, a mortgage company, by its managers in an American city, drew drafts upon its home office in London and applied to a local bank to have them discounted. The latter signified that they would discount the drafts if they were indorsed by another local bank. This was done by the cashier and the president of the latter. Finally, one of these drafts was not paid at the home office of the corporation, and the discounting bank brought its action against the receiver of the other local bank upon the indorsement of the officers of that bank. The United States Circuit Court held that there could be no recovery. 1 in any contest between the corpora- tion to that effect, by subsequent rati- tion and those who are justified by the fication, or by acquiescence in trans- circumstances in dealing with its actions of a similar nature, and of officers upon the basis of that course which the directors have knowledge, of business.'' In other words, I think it must be held National Bank of Commerce of that banks are liable for the acts of Kansas City r. Atkinson, (1893) 55 their officers, especially executive offi- Fed. Rep. 465. The court thus states cers and general agents, within the the contentions: " The defendant con- general scope and apparent sphere of tends: First. That [the cashier] had no their duties; but that they are not authority to place the indorsement of liable for the acts of their officers done the [bank] upon those drafts, or either without special authority, in cases of them, and that * * * the presi- which are not within the general scope dent had no authority whatever to and sphere of their duties as such offi- placc the indorsement of the [bank] cers. The responsibility of a bank (in upon the first note, which was given the absence of express authority to do after the drafts were protested, or any a particular act) is limited to the acts note representing these drafts. Sec- of its officers and agents, performed in ond. That the indorsement, at most, the discharge of their ordinary duties was a loaning of the bank's credit, or, in the usual course of business and in other words, an accommodation in- within the sphere and scope of such dorsement, which the bank had no duties. Acts within the ordinary power to make." Then the question sphere and scope of their business are was discussed and the law stated as presumed to be by authority and follows: " There is no doubt but what within the knowledge of the directors, the law is that a national bank cannot That there was no express authority loan its credit or become an accommo- given by the board of directors, by dation indorser. On that question the resolution or otherwise, either to * * * decisions are xmiform. It is also true the cashier or to * * * the presi- that the president of a bank has no dent, to indorse the drafts and notes, power inherent in his office to bind the is conceded. Neither was there any bank by the execution of a note in its formal ratification of their action by name, yet the power to do so may be the directors or officers of the bank, conferred upon him by the board of Indeed, none of them had any knowl- directors, either expressly, by resolu- edge whatever of the transactions ex- 140] PRIVATE CORPORATIONS. 179 140. Power of a treasurer of a savings bank. The treaa- urrr of ;i >a\ ings bank is not virtute ojficii clothed with power to borrow money for the institution and to pledge its securities as collateral. 1 The treasurer of a savings bank has no authority, ex ojfti'io, to release a debt due the bank, upon payment of a divi- dend by the debtor. 8 A vote of a savings bank corporation to sell notes held by it would not confer authority upon its treasurer to bind the bank by indorsing its name on a promissory note held by it, and he has no such authority ex officio? A provision in the by-laws of such an institution that the treasurer " shall draw all necessary papers and discharge all obligations of the corpora- tion, and his signature shall be binding on the corporation," has been held to mean the signature of the treasurer to necessary papers and in discharge of obligations to the corporation, and not to authorize him to bind the corporation by such an indorsement on a promissory note. 4 The title passes by an assignment of a cept [these two officers]." The court of the bank did not know of their ex- then considered the facts upon the istence, and could not have ascertained question of whether the bank retained their existence from an examination of and enjoyed the proceeds of these the books or accounts of the bank, transactions, and thereby became liable Such a transaction, it seems to me, by reason of its indorsement appear- cannot be said to be in the usual course ing upon those papers. In the course of business, or within the implied of the opinion it is said: "It is shown powers of the president of a bank. by the record beyond all question that My attention is especially called to the the [bank] never received any benefit case of People's Bank v. National whatever, by way of discount or other- Bank, 101 U. S. 181. That was a case wise, out of the transactions in relation upon a guaranty. The papers passed to these drafts, or either of them." through the bank in the regular course And further on: "The [bank] never of business. The bank received the re< -("'veil niiy benefit from discounts or benefit of the transaction, and the offl- othenvNe on these drafts. The re- cer of the bank was acting strictly newal drafts and the notes were not within the scope of his authority as placed upon the books of the [bank], an officer of the bank. The facts in When the drafts were protested, the that case are different from the facts in [bank] was not notified of the protest, the case at bar, and the decision, in my but, on the contrary, the mortgage judgment, does not aid the plaintiff." company only received notice of their ' Fifth Wan! Savings Bank r. First dishonor. The notes were all indorsed National Bank, 19 Vr. (N. J.) 513. in the office of the [plaintiff bank] by * Drdham Savings Institution . * * * the president [of the bank of Slack, (1850) 6 Cush. 408. which defendant is receiver], and a way * Brad Ice r. Warren Savings Bank, from the place of business of [this (1879) 127 Mass. 107. b:mk], and no mention of them was 4 Ibid, made upon its books. The directors 180 POWER OF AGENTS AND OFFICERS. [ 141 mortgage in the name of a savings bank, executed by its treas- urer who has authority to execute it, and his indorsement of the note to a lonafide holder, though he may in his action perpetrate a fraud upon the bank and convert the purchase money to his own use. 1 141. Power of officers of mining corporations. It may be assumed by persons dealing with mining superintendents or general agents in charge of mines, in the absence of notice to the contrary, that their authority covers all the ordinary local busi- ness of a mining corporation. 2 The purchase of timber for a mining corporation is within the power of its general agent. 8 But such a general agent of a mining corporation, unless speci- ally empowered so to do, has no authority to make promissory notes in the corporation's name. 4 The secretary of a mining cor- poration has no authority, by virtue of his office, to make assign- ment of the promissory notes belonging to the corporation. Such an assignment of notes by a secretary is not a corporate act unless it is shown that the secretary was not only authorized to make the transfer, but to make it in his official capacity. 5 The super- intendent of a mining corporation, instructed by letters and other- wise from the officers of the corporation not to contract any debts, but merely to expend such money as might be furnished him, cannot bind the corporation by a promissory note. 6 There is, 1 Whiting v>. Wellington, 10 Fed. Hallowell & Augusta Bank v. Hamlin, Rep. 810. 14 Mass. 180; Hoyt v. Thompson, 1 * Adams Mining Co. v. Senter, (1872) Seld. 320; Whitwellv. Warner, 20 Vt. 26 Mich. 73. 425. 3 Ibid. Carpenter t>. Biggs, (1873) 46 Cal. 4 New York Iron Mine v. Negaunee 91. In New York Iron Mine v. Citi- Bank, 39 Mich. 644. zens' Bank, 44 Mich. 344; s. c., 6 N. 5 Blood v. Marcuse, (1869) 38 Cal. W. Rep. 823, it was held that there 590. For the same principles upon was no presumption of authority of which this assignment was held to be an agent of the mining corporation to void as not being a corporate act, see draw post-dated bills of exchange on Gashwiler . Willis, 33 Cal. 11; Marine his principal from his having done so Bank v. Clements, 3 Bosw. 600; John- before without objection, there being son v. Bush, 3 Barb. Ch. 207; Brown v. nothing to show that the party relying Weymouth, 36 Me. 415; Barcusr. Han- on his authority knew the fact, and a nibal, Rails County & P. P. R. Co., 26 long interval having passed since it Mo. 102; Mt. Sterling & Jeffersonville occurred, and the corporation having T. R. Co. . Looney, 1 Mete. (Ky.) 550; meanwhile become prosperous and be- Walworth County Bank v. Farmers' ing better supplied with ready money; Loan & Trust Co., 14 Wis. 325; and it also appearing that the post- 142] PRIVATE CORPORATIONS. 181 presumably, power in such an agent and manager of a mining corporation power to sell its personal property. 1 142. General rules as to the power of a president The powers of a proiilcnt of a corporation over it- business and property are strictly the powers of an agent. 2 A corporation will not l>e bound by the contract of its president, without proof of his agency. 3 The same evidence from which authority to bind would l>e inferred in other cases, must determine the authority of the president of the corporation to bind it by a contract entered into on its behalf. 4 It is necessary to show that an agreement of the president of a corporation is within the scope of his authority to make it evidence. 5 A corporation which, by its charter, can only act through its board of directors, cannot be bound by con- tracts entered into by its president, without the authorization of the board, except in acts of simple administration, which, of necessity, should be done without authorization. 6 A corporation cannot be bound by a contract made by its president, except it be shown that power to make it was given him by the act of incor- poration, or that he was authorized by the corporation to make it, or that there was a subsequent ratification of the contract. 7 The power to sell and assign the securities of a corporation without authority from the trustees, is not included in the authority of its treasurer to collect and pay debts. 8 Acts of the corporation, or dated bills he had formerly drawn Bright r. Metairie Cemetery Asso- were drawn on time and post-dated ciation, 33 La. Ann. 58. only long enough to give the drawer * Mount Sterling & Jefferson ville the benefit of the full period of dis- Turnpike Road Co. r. Looney, (1858) count after receiving them, while in 1 Mete. (Ky.) 550. this case they were made payable at * Jackson v. Campbell, 5 Wend. 572. sight and post-dated several weeks for In Williams r.Uncompahgre Canal Co., the agent's private advantage. (1889) 13 Colo. 469; s. c.. 22 Pac. Rep. 1 Scudder p. Anderson, 54 Mich. 122; 806, it was held that where a contract 8. c., 19 N. W. Rep. 775. under seal had been executed by the * State Bank r. Holcomb, 2 Hals. (N. officers of a corporation in their indi- J.) 196. vidual names it was competent to aver Fisher r. Gas Co., 1 Pears. (Pa.) and prove by parol that the corpora- 118; Jackson c. Market Co., 12 W. N. tion, as the real party in interest, C. (Pa.) 190. adopted, ratified and undertook to 4 Lee v. Pittsburgh Coal & Mining carry out the terms of the contract in Co., 56 How. Pr. 873; s. c., 75 N. Y. such a manner as to become bound 601. thereby. Cases as to the lack of a 1 Farmers' Bank r. McKee, 2 Pa. St. president's power, unless it be speci- 818. ally conferred by the managing board: 182 POWER OF AGENTS AND OFFICERS. [ 142 acts of an authorized agent within the scope of his authority, from which the promise may be implied, must be shown to bind a corporation by an implied promise. 1 It is not in the power of the president of a corporation to borrow money in the name of the corporation and pledge its responsibility, without authority con- ferred by the charter or by-law of the corporation, or a resolution of the directors. 2 Under a by-law of a corporation giving the president " the general charge and direction of the business of the company, as well as all matters connected with the interests of the corporation," he has no authority to do an act which, by another by-law of the corporation, is expressly given to a separate committee. 3 A president cannot borrow money on his own note and bind the corporation for the loan by falsely representing that he wishes the money for his corporation. 4 The president of a corporation, having full personal charge of the business which the corporation was organized to transact, represents the corpora- tion, and, prima facie, has power to do any act which the direct- ors can authorize or ratify. 5 Unless authorized by the charter or by-laws of a corporation, its president has no authority to indorse and negotiate notes which are its property. But his authority to do so may be presumed from his uniform practice in such mat- Holbrook v. Fauquier, etc., Turn- Brooklyn Gravel Road Co. . Slaugh- pike Company, 3 Cranch C. Ct., ter, 33 Ind. 185; First National Bank 425; Wait v. Nashua Armory Assn., i\ Kimberlands, 16 "W. Va. 555. That (N. II.) 23 Atl. Rep. 77; s. c., 34 Cent, the power of a president in making L. J. 119; 14 Law Rep. Anno. 356; contracts on behalf of a corporation is Mt. Sterling, etc., Turnpike Road Co. . restricted to the authority being con- Looney, 1 Mete. (Ky.) 550; s. c., 71 Am. f erred on him by the corporation, see Dec. 491; Bacon r. Mississippi Insur- Bacon v. Mississippi Ins. Co., 31 Miss. ance Co., 31 Miss. 116; Walworth 116. County Bank v. Farmers' Loan & ' Mount Sterling & Jeffersonville Trust Co., 14 Wis. 325; Titus v. Cairo, Turnpike Road Co. t. Looney, (1858) etc., R. R. Co., 37 N. J. Law, 98; 1 Mete. (Ky.) 550. Dawes v. North River Insurance Co., * Life & Fire Insurance Co. v. Me- 7 Cowen, 462; Mahone v. Manchester, chanics' Fire Ins. Co., 7 Wend. 31. etc., R. R. Corp., Ill Mass. 72; s. c., 3 Market Co. r. Jackson, 102 Pa. St. 15 Am. Rep. 9; Marine Bank x. 269. Clements, 3 Bosw. 600; Lyndon Mil- 4 Wright's Appeal, (1882) 99 Pa. St. Co. v. Lyndon Literary & Biblical 425; citing Angell & Ames on Corp. Inst., 63 Vt. 581; s. c., 22 Atl. Rep. 220-297; Martin v. Great Falls 575; 25 Am. St. Rep. 783; Westerfield Manufacturing Co., 9 N. H. 51. v. Radde, 7 Daly, 326; Western R. R. 5 Oakes v. Cattaraugus Water Co., Co. v. Bayne, 11 Hun, 166; Hodge v. (1894) 143 N. Y. 430; s. c., 38 N. E. First National Bank, 22 Gratt. 51; Rep. 461; 62 N. Y. St. Repr. 445; 142] l'KI\ All. i "KI'oKAIIoNS. Under authority given him by the director.- of u hanking corporation to sell certain stock l>elonging to it, the president of the hunk, where uninstrueted to the eoiitrary, would have author- ity to employ a broker to sell it. 3 The act- !' <-lerk- of :t eorp<>- ration in making unauthori/ed purchases for the corporation on credit may he ratified by its president. 3 l>y virtue of his office, a president of a corporation may collect .-nb-criptions to tin- capital stock. 4 In a Missouri case a corporation, a transfer com- pany, was held liable upon promiory note.-, given for the pur- chase of mules for its use, and signed in its name by its presi- dent. 5 Hastings r. Brooklyn Life lus. Co., 138 corporation, and did not require a pre- N. Y. 473; s. c., 84 N. E. Rep. 289; vious resolution of the board of Conover r. Insurance Co., 1 N. Y. 290; directors. Booth c. F. & M. N. Bank, 50 N. Y. 4 East New York, etc., H. H. Co. r. 396; Leslie r. Lorillard, 110 N. Y. 519; Lighthall, 5 Abb. Pr. (N. S.) 458; a. c.. a. c., 18 N. E. Rep. 363; Holmes, 36 How. Pr. 41; li Hobt. 407. In Booth & Haydens r.Willard, 125 N. Y. Georgia Company r. Castlcberry. (1871) 75; s. c., 25 N. E. Rep. 1088; Patter- 43 Ga. 187, where the corporation was son v. Robinson, 116 N. Y. 193; s. c., of the same name- with a partnership 22 N. E. Rep. 372; Rathbuu r. Snow, doing business by the same agent be- 123 N. Y. 343; s. c., 25 N. E. Rep. fore the date of the charter, it was 879; New York P. & B. R. R. Co. held that the assumption of a debt due r. Dixon, 114 N. Y. 80; H. c., 21 N. E. by the old partnership with no new Hep. 110. consideration was outside of the scope 1 Marine Bank r. Clements, 6 Bosw. of the charter, and, therefore, outside 166. of the scope of the president's duties, * Sistare r. Best, 16 Hun, 611. as they were derived from the nature 8 Silva v. Metropolitan Drug Co., 42 of his office, and even a written con- N. Y. Super. Ct. 307. In Brouwer t. tract promising to pay this debt would Harbeck, 1 Duer, 114, an insurance be of doubtful validity unless there company was authorized by its charter was special authority from the corn- to receive premium notes in advance pany. and negotiate them to raise money for 5 Sparks r. Dispatch Transfer Co., the payment of losses or otherwise in (1891) 104 Mo. 531; s. c., 15 S. W. It. p. the course of its business. The presi- 417; 24 Am. St. Rep. 851; 12 Law Hi p. dent of the corporation was empowered Anno. 714; 33 Am. & Eng. Corp. Cns. by its by-laws to sign policies ami trans :{73. "The power of | the president | act the ordinary business of the corpo- to bind [the corporation |." said the ration. It was held that the borrowing Supreme Court of that state, "isgov- of money and hypothecation of these erned by the law of agency. The premium notes for the purpose of pay- principle underlying is the same. ing losses, and afterwards ha\ ing these whether the principal be a corporation notes discounted by tin- lender in pay- or an individual. It is now well sti,il>l, , .-mil contain nothing but Jackson's name as maker . so that this case is not authority, because the facts are entirely different.' It is t rue, however, that, in this case, Judge SBEHWOOD J! 186 POWEK OF AGENTS AND OFFICERS. [143 gage could not, therefore, be enforced for its payment. The court held that the refusal to find that these notes were made and dis- counted for the accommodation of the president individually, and that the debt was not contracted in the business for which the company was created, was justified by the evidence. 1 dence to remove the doubt.' So that it seems clear that the Supreme Court placed its decision upon the fact that, upon the face of the paper the ambiguity appeared. That court would never have held that there was any ambiguity on the face of the notes sued on [there]. Falk v. Moebs, 127 U. S. 597. In 31 Mo. 193 (Smith . Alexander), the action was on the fol- lowing note : ' $500. ST. Louis, Mo., July 22, 1855. ' Ninety days after date I promise to pay to the order of Messrs. Smith & Co., $500, for value received, negotiable and payable without de- falcation or discount. ' [Signed] J. H. ALEXANDER, ' Treasurer, Ohio & Miss. It. R. Co.' " In that case Alexander.having been sued on this note, was allowed to show that he was treasurer of the Ohio rail- road, and that he gave the note simply as agent of said company, Judge EWENG saying : ' A mere addition to the name of the party signing the .con- tract cannot be regarded as a certain indicium that it was made on behalf of another. When, however, it is doubtful from the face of the contract whether it was intended to operate as a personal engagement of the party signing it, or to impose an obligation on some third person as principal, evidence is admissible to show the character of the transaction.' So we see that Judge EWING placed his rul- ing on the doubt appearing on the face of the note whether it was the obliga- tion of Alexander or the railroad company." 'Martin r. Niagara Falls Paper Manufg. Co., (1890) 122 N. Y. 165; s. c., 25 N. E. Rep. 303, affirming 44 Hun, 130. The court said: "The burden of proving that the notes were not given in the business of the cor- poration rested upon the defendant. [The plaintiff], the president of the bank, testified that he had no knowl- edge of the proceeds being used for Woodruff's benefit, and the facts of the case do not bring it within the rule which puts upon a holder of a prom- issory note or other corporate obliga- tion the burden of proving by direct evidence that it was issued pursuant to a vote of the trustees, or for a cor- porate debt, or that the corporation received the consideration, in order to establish a corporate liability. The cases where this rule has been held are those of special agency. The general rule, of course, is that the agent's authority in all cases must be shown to charge the principal with an act performed by the agent, but in many instances this fact may be estab- lished by presumptive evidence. And this is so where the corporation, whose obligation is in question, is engaged in a business, the nature of which and the duties in relation to which de- volved upon its officers, require or justify the giving of negotiable- instruments without being authorized thereto by a special vote to that effect. If the scope of the agent's authority be proven and it appears that acts like the one in question would, under ordinary circumstances, be within the authority, a presumption arises that the necessary circumstances did exist and that the act in question was au- thorized. Morawetz on Corp. 616 ; Lincoln r. Iron Co., 103 U. S. 412; 144] PRIVATK COKPOKATION8. 1ST 144. Power of president as to transfer of assets. There is no power in a president and general manager of a cor- poration, as such, to borrow money for the corporation and to assign the assets of the corporation as a security for the loan, 1 but in accordance with the uniform practice of a corporation, its president may transfer the title to a promissory notr I- indorsement signed by him as president. 2 The presumption that the president of a corporation had power to execute it, is curried with an assignment of a claim owned by the corporation Patterson v. Robinson, 116 N. Y. 193 ; F. & 31. Bank r. B. & D. Bank, 16 N. Y. 125; N. R. Bunk r. Ayinur, 3 Hill, 262. It was said in Farmers' Hunk r. Butchers & Drovers' Bank that the sound rule is that 'when a party dealing with an agent has ascertained that the act of the agent corresponds in every particular, in regard to which such party has or is presumed to have any knowledge, with the terms of the power, he may take the representa- tions of the agent as to any extrinsic fact which rests particularly within the knowledge of the agent, and which cannot be ascertained by a comparison of the power with the act done.' The court then said : ' The case is analogous to the giving of a firm note by one partner for his own benefit. When such a note is given in a transaction unconnected with the partnership business and known to be so by the person taking it, the other partners are not bound without their consent, but, primn fade, the firm note binds all the partners, and the burden of proving a want of authority lies upon the firm. Doty r. Bates, 11 Johns. 544 ; Gansevoort P. William*, 14 \Vcnd. 133-188.' The nature of the business of the paper company justi- I'u-d the giving of negotiable paper, and the making of such instruments was an incident to the IHIMI: carried on. It was a frequent occur- rence in the management of its affairs. The by-laws which required the secre- tary to sign all obligations of the com- pany had never had any force and were unknown to the bank. What the bank did know was that Wood- ruff [who made the notes] was presi- dent, general manager and financial agent of the company. He was such by the general acquiescence of the stockholders. He and * * * daugh- ter owned the stock of the company. For twenty-five years there had been no meeting of the stockholders for tho election of officers and very few meet- ings of the trustees, and Woodruff had managed the business as if it was his own. He bought its supplies, sold its products and paid its debts. No other person was shown to have had a voice in the management of its affairs. Under such circumstances, the giving of a promissory note in the name of the company for money borrowed was not only within the apparent scope of Woodruff's authority, but the long period during which, without inter- ference, he was permitted to manage the company's affairs, justified the inference that it was within his actual authority. Martin r. Webb, 110 U. S. 7. The bank was, therefore, justi- fied in relying upon the presumption that the notes, being made in the name nf tin- company, were given in its business and for its benefit." 1 Hyde r. Larkin, (1889) 8T> Mo. App. 305. * Scott r. Johnson, 5 Bosw. -Ji:?: Merchants' Bank r.McColl, 6 Bosw.473. 188 POWER OF OFFICERS AND AGENTS. [ 145 cuted by its president under its corporate seal, reciting an authority from the board of directors to execute it. 1 When the transfer of a note belonging to a corporation has been authorized by a reso- lution of its board of directors, its president has power to indorse it over. 2 As against the parties to a note, the presumption is that the president of a corporation indorsing it over was author- ized to do so. 8 The president of a corporation may be author- ized to indorse its notes by the directors, who with the president by the charter have full power to conduct its aifairs. 4 145. When a president's act is binding. A manufactur- ing corporation of Connecticut, for the purpose of manufacturing a certain class of goods and to prepare for the same, arranged with a New York firm of commission merchants that the latter advance to the corporation, as called for, money to the amount of $100,000, to be secured by a mortgage upon its real property and its personal property to this extent, that the goods manufactured of this kind would be shipped to the firm to be sold on commis- sion and the avails of the sales applied to the settlement of the bond and mortgage. Advances were made to an amount slightly exceeding the amount of the limit ; goods were shipped and sold on commission, etc. The president of the corporation, its prin- cipal business and financial manager, requested this firm to make advancements to the corporation in addition to those contemplated and secured by mortgages, and verbally agreed that these should be secured by the mortgages, by the products of the mill previ- ously and subsequently consigned to them, and certain shares of stock which the corporation held in pledge. There was advanced upon the agreement a large sum of money in addition to that already advanced. There was no vote either of stockholders or directors authorizing such borrowing or agreement. In an action for foreclosure of the mortgage the Supreme Court of Connecti- cut held that the firm was entitled to a decree of foreclosure and sustained the right of the firm to apply, as it had done, the pro- ceeds of the sale of products of the corporation to the later 1 Corbit f. Nicoll, 12 N. Y. Civ. Pro. the Metropolis, 8 Gill. (Md.) 64. As 235. to president's power to draw, accept, 1 Clark r. Titcomb, 42 Barb. 122 and indorse bills of exchange, see 3 Elwell c. Dodge, 33 Barb. 336. Jones v. Hawkins, 17 Ind. 550; Alli- 4 Merrick r. Trustees of the Bank of son v. Hubbell, 17 Ind. 559. 146] PRIVATE CORPORATIONS. L89 advances made under this arrangement with the president instead of upon the bond which the mortgage was executed to secure. 1 146. Illustrations of the power of a president. The tracts binding a corporation which the president thereof lias authority to make, by virtue merely of his official position, are confined to those relating to matters arising in the ordinary com - 1 Lewis r. Hartford Silk Manufac- turing Co., (1887) 66 Conn. 25. In its opinion as to the binding effect upon the corporation of the transactions of its president the court said: " No vote [of stockholders or directors] was nec- essary to make the acts of [the presi- dent] binding upon the corporation. Having made him its principal and general financial manager and agent, with no limitation upon his power, and having notified all persons concerned of such appointment, the company is bound by his act of borrowing for its benefit and of pledging [the products of the mill] or any other personal property for repayment. He was clothed with power to borrow money for its necessary and proper uses from any person who would lend; to sell [their products] and repay; or consign [them] with leave to retain the pro- ceeds; or use any other property for that purpose. And as in these matters, in legal contemplation, he was the cor- poration, he could bind it as effectu- ally as it could bind itself by corpo- rate vote when taking up money by an agreement that payment should be secured by the previous mortgage, pro- vided (in the interest of other credit ors) the aggregate should not > the extreme limit of one hundred tlmu^md dollars. Of course a cor- porate vote was necessary to a valid mortgage by its financial agent of the re.il estate of the [corporation) to the plaintiffs. But all money or other personal property or rights therein coming into its possession because of the mortgage security thus given were at the disposal of its general un- limited financial agent, equally with any other personal projMJrty belonging to it. A corporate vote is not made necessary to the valid disposition of this right in personal property because of the mention of it in a sealed in- strument. Therefore, if we should concede that, as against the plaintiffs, the agreement between them and the [corporation] constituted a valuable right in the possession of the latter, nevertheless [its president] had abso- lute power of disposal of this right for its benefit. He could exchange, sell, pledge or annul it by his indi- vidual action at his discretion. Pre- sumably the agreement by the mort- gagor to deliver, and by the mortgagee to receive [the products of the mill], in payment was for the benefit of the latter, and although it has a place in the condition of the mortgage, they were under no obligation to see in it any limitation upon the power of the mortgagor's general financial agent thereafter to borrow, if they should be willing to lend, other and additional sums for its benefit, and make pay- ment therefor in money, [products of the mill], or any other personal prop- erty. The purpose of the mortgagee was to give satisfactory security for the loan of one hundred thousand dollars, not at all to bar itself from borrowing other money if a willing lender could be found. As it is the company's duty always to pay ii-s debts, the application of any of its personal property or rights in stock at any time to that use by its accredited 190 POWEE OF AGENTS AND OFFICERS. [ 146 of the business of the corporation. 1 And a corporation, for instance, engaged in the business of conveying water through ditches for sale to miners, would not be bound by a contract of its president for a purchase of additional ditch property with a view of extending the operations of the corporation, as this would not be a matter within the ordinary course of the business of the corporation. 2 The managing board of a private corporation hav- ing conferred, by a resolution of such board, upon the president of the corporation the full power of the corporation in reference to municipal street work, the president of the corporation may contract with a city on behalf of the corporation to improve a street. 3 If made the duty of a president of a corporation to gen- erally supervise its entire business, and it be provided that all of the property of the corporation shall be under his control, by a by-law of the corporation, and it appears that for many years its president has acted as its attorney, and looked after its litigation, such facts will be evidence of his authority to employ counsel to look after the interests of the corporation in any pending litiga- tion. 4 A corporation may be bound by its president's entering satisfaction of a judgment in its favor, after an assignment to a third person, though the satisfaction piece be not under the seal of the corporation. 5 The president of a manufacturing corpora- tion, who is also its superintendent, clothed with general author- ity to contract by parol, without the seal of the corporation, for financial agent without limitation is thority to bind the corporation for the binding upon it. And whatever valu- purchase of a house to be used as an able property right as against [the office for the corporation and as a pledger], the [corporation] had in the boarding house for the laborers it em- use and application of his shares, ployed under a resolution of the cor- [stock of another corporation pledged poration vesting him with discretionary to it], that right was at the disposal of power as to "all matters pertaining to [its president] for the benefit of the the prosecution of the projects of the company by sale or pledge, [the company," and if his authority were pledger's] rights of course not to be doubtful, the acts of the corporation affected by any act of [the president] amounted to a ratification of the not authorized or ratified by himself." contract. 1 Blen v. Bear River & Auburn Water 3 Oakland Paving Company u. Rier, & Mining Company, (1862) 20 Cal. (1877) 52 Cal. 270. 602. * Wetherbee v. Fitch, (1886) 117 111. 9 Ibid. In Shaver r>. Bear River & 67; s. c.. 7 N. E. Rep. 513. Auburn Water & Mining Co., (1858) 6 Booth v. Farmers & Mechanics' 10 Cal. 396, the court held that the Bank, 50 N. Y. 396. president of this corporation had au- ; 146] I'i:i\ A I I <-.,|; i -ORATIONS. 191 making and delivering its manufactured -roods, has like authority, unless the pou-rr i- withdrawn, t.. aiithori/r the termination and rel.-a.-e of Mich a contract. 1 A railway corporation will IK? bound I iy a contract made l>y it< piv>idcnt, in its behalf, and within the scope of its chartered powers, to pay fixed .-uin> of money to the proprietor- of a railway bridge for the use of the same, where it i.- made known to the directors and stockholders and not disap- proved lv them within a reasonable time. 2 No proof of the authority of the president of a corporation will be required to establish ari assignment made by the corporation, through its president, of a special tax bill. 3 The lease of an office is within the usual powers of the president of a corporation, and his decla- rations, when making such a con tract, are evidence of the intended purpose for which it may lie leased. 4 A corporation will be bound by the act of its pre.-ident. after its organization, in receiv- ing a conditional subscription. 6 A corporation will be bound by its president's receiving a promissory note, on settlement against the maker, though made payable to the president or his order by his individual name, if he has been in the habit of acting as its business agent, with the knowledge of the corporation and with- out objection on its part. 6 It is within the scope of a president's authority, as president, to undertake to bring before the l>oard of directors of a corporation, at a time specified, a demand against the corporation for money borrowed by an agent of the corpora- tion, and the corporation will be bound to consider the demand at the time specified. 7 1 Indianapolis Rolling Mills r. St. Louis. Fort Scott & Wichita Railroad, (1887) 1'jo r. S. 256; 8. c., 7 Sup. Ct. Hep 548 ' Pittsburgh, Cincinnati & St. Louis Ry. Co. r . Kcokuk & Hamilton Bridge Co., (1889) 181 U. S. 871; s. c., 9 Sup. Ct Kep. 770. 'Bambrick r. Campbell, (1889) 37 Mo. App. 460. 4 Baltimore & Philadelphia Steam- boat Co. r. McCutolieon. 18 Pa. St. i:?. "Pittsburgh & Connellsville R. R. Co. r Stewart, 41 Pa. St. 64. 'Dougherty e. Hunter, 54 Pa. St. 880. As to power of president to ap- point attorneys for looking after liti gation of corporation, see Reno Water Company r. Leete, 17 Nev. 208; 8. c., 30 Pac. Rep. 702; American Insur- ance Co. r. Oakley, 9 Paige, 496; a. c., 38 Am. Dec. 561; Wctherl>ee r. Fitch. 117111. 67; s. c., 7 X. E. Rep. 513. As to president's indorsing commercial paper for tmnsfer.sce Irwin r. Bailey, 8 Mis*. .V33; Howland r. Myer, 8 N. Y. 290; Caryl r. McElrath, 8 Sandf. 176; Palmer r. Nassau Bank, 78 111. 880. As to power of tin- president of a bank to contract for the bank, see Hawkins. 58 Miss. 702. 1 Union Gold Mining Co. r. Rocky Mountain Bank, 1 Colo. 581. As to making sales of commodities of cor- 192 POWER OF AGENTS AND OFFICERS. 147. Illustrations of his lack of power. The president of a corporation has no legal power or authority to deplete the coffers of the corporation by instructing the treasurer to refuse to accept subscription money when tendered. 1 An authority given by a resolution of the board of directors to a president of a corporation " to make all contracts and draw on the treasurer for all disbursements (countersigned by the secretary) under the direction of the board," does not confer upon the president power to make contracts for, or otherwise bind, the corporation without the " direction of the board " of directors, and his acceptance of a bill drawn upon him as president, without the direction of the board of directors, would not bind the corporation. 2 There is no power in the president of a corporation, by virtue of his office, to purchase or sell real property for the corporation at his discre- tion. Such power can be conferred only by the board of trus- tees. 3 A resolution being upon the minutes of a corporation for- bidding its president purchasing such goods, the president cannot bind it for goods purchased. 4 Where a contract has been entered into by authority of its board of directors, the president of a cor- poration in the usual course of the except in the discharge of their ordi- business of the corporation, see Horton nary duties. The court, in Potts v. Ice Cream Company T. Merritt, 63 Wallace, supra, further said: " It is Hun, 638; s. c., 17 N. Y. Supp. 718; true that if the acts of the president 43 N. Y. St. Repr. 416. As to the ef- are ratified by the corporation, or the feet of a president's acknowledgment corporation permits a general course of a debt, taking it out of the Statute of conduct or accepts the benefit of his of Limitations, see Morgan v. Her- act, they will be bound by it. But the chants' Bank, 13 Lea, (Tenn.) 234. general rule is that the president can- 1 Potts v. Wallace, (1892) 146 U. S. not act or contract for the corporation 689, 705; s. c., 13 Sup. Ct. Rep. 196, except in the course of his usual du- in which the question whether or not ties. And the rule is still stronger a subscriber to the stock had been re- against the power of the president to leased from his obligation to pay it for bind the corporation by giving up its the benefit of the creditors by the ac- securities or releasing claims in its tion of the president or otherwise, favor." The court followed Bank of the United * Lazarus, Use of, v. Shearer, (1841) States v. Dunn, 6 Pet. 51, where it was 2 Ala. 718. held that an agreement by the presi- 8 Bliss v. Kaweah Canal & Irriga- dent and cashier that the indorser on a tion Co., (1884) 65 Cal. 502. note shall not be liable on his indorse- 4 Westerfield . Radde, 7 Daly, 326. ment does not bind the bank; that it In Smith v. Smith, (1875) 117 Mass. 72, is not the duty of the cashier and it appeared that a corporation held a president to make such contracts, nor mortgage of land assigned to it by the have they the power to bind the bank mortgagee as collateral security for the 147] PRIVATK CORPo RATIONS. 193 poration, without the assent of the directors, has no power to modify it. 1 The president of a corporation, as such, has no power to bind the corporation by any act outside his official duty. 2 The mperintendent of a mining corporation ha* n<> authority, eirtute ojficii merely, to borrow money on the credit of the corporation. 3 And the president of such a corporation has no power, as presi- payment of a note which was also se- cured by a mortgage of other land owned by him. By vote afterwards the corporation authorized its presi- dent and secretary to cancel the prin- cipal mortgage, but, by mistake, the president discharged both mortgages upon the record. There was a provis- ion in the charter of the corporation that the president should keep the cor- porate seal, but the only provision in its charter or its by-laws relating to the execution of contracts in its behalf was, that the corporation should be bound by all instruments which it should lawfully make, when executed in its name and pursuant to its rules, signed and delivered by the presi- dent, secretary, treasurer or other officers or persons it should appoint, and sealed by its common seal. The Supreme Court of Judicature held that the discharge of the collateral mort- gage was without authority from the corporation and void. 1 Western Railroad Co. r. Bayne, 11 Hun, 166; 8. c., 75 N. Y. 1. For classes of contracts or agreements in which a president cannot bind the cor- poration, see Spyker F. Spence. 8 Ala. 388; First National Bank /-. Reed, 86 Mich. 263; St. Nicholas Insurance Co. v. Howe, 7 Bosw. 450; First National Bank /-. Bennett, 33 Mich. 520; Leavitt 9. Connecticut Peat Co., 6Blatchf. 189; Leggett v. New Jersey Manuf. Co., 1 N. J. Eq. 541; s. c., 23 Am. Dec. 728; Fitzhugh v. Franco-Texas Land Co., 81 Tex. 806; 8. c., 16 8. W. Rep. 1078; McKeag r. Collins, 87 Mo. 164; Olney . Chadsey. 7 R. I. 224; Hodge*. First National Bank. 22 Gratt. 51; Brouwer 25 r. Appleby, 1 Sandf. 158; Hone r. Allen, 1 Saudf. 171. note; Thompson . McKee, 5 Dak. 1T',>; 8. c., 87 N. W. Rep. 367; Ellsworth Woolen Manufg. Co. v. Faunce, 79 Me. 440; 8. c., 10 All. Rep. 250; Ashuclot Manufg. Co. v. Marsh, 1 Cash. 507; Globe Works v. Wright, 106 Mass. 207; White v. West- port Cotton Manufg. Co., 1 Pick. 215; 8. c., 11 Am. Dec. 168; E. Carver Com- pany P. Manufacturers' Ins. Co., 6 Gray, 214; Markey r. Mutual Benefit Ins. Co., 103 Mass. 78; Merchants' National Bank /. Kawls, 7 Ga. 191; s. c., 50 Am. Dec. 394; Asher r. Sutton, 31 Kans. 286; Reynolds,etc.,Constr. Co. v. Police Jury, 44 La. Ann. 863; 8. c., 11 So. Rep. 236; Potts v. Wallace, 146 U. S. 689; s. c., 13 Sup. Ct. Rep. 196; Bank of United -States v. Dunn, 6 Pet. 51; Weeks t>. Silver Islet Consolidated Mining Co., 55 N. Y. Super. 1; B.C., 8 N. Y. St. Repr. 110; First National Bank 0. Lucas. 21 Neb. 280; s. c., :51 N. W. Rep. 805; Foster r. Essex Bank. 17 Mass. 479; 8. c., 9 Am. Dec. 168; Dowd t>. Stephenson, 105 N. C. 467; s. c., 10 8. E. Rep. 1101. * Perry P. Simpson Waterproof Man- ufacturing Co., 37 Conn. 531. In Stallcup v. National Bank of the Re- public, (1888) 15 N. Y. St. Repr. 89, in the absence of proof of the authority of its president to accept drafts of a corporation upon the bank, and in the face of evidence that the obligee of the drafts knew that similar transactions of the president had failed to meet tin sanction of the directors, the bank was held not to !>< liable. 1 Union Gold Mining Co. r. Rocky Mt. Bank, 2 Colo. 565. 194 POWER OF AGENTS AND OFFICERS. [ 148 dent, to undertake, in the corporate name, for the repayment of such an unauthorized loan. 1 The Illinois Appellate Court sus- tained a decree dismissing a bill to compel a corporation to renew a lease of a building belonging to it, because of a lack of power or authority in the president of the association to bind it by an agreement to make or renew a lease of its estate. 2 148. What would show the authority of a president. A corporation admitting, at the trial of a case, that the one mak- ing the contract which the corporation claimed to be unauthor- 1 Ibid. cuting leases defined, and while it is 2 Koch r. National Union Building true that it has been said by the Su- Association, (1890) 35 111. App. 465; preme Court of this state that an act affirmed in 137 111. 497; s. c., 27 N. E. done by the president will be presumed Rep. 530. The court said: "The to be legally done and be binding on president of a corporation has not, as the body, that rule applies 'in the ab- matter of law, and merely by reason sence of legislative enactment or pro- of his holding said office, power or au- vision made in the by-laws.' Smith thority to execute deeds, mortgages or v. Smith, 62 111. 493. The business leases of the real estate of the corpora- affairs of corporations are controlled tion. Hoyt T. Thompson, 19 N. Y. exclusively by their boards of direct- 207. The implied powers of the presi- ors, and such board may undoubtedly dent of a corporation depend upon the invest the president with authority to nature of the company's business, and bind the corporation by deed or lease, the measure of authority delegated to either by express resolution or by an him by the board of directors. It acquiescence in his assumption of au- seems that the president has no greater thority in that respect, which would powers, by virtue of his office merely, justify persons who dealt with him in than any other director of the com- the inference that he had such author- pany, except that he is the presiding ity in fact. So if the act is one inci- officer at the meeting of the board, dent to the execution of the trust re- Morawetz on Corporations, 537. posed ir. him, such as custom or neces- There is no proof in the record as to sity has imposed upon this office, he what the business of [defendant cor- may perform it without express au- poration] is, but it is shown that its thority. Mitchell v. Deeds, 49 111. 416. business, whatever it may be, is car- As we understand Union Mutual Life ried on under certain by-laws, section Ins. Co. v. White, 106 111. 67, it simply 9 of which by-laws relates to the duty holds the corporation bound by acts of the president, and, among other which, from the course of its business, things, provides that 'he shall exe- were within apparent power of the cute all bonds, contracts, leases or president and general agent when those other instruments required to be made officers were acting for the corporation or executed by authority of the board in a state where the corporation was for and 011 behalf of the association, doing business by comity, the home which shall also be signed by the sec- or residence of the corporation being retary.' Here we find the authority in anothsr state." of the president with reference to exe- PRIVATE CORPORATIONS. 195 ized was its president and superintendent as well as general manager, the Supreme Court of California held to be sufficient evidence of his authority to make the contract, and it was not necessary, upon the party seeking to enforce it, to show any vote or other corporate act constituting him the agent of tin- corporation. 1 1 Crowley P. Genesee Mining Com- pany, (1880) 55 Cal. 278. It was said in the opinion: ' ' The common-law rule that a corporation has no capacity to act or to make a contract, except un- der its common seal, has long since been exploded in this country. Even in England it has been found to be im- practicable, so that the classes of cases which constitute exceptions to the rule have become so numerous that the exceptions have almost abrogated the rule. In the United States nothing more is requisite than to show the au- thority of the agent to contract. That authority may be conferred by the cor- poration at a regular meeting of the directors, or by their separate assent, or by any other mode of their doing such acts. If this were not so," says Mr. Chief Justice REDKIELD, "it would lead to very great injustice, for it is notorious that the transaction of the ordinary business of railways, banks, and similar corporations in this country, is without any formal meet- ings or votes of the board. Hence, there follows a necessity of giving ef- fect to the acts of such corporations, according to the mode in which they choose to allow them to be transacted. If this were not done, it would become impossible to dispose of such contracts with any hope of reaching the truth and justice of the right and duties of the several parties involved. * * * This is merely holding corporations to such rules of action as they see fit to adopt for their own guidance and the transaction of their business." Bank of Mi. Id Id Miry t>. Rutland R. R. Co., 80 Vt. 159. * * * It would not be in accordance with justice or the inter- ests of society to allow corporations to deny the authority of such agents, or to repudiate contracts made by them for work and labor from which they derive benefit. So, in Goodwin v. Union Screw Company, 34 N. H. 378, where it appeared that the business of manfacturing screws was conducted under the general management of one of its directors, who made verbal con- tract with the plaintiff to work in the shop, at manufacturing screws for the defendant, the Supreme Court of New Hampshire held that where one has the actual charge and management of the general business of a corporation, with the knowledge of the members or the directors, this is sufficient evidence of authority, and the company will be bound by his contracts made in their behalf, within the apparent scope of the business intrusted to him. And in Wilson Sewing Machine Company r. Boyington, 73 111. 534, where it ap- peared that an architect had drawn plans for a building for a corporation under a verbal contract made with one who was acting as president, execu- tive manager and principal stock- holder of the company, the Supreme Court of Illinois held that the contract was binding upon the corporation. " A corporation," says the court, " which suffers appearances to exist, and its officers and agents to so act as to give one employed by such officers and agents reason to believe that he is employed by the company, becomes liable to such person as his employee, to pay for the services rendered." 196 POWER OF AGENTS AND OFFICERS. [ 149, 150 149. Question of authority for the jury. In a case before the New York Court of Appeals, which was an action upon cer- tain promissory notes made payable to a domestic corporation and indorsed by its president, it appeared .that the corporation had its main office in the city of New York, and while a portion of its business was transacted and most of its purchases and sales were made in other states and countries, its principal business operations were carried on in that city, and the annual meeting of its directors was there held. The person who indorsed these notes was president and treasurer, the general manager of all the corporation's business affairs in that city, and the only officer hi attendance at its office there ; he paid the current accounts of the company and indorsed checks made payable to its order. The discount of business paper and the use of its money for its pur- poses, and the account of the same on its cash books were daily and permitted transactions. The corporation had no cash capital, and its working capital was borrowed on the credit of the com- pany, and this borrowing was done principally by the president, and mainly by the use of paper indorsed by him in the name of the corporation. The evidence on the trial tended to show that this was with the knowledge and acquiescence of the directors. The Court of Appeals held that it was error in the lower courtr to dismiss the complaint ; that the evidence required the submission' of the question of the authority of the president of the corpora- tion to bind it by indorsements to the jury. 1 150. Power of a president as to execution of notes. The making of promissory notes of a corporation by its president to one who, at his instance and request, may advance money to pay indebtedness of the corporation to save it from a law suit, is within the scope of the business intrusted to him as superintend- ent and general agent of the corporation. 2 1 Fifth National Bank of Providence, Co., 44 Cal. 106; Wilbur n. Lynde, 49 R. I., v. Navassa Phosphate Company, Cal. 290. In Farmers & Mechanics' (1890) 119 N. Y. 256; s. c., 23 N. E. Bank of Savings v. Colby, (1883) 64 Rep. 737. Cal. 352, it was held that a note signed *Seeley t>. San Jose Independent by one as president of a corporation Mill & Lumber Co., (1881) 59 Cal. 22. and another as secretary pro tern. , they, The court distinguished Hall v. Au- at the time of its execution, discharg- burn Turnpike Co., 27 Cal. 255; Davis ing the duties of those respective v. Rock Creek, L. F. & M. Co. , 55 Cal. offices, was the note of the corpora- 359; San Diego r>. S. D. & L. A. R. R. tion, and imposed no personal liability 161] PRIVATE CORPORATIONS. 197 151. In what cases the authority of a president may not be questioned. The knowledge of all tin- members of a board of directors of a corporation, except one, who was absent from the county, the concurrence at the time of those who remained in the county, or their long-continued acquiescence afterward, has been held by the Supreme Court of Judicature of M;i.--;u-husett8 to have made valid, as the act of the corporation, the execution of a mortgage of its personal property, without special authority tin-refer, by its president, who was general manager of its busi- ness. 1 In case the president of a corporation, who is its manag- ing officer and makes its contracts, enters into a fraudulent con- tract on its behalf, the corporation cannot escape liability on the ground that the president conducted the transaction without its knowledge or concurrence. 2 The by-laws of a corporation can- not be set up by the corporation as counteracting the authority conferred upon its president by permitting him to hold himself out to the public as its general manager and director of its busi- ness. 8 A corporation accepting the benefit of work done or mate- rials furnished, upon the order of its president, will be estopped to deny the power of the president to make the contract. 4 The authority of a president of a corporation to subscribe for stock MI another may be presumed upon the facts that the stock was received by an agent of the corporation he represented and retained by* it, and that the stock on several occasions may have been voted by an officer or member of such corporation. 5 upon them as individuals. In Na- tional Spraker Bank r. Tread well Co., (1894) 80 Hun, 363, where a promis- sory note of a corporation was executed by its president, but not signed by its treasurer in accordance with the by- laws of the corporation, the Supreme Court of New York in General Term held that the fact constituted no de- fense to an action on the note, if the paper was riot diverted from its orig- inal purpose and went into the hands of a borut fide holder and the corporation received tho benefit of the proceeds. 1 Sherman v. Fitch, (1867) 98 Mass. 59. 'Grand Rapids Safety Deposit Co. . Cincinnati Safe & Lock Co. , 45 Fed. Rep. 671. Marine Bank of Buffalo r. But- ler Colliery Co., 52 Hun, 612; 23 K Y. St. Repr. 318; s. c., 5 N. Y. Supp. 291; affirmed in 125 N. Y. 695; Bank of Attica v. Pettier & Styiims Mfg. Co., 49 Hun, 606; s. c., 1 N. Y. Supp. 483; 17 N. Y. St. Repr. 327. When a corporation is estopped to deny the authority of its president, see Alex- ander r. Brown, (1877) 9 Hun, 641. 4 Brown t. Wright, (1887) 25 Mo. App. 54 6 Elysville Manufacturing Co. r. Okisko Company, 1 Md. Ch. 392; af- firmed in 5 Md. 152. In Grape Sugar Manufacturing Co. r. Small, (1874) 40 Md. 395, an action to recover for work done under a contract with the acting 198 TOWEB OF AGENTS AND OFFICERS. [152 152. Giving a judgment note New Jersey. The president of a corporation has no power, in virtue of his office, as president, to execute a bond and warrant of attorney for the entry of a judgment by confession against the corporation. 1 The president of this manufacturing cor- poration, the Court of Appeals held that it was not necessary to prove that the president was authorized by a di- rect vote or resolution of the corpora- tion to make the contract. The work being necessary to enable the corpora- tion to carry on the business for which it was incorporated, and accepted by it without objection, and without any intimation that its acting president was not authorized to make such contract, the jury on the trial might presume that the work was done by the author- ity of the corporation, or that it was subsequently accepted, and the con- tract ratified. In the same case it was further held that where, under the con- tract made with the acting president of the corporation after the certificate of incorporation was signed by the members of the proposed corporation, but before it was recorded, as required to constitute it a body politic under the General Incorporation Law, the work was done for the corporation and accepted after its incorporation was complete, the corporation would be estopped, both at law and in equity, from denying its liability on account of the same. See, as to the liability of corporations under similar circum- stances, Baltimore City P. Ry. r. Sew- ell, 35 Md. 251; Edwards v. Grand Junction Ry. Co., 1 Mylne & Cr. 650; Wesley Church v. Moore, 10 Pa. St. 273; Attorney-General v. Corporation of Leicester, 9 Beav. 546; Hughes T. Antietam Manufacturing Co., 34 Md. 324; Fister v. La Rue, 15 Barb. 323; Low to. Connecticut & Passumpsic Railroad, 46 N. H. 284. As to estop- pel of a corporation to deny the authority of its president to bind it where he has been held out to the public as possessing authority, see Ceeder r. II . M. Loud & Sons Lumber Co., 86 Mich. 541; s. c., 49 N. W. Rep. 575; 24 Am. St. Rep. 134; Sherman. Center Town Co. v. Swigart, 43 Kans. 292; s. c., 23 Pac. Rep. 569; 19 Am. St. Rep. 137; Fitzgerald Constr. Co. . Fitzgerald, 137 U. S. 98; 8. c., 11 Sup. Ct. Rep. 36; Olcott v. Tioga, etc., R. R. Co., 40 Barb. 179; First Nat. Bank . Kimberlande, 16 W. Va. 555; Fitzhugh v. Franco-Texas Land Co., 81 Tex. 306; s. c., 16 S. W. Rep. 1078; Washington Savings Bank v. Butch- ers', etc., Bank, 107 Mo. 133; s. c., 17 S. W. Rep. 644; 28 Am. St. Rep. 405; Dougherty v. Hunter, 54 Pa. St. 380; Libby v. Union National Bank, 99 111. 622; Neiffer r. Bank of Knoxville, 1 Head, (Tenn . ) 1 62. Estoppel by reason of a presumption that corporation has ratified a contract of its president. West Salem Land Co. v. Montgomery Land Co., 89 Va. 192; s. c., 15 S. E. Rep. 524; Belleville Savings Bank T. Wins- low, 35 Fed. Rep. 471; Bagaley v. Pittsburg Iron Co., 146 Pa. St. 478; s. c., 23 Atl. Rep. 837; Shaver v. Bear River, etc., Co., 10 Cal. 396. 1 Stokes v. Jersey Pottery Co., (1884) 46 N. J. Law, 237. Arguendo, DEPUE, J., for the court said: "The powers of the president of a corporation, rirtute ojficii, over its business and property are strictly the powers of an agent powers delegated to him by the directors, who are the managers of the corporation, and the persons in whom, as its representatives, the con- trol of its business and property is vested. If the corporation be organ- ized for business purposes, the presi- dent is its chief executive officer. He 152] PRIVATE CORPORATIONS. Court of Errors and Appeals of New Jersey has hold that such ;i judgment did not acquire validity from the fact that the money advanced hy the plaintiff was applied for the benefit of the com- pany. " From that fact," it was said, " a debt would arise and limy, without any special authority from the board of directors, perform nil nets of an ordinary nature which. by usage*or necessity, are incident to his office, and may bind the corpora- tion by contracts arising in the usual course of its business. Boonc on < 'orp. 144. To this extent, the* president, in virtue of his election as such, be- comes the agent of the corporation. Beyond the powers which usage and custom and the necessities and con- venience of business require in t In- executive officer of a corporation, he has no more control over the corporate- property and funds than any other din-dor. As illustrative of the re- stricted powers of a president of a corporation in the management of its business and control over its property, I will refer only to two cases in our own courts. In Titus v. Cairo ive control of their boards of directors, from whom authority to disp. their assets must be derived. The act of a president or other olVicer, unless it is shown to pertain to his official duty or to lie within the scop.- of his employment, cannot be regarded as the act of the corporation, and is not binding upon it. The authority re- quisite to charge* the company must, therefore, be derived from the board of directors.' s Vnx.ni, !s-l<)2. The other case, is Leggett v. New Jersey Ranking Co.. Snxt. 541. In that case the charter of a bank provided that the affairs, property and concerns of the corporation should be managed by its directors; and the Court of Chan- cery held that, although a mortgage executed under the authority of the board of directors would be valid, a mortgage executed by the president and cashier under the corporate seal, without the authority or concurrence of the board of directors, was not a valid instrument. The reasoning on which the cases cited were decided applies to the case now before the court. The plaintiff by his judgment and the execution thereon, has ac- quired a lien on all the property of the corporation; and I cannot find in principle any distinction between a mortgage or conveyance of the lands of a corporation and a judgment upon bond and warrant of attorney upon which the property, real and personal, of the corporation is taken. Such a transaction is not within the ordinary business of a corporation, which tin- president, as its executive officer is, in virtue of his oMicc. authori/.ed \.> tran-aet. There are cast's in which the powers of an officer of a corpora- tion, and his authority to act for the company, arc enlarged beyond those |io\\ers which are inherent in his nllice Hut the- s in which the agency of the officer ha> POWER OF AGENTS AND OFFICERS. [153 an obligation 011 tlic part of the corporation to pay the debt in common with its other debts would result ; but the plaintiff can- not hold his security which gives him a lieu upon the company's property, unless his security is a valid security thereon, especially when the rights of the other creditors are involved." l The facts that a president owned the bulk of the capital stock of a corpora- tion, and that he was the superintendent of its business and its treasurer, as well as the active manager of its affairs, and had been accustomed to borrow money for the use of the corporation, it has been held would not give him power to incumber its property by mortgage or confession of judgment for money borrowed. 2 153. The same subject Illinois. The Illinois Appel- late Court has said, as to the power of a president of a corpora- from the assent of the directors, pre- proof on that subject is that Cook sumed from their consent and acqui- [the president of the company] was escence in permitting the officer to the owner of all the capital stock of assume the direction and control of the company except two shares; that the business of the company. Taylor he was president and treasurer and on Corp. 202, 236-244; Ang. & A. on the active manager of the company, Corp. 299-302. Thus, when, in the using the money of the corporation as usual course of the business of a cor- he saw fit, and borrowing money for poration, an officer has been allowed the company so far as its banking in his official capacity to manage its business was concerned; that at one affairs, his authority to represent the time he effected a loan upon mort- corporation may be implied from the gage, but that the mortgage was manner in which he has been per- made by the authority of the direct- mitted by the directors to transact its ors, and that he never undertook to business. Martin v. Webb, 110 U. S. execute in the corporate name papers 7. These are simply instances of the of the character of the security in application of the principle that usual question, without the assent of the employment is evidence of the powers directors, except in this instance. * * * of an agent, and a responsibility will Incident to the power of Cook to bor- be laid upon the principal for the acts row money for the company's use was of his agent within the apparent the power to secure the debt in the authority so conferred upon the agent usual way; but the power to contract a doctrine which has come to be the debt did not carry with it the applied to corporations in many re- power to incumber the company's spects as well as to individuals, and property by a mortgage or judg- with the same qualifications and ment confessed as a security for its limitations." The court then applied repayment." these principles to the case at bar, ! Stokes r. New Jersey Pottery Co., saying: " But the depositions laid be- (1884) 46 N. J. Law, 237; citing fore the court do not bring the case in Hackensack Water Co. . De Kay, 9 hand within the range of the author- Stew. Eq. 548. ities above referred to. The only State Bunk r. Holcomb, 7 Halst. 196. 153] PRIVATE CORPORATIONS. 201 tion to confess judgment: "We think it plain, both upon prin- ciple and from the authorities, that the piv>idmt of a corporation has not, as a matter of law, and simply by virtue of his oflice as president, authority to either confess judgment against such cor- poration or execute a warrant of attorney empowering another so to do. Such matters form no part of the ordinary business of tin- compjiny which the president, as its executive officer, is authorized to transact virtuie afficii. The power in question is not inherent in or incident to the office from either usage or necessity. 1 1 Joliet Electric Light & Power Co. . Ingalls, (1887) 23 111. App. 45; citing Stokes r. New Jersey Pottery Co., (1884) 46 N. J. Law, 237; Thew r. Porcelain Mfg. Co., 5 8. C. 415. The court, in Joliet Electric Light Co. r. Ingalls, *upra, discussed the facts and the law applicable to them in the case in these words: " It is one of the elements of a prinui facie case that it is subject to be rebutted and destroyed by evidence to the contrary. The case of the defendant in error is not thut of a stranger to the corpora- tion dealing with the agents of the corporation and without actual notice of the power and authority given to such agents by the corporation or its directors. It would in many instances be dilllciilt and even impossible for such stranger to ascertain with cer- tainty and precision what the proceed- ings of the corporate board were. As between such third party and the cor- poration the rule sometimes applies that where one of two innocent parties must suffer for the unauthorized act of an agent the loss should follow (fall on?] him who selected the agent. Taylor on Private Corporations. -JO::. Here defendant in error was himself a. member of the board of directors of the [corporation], and present at and participating in its meeting of the (date of this actio'n of the officers], and, moreover, was secretary of the com pany, and kept and had the custody 26 of the record of the proceedings of such meeting. He had actual and full notice that all that the board of di- rectors did on that occasion was to ac- cept without qualification the written offer that he himself had made for the sale of the plant of [another electric light company], and on the very terms proposed by himself, and also that the only papers the board authorized the president to execute, and himself as secretary to affix the seal of the cor- poration to, were ' the necessary papers to complete said contract.' What con- tract? Evidently the contract shown by the written proposition of defend ant in error to sell the plant for [a fixed sum], payable as stated therein, 'and secured by notes and mortgage or other instruments upon all the plant offered ' for sale, and by the resolution of the board accepting the said propo- sition. It would seem the reasonable construction of the transaction must necessarily be as shown by the offer and the simple acceptance thereof without qualification or counter offer, that the completed contract between the parties was, that in respet t i security for the purchase money tin- special terms proposed, i. ., 'notes and mortgage upon all the plant,' con- stituted tin- contract, and that under the agreement defendant in error could have demanded nothing more or other than notes and mortgage, and that :i tender by plaintiff in error of such 202 POWER OF AGENTS AND OFFICERS. [ 154 154. Where contract of purchase includes giving a judgment note. In a case where a corporation wishing to pur- chase property for its nse, contracted for advances of money for the purpose for which the corporation was to execute its note with a warrant of attorney to have judgment on the same, the Supreme Court of Illinois fully considered the propriety of the judgments upon this particular note, the authority of the officers in the matter and the execution of the notes, and declared the following rules in such case to be that : Where the president of a corporation is authorized to enter into a contract, under which another is to loan the corporation money, and the president is to make and deliver, on its behalf, a note for the money loaned, secured by a warrant of attorney to confess judgment, and such contract is entered into, and the president, in pursuance of its provisions, gives the warrant of attorney, the act will be binding on the corporation, even in the absence of the adoption of any resolution empowering him to give the warrant of attorney. notes and mortgage would have been directors and accepted by them; that in full payment of the contract made, defendant in error had ample notice Even if instruments other than ' notes that the authority given by the board and mortgage ' could rightfully have of directors to the president of the been asked for under the contract, yet corporation to execute papers and to it is plain they must necessarily have the secretary to affix the corporate seal been instruments which, when given, thereto, was, by the order of said extended to and covered the plant of board, expressly limited to such papers the [other corporation] and no more, as were necessary in order to carry the words ' upon all the plant offered ' into effect the contract made, and being words of limitation. It can further, as has been already stated, hardly be successfully contended that that there was no inherent power under an executory agreement to give vested in the president, rirtute officii, ' notes and mortgage,' payment notes, to give a judgment note that would or notes witli warrants of attorney at- bind the company. In the case of tached or incorporated, authorizing Hoyt r. Thompson, 5 N. Y. 320, it confessions of judgment, can be de- was held that a deed formally exe- manded. The expression 'notes and cuted under the corporate seal, and mortgage ' must be presumed to have bearing upon its face the presumption been understood by the contracting that it was executed by the competnit parties in their usual, ordinary and authority from the corporation, was natural sense, and as indicating only void, and not the deed of the corpora- simple promissory notes secured by a tion, because it was actually executed mortgage upon property. One condi- by the executive officers without nu- tion, then, is that warrants of attorney thority, and known by the grantee to were not called for or included in have been so executed. The same rule either of the expressions used in the has application to the matter now in proposition submitted to the board of hand." 154] I'RIVATK COKl'OKATIONS. 906 Where a promissory note and warrant of attorney are executed in tlu- name and under the seal of a corporation, it will be pre- sumed that such instruments were properly executed by the authority of the corporation. The common seal of a corporation being affixed to an instrument, and the signatures of the proper officers being proved, the courts will presume that the officers did not exceed their authority ; the seal itself \s pr'nna facie r\ iik-iu-e that it was affixed by proper authority. Where a private corpo- ration allows its managing officer to so conduct himself, in his dealings and transactions on behalf of the company, as to lead the public, or those dealing with him, to reasonably believe him as possessing certain powers, the company will not be allowed to question such apparent power or authority as against one relying in good faith on the same. If an act performed by an agent of the corporation would, under any circumstances, be within the authority delegated to the agent, a person dealing with him on the faith of his apparent powers, and without a notice of facts showing that the act was unauthorized, may hold the principal liable, whether the act was authorized or not. In giving a note and power of attorney to confess thereon by a corporation, with the president as security, all the papers were properly executed, except that the corporate name was not signed to the note. Afterwards the secretary of the company, by the direction of the president, put the name of the company to the note. Such action was held sufficient to cure the defective execution of the note, especially when the power of attorney in terms imposed on the corporation the duty to pay this note. 1 1 McDonald r. Chisholm, (1890) 181 111. 278; s. c., 28 N. E. Rep. 596. The power of a president of a corpora- tion to confess judgment for it with- out authority from the directors, has been questioned in Jones r. A very. .Vt Mich. 336; s. c., 15 N. W. Rep. 494. The power to confess judgment for the corporation has been held not lie in its treasurer. Stevens c. Carp River Iron Co., 57 Mich. 427; s. c., 24 N. \V. Rep. 160. As to the authority of a president of a corporation to con- fess judgment against the corporation, see Raub r. Rlairstown Creamery Assn., (N. J. 1894) 28 All. Rep. 884. As to confession of judgment under u war- rant signed by a director, the treasurer and general manager of a corporation without authority of the board of di- rectors or an executive officer, see Jack- son r>. Cartwright Lumber Co.. 2 Pa. Dist. Rep. 680. See, on confession of judgment by officer, Adams r. Cross- wood Prg. Co.. 27 111. App. :!i:t : Freeman r. Plaindealcr Co., 9 Luz. Leg. Reg. 87; Me Murray r. Oil Co.. 33 Mo. 377. In Chaniberlin r Mam- moth Minim,' Co.. (1S54) -jo Mo. 96. it was held that the president of a min- ing cor|M>ratiou might appear and con- fess judgment for the corporation. t>< l-t POWER OF AGENTS AND OFFICERS. [ 155, 156 J-SS- What raises a presumption of authority. The common seal of a corporation being affixed to a deed, as an assignment for the benefit of creditors, and the deed being signed by the officers authorized by the charter to sign it or attest its contracts, raises the presumption that the instrument was executed by the authority of the corporation. Any one assailing it must show its invalidity. 1 When the common seal of a corporation is affixed to an instrument in writing purporting to be executed by it, and the signatures of the proper officers of the corporation are affixed to it and proved, courts will presume that the officers did not exceed their authority, and the seal itself is prima, facie evidence that it was affixed by proper authority. 2 In the absence of the common seal of a corporation or of proof of facts from which the existence of a resolution of authorization, or of the authority itself may be inferred, the authority of the officers of a corporation to execute a conveyance can only be established by resolution of the managing board, entered in the proper book of the corporation. 3 156. Power of officers acting conjointly. The govern- ment and direction of the affairs of a corporation being vested by statute in a board of not less than five, of which a majority " shall form a board and shall be competent to transact the busi- ness of the company," such majority, when assembled, though without notice to the others, possess all the powers of the board, as in this case, to authorize a sale of the stock of the corporation. 4 There being no charter provision to the contrary, it will be pre- 1 Thorington r. Gould, (1877) 59 Ala. supposes a delegated authority for the 461. BRICKELL, Ch. J., said: In Bank purpose, and other corporate acts show of United States v. Dandridge, 12 that the corporation must have con- Wheat. 70, it is said, after referring to templated the legal existence of such the presumptions indulged for and authority, the acts of such officers will against natural persons : " The same be deemed rightful, and the delegated presumptions are, we think, applicable authority will be presumed." to corporations. Persons acting pub- * Southern California Colony Asso- licly as officers of the corporation are ciation n. Bustamente, (1877) 52 Cal. to be presumed rightfully in office; 192; Bliss T. Kaweah Canal & Irriga- acts done by the corporation which tion Co., 65 Cal. 502. presuppose the existence of other acts 3 Southern California Colony Asso- to make them legally operative are ciation v. Bustamente, (1877) 52 Cal. presumptive proofs of the latter." 192. Again, "if officers of the corporation 4 State ex rel. Page 0. Smith, 48 Vt. openly exercise a power which pre- 266. 156] PRIVATE CORPORATIONS. *J< ' ' that the president, secretary and treasurer of a corporation are authorized to make all necessary contracts in transacting the ordinary business of the corporation, within the legitimate scope, objects and purposes of its organization. 1 The president and tary of a corporation are proper officers to agree on its behalf upon an arbitration. 2 There being in manufacturing and trading corporations a power to borrow money, as incident to their power to purchase stock and materials, and to give security by pledging the property so purchased, and as corporations can act only by their officers, the treasurer and general agent of a corporation unitedly have power to borrow money for the use of the corporation, give its negotiable note and pledge its personal property for the same, as well as to execute the necessary docu- ments, notwithstanding the by-iaws of such corporation give these officers specific powers not including such acts as are above referred to. 3 A corporation may bind itself by a note and mort- gage, made by its president and secretary and signed by them in their official capacity as such. 4 The president and secretary of a manufacturing corporation, even if the powers of general man- agers be conceded them, though they may bind the corporation to any debt within the scope of its ordinary business, cannot bind it to assuming another and distinct corporation's debts, nor by a promissory note for the payment of such a third party's debt. 5 The president and secretary of a corporation are presumed to 'Eureka Iron, etc., Works v. Bres- in Verzan . McGregor, 23 Cal. 389, nahan, 60 Mich. 832; 8. c., 27 N. W. 847. Rep. 524. 6 Rahm t>. King Wrought Iron 1 Fitch 0. Constantine Hydraulic Co., Bridge Manufactory of Topeka, (1876) 44 Mich. 74; a c., 6 N. W. Rep. 91. 16 Kans. 277. In Stark Bank c. U. 8. Fay t>. Noble, (1853) 12 Cush. 1. Pottery Company, (1861) 34 Vt. 144, In Leonard r. Burlington Mutual Loan is was held that the assuming of a debt Association, (1881) 55 Iowa, 594; s. c., of a third person was not within the 8 N. W. Rep. 463, the corporation was ordinary power of the treasurer of a held liable for money hud and received corporation, it not being in the usual on account of sums advanced to its course of business, and to bind the cor secretary and manager and by him poration, it would be necessary to show paid into its treasury, notwithstanding some special authority granted him to this officer was at the time a defaulter do so. Further, that the directors of and not authorized to borrow money the corporation had no power to assume on its account. such a debt except in case of urgent *Rowe r. Table Mountain Water necessity, which was a question of Company, (1858) 10 Cal. 441; approved fact for the jury. 206 POWEB OF AGENTS AND OFFICERS. [157 have authority to execute a promissory note in the name of the corporation, and the holder of such a note will not be affected by the fact that such authority did not exist, unless he is shown to have had notice thereof. 1 157. An illustration on this subject. The Florida Supreme Court has held that the assignment of a note payable to the order of a corporation, and the mortgage given to secure its payment by the president and secretary of the corporation, was, upon its face, the act of the corporation through their officers, and not their individual acts. 2 'American Exchange Nat. Bank v. Oregon Pottery Co., (1892) 55 Fed. Rep. 265. See, also, Merchants' Bank v. State Bank, 10 Wall. 644; Crowley v. Mining Co., 55 Cal. 273. In Fur- niss r. Gilchrist, 1 Sandf . 53, the trans- fer of a note transferable by delivery by the president and secretary of a corporation was held to be valid. 2 Lay r. Austin, (1889) 25 Fla. 933; s. c., 7 So. Rep. 143. The court de- clared the following rules established by the authorities which governed them in their conclusions : "Where a note is payable to a corporation by its corporate name, and is indorsed by an authorized agent or official with the affix of his official position, it will be regarded that he acts for his principal disclosed on the paper as the payee, and who, therefore, is the only person competent to transfer the legal title. Daniel on Negotiable Instruments, 416; Randolph on Commercial Pa- per, 145. An indorsement by an of- ficer of a corporation is prima facie the act of the company. Randolph, 368; Frye v. Tucker, 24 111. 180. In Mclntire v. Preston, 5 Oilman, 48, a note payable to a corporation was assigned thus: 'Without recourse. Joel Scott, Secy.,' and it was held that when properly filled out, as the plaintiff might do on the trial, it was sufficient to pass the legal title to the note, and that the authority of Scott, the secretary, to assign it could only be questioned by plea. See, also, Good- rich v. Reynolds, Wilder & Co., 31 111. 491. Northampton Bank v . Pepoon, 11 Mass. 288, decides the same where the indorsement was in blank, by an authorized attorney signing his name and styling himself attorney. Folger v. Chase, 18 Pick. 63, was a case where a note was indorsed by the payee to a bank, and its cashier indorsed it as follows : 'P. H. Folger, Cashier,' and it was objected that the latter indorse- ment was not made in the name of the corporation; but, said the Supreme Court of Massachusetts, we think the indorsement by the cashier, in his of- ficial capacity, sufficiently shows that the indorsement was made in behalf of the bank, and if that is not sufficient the plaintiffs have the right now to prefix the name of the corporation. Nicholas v. Oliver, 36 N. H. 218, de- cides that the indorsement, ' W. Earle, A. Secy., made on a promissory note payable to an insurance company, is to be considered the indorsement of the company, if nothing further ap- pear to indicate that it is intended as the indorsement of some other party. In Russell v. Folsom, 72 Me. 436, the indorsement by the treasurer of the payee corporation signing his name and an abbreviation of his office was held to transfer the legal title, and in Farrar t. Oilman, 19 Me. 440, the in- 158] PRIVATE CORPORATIONS. 2" 7 158. Another illustration - one holding several offices. The by-laws of a Michigan manufacturing corporation provided that one person might hold the otlice> of president, tn-a.-urer and general .superintendent, anervi.-ion of the property and affairs of the corporation, and in the treasurer the en-tody of its funds and valuable papers, with po\ver to collect and pay out all moneys and sign all acceptances and notes in its behalf, while the superintendent was given gen- eral supervision and management of its affairs, subject to the president and board of directors, with power to make all contracts in its behalf, except when otherwise provided by the by-laws. The same person held the three offices for five years, and man- aged and controlled the affairs of the corporation, if not without advice, certainly without objection, on the part of the stockhold- ers or directors, lie finally assigned to a bank to secure existing indebtedne.-s and that which should be thereafter incurred, one hundred and fifty thousand dollars of good and collectible accounts, then existing or thereafter acquired, to be held by the bank as collateral security for existing and future indebtedness of the cor- poration. The corporation afterwards making an assignment for the benefit of its creditors, the bank filed a bill to enforce the agreement. The Supreme Court of Michigan held that the agree- ment was one which the president, treasurer and superintendent had the power to make and that it was enforceable in equity. 1 dorsemcnt by the cashier of the bank was adjudged to be prinui facie evi- denee of a legal transfer of a negotiable note. See, also, Chase r. Hathorn, 61 Me. ,")!)."); Dunn /. Weston, 71 Me. 270; Klwcll r. Dodge, 33 Barb. 336; Marine Bank r. Clements, 31 N. Y. 33." 1 Preston National Bank of Detroit v. George T. Smith Middlings Purifier Co., (1890) 84 Mich. 364; a c., 47 N. W. Rep. 502. CIIAMPLIN, Ch. J., dis- scnted solely upon the ground that the contract was too uncertain and iinleti nite to be specifically enforced. Aryu- endi>, as to the authority of this holder of the three positions, it was said by CAUILL, J., for the court: "Conced- ing that the president must exercise his powers of management in subordi- nation to the board, jet when, as in this case, the stockholders, being the owners, have seen fit to vest certain extraordinary powers of management in the president, and certain other pow- ers in the treasurer and superintendent, and the directors, with full knowledge of this, elect a man to fill all those offl- ces, and thereafter put no restraint upon his management, tin- bo.-ird must be held to have consented to his exer- cising all the power reasonably in (hided in the language by which it was conferred. Bank r. Comegys, 12 Ala. 772. The right of the directors to make the security in question is not disputed, yet tlieir authority is given in language no broader than that which defines tin- duties of the president. If 208 POWER OF AGENTS AND OFFICERS. [159 159- Note executed by a secretary. In an action against a corporation on a promissory note, signed by one whom the evi- dence tended to show was the secretary of the corporation and impressed with a stamp which appeared to have been used as the it be said that the stockholders could not thus usurp the powers of the board and confer them on the president it may be said that the right of the di- rectors to delegate certain of their powers of management to the officers is undoubted, and if the consent of the board was needed to fully invest the president with the power given to him in the by-laws that consent has been given in this case. The question of [the president's] power is largely one of intention on the part of the stock- holders and directors. As bearing upon this question of intention, the fact that no corporate meetings were held for five years after the by-laws were adopted is an important circum- stance. It is claimed that the neglect to hold corporate meetings can have no bearing on this case, because it is not shown that complainant knew of this fact or was influenced by it, and we are referred to the case of New York Iron Mine v. Negaunee Bank, 39 Mich, at page 655, where some lan- guage of Mr. Justice COOLEY to that effect is found. In that case the only question was whether the bank had been influenced to rely upon Wet- more's apparent authority, which did not in fact exist, to make the paper in question. The question is different here. It is not one of apparent power to do an act conceded to be fraudulent and void unless the corporation was es- topped by its conduct to allege the fraud, but it is a question of actual power in Mr. Smith, as the president, treasurer and manager of this corpora- tion, to perform an act entirely legal and proper if authorized. The inten- tion to confer such power may be evi- denced by their failure to act in oppo- sition to or in restraint of a course of business they have themselves per- mitted, if not established. It is an ordi- nary occurrence for manufacturing or trading concerns, whose products have sometimes to be carried to await a favorable market, to draw against such products for the money needed to carry them; and, if requested, some form of security upon such products is given. If this be permissible shall the right to give security exist only so long as the goods are in stock, or may they be sold on credit and the accounts due for such sales be substituted with the consent of the creditor? If not, then trade is hampered, the debtor is put into the hands of the creditor, and the latter cannot release him if he would without risk. The right of Mr. Smith, as president and treasurer, to borrow money for the legitimate needs of the business and to give the com- pany's paper is not contested. The duty to pay is involved in the power to incur debts. In the case of this cor- poration its power to pay its debts de- pended on the profitable sale of its products and the collection of the money due on such sales. If it could not otherwise dispose of its products it could turn them out to its creditors in payment of. or as security for, such debts. If its goods were sold on credit, these credits stood as the representa- tives of the goods, and the same use could legitimately be made of them. This is not like giving security upon all the corporate property, the enforce- ment of which may involve the corpo- rate existence. The giving of the se- curity or its enforcement did not nec- essarily interfere with the prosecution of the corporate business. It was given 160] PRIVATE COUPOUA! 909 seal of the company, there being evidence that the plaintiff had advanced to the corporation the amount for which the note was <;ivrM, the Supreme Court of New York, in General Term, held that a finding that the corporation had executed the note in consideration of money loaned to it would not be disturbed. 1 160. Power of superintendents, etc. A corporation will be bound by a contract made by its superintendent and manager upon property and credits already de- voted in equity and good conscience to the payment of its creditors, of whom the bank was one. The effect of it was simply to give complainant priority of lien." The ccfurt referred to the following cases to which it was cited, to wit: Kimball v. Cleveland, 4 Mich. 606; Joy r. Plank Road Co., 11 Mich. 155; Peninsular Bank r. Han- mer, 14 Mich. 208; Adams Mining Co. t>. Senter, 26 Mich. 73; New York Iron Mine v. Negaunec Bank, 39 Mich. 644; Star Line v. Van Vliet, 43 Mich. 364; New York Iron Mine r. Citizens' Bank, 44 Mich. $57; Eureka Iron & Steel Works r. Bresnahan, 60 Mich. 332; D wight v. Lumber Co., 67 Mich. 507; Delta Lumber Co. i. Williams, 78 Mich. 86; Genesee Co. Savings Bank r. Michigan Barge Co., 52 Mich. 438; Kendall r. Bishop, 76 Mich. 634; Stokes r. Pottery Co., 46 N. J. L. 237; Bank r. Bank, 48 N. J. L. 527; s. c. ( 7 All. Hep. 318; Fay v. Noble, 12 Cush. 1, as to the powers of agents of corpo- rations in such matters. They said: "They are not altogether free from conflict, although if the exact point necessary to be decided in each case be kept in mind, and the language used be given no broader meaning than the facts of the particular case require, the conflict will be found more appar- ent than real." 'Jansen t>. Otto Steitz New York Glass Letter Co., (1888) 49 Hun, 606; 8. c., 1 N. Y. Supp. 605. DANIELS. J., for the court, said: " To obtain money 27 in this manner, to meet its financial necessities, was strictly within its authority as a corporation, and it was equally within its power, after having obtained it, to execute and deliver the. note which was the subject of the action for payment of the amount. It is true that it was not subscribed by the president, as contracts were authorized to be made by article 7 of the by-laws; but while the president did not subscribe the note, bis conduct authenticating its subscription, in the name of the company, was equal to what was in this manner provided for, inasmuch as he directed the note to be made by the secretary. These per- sons were vested with the apparent authority for conducting and carrying on the business of the company. And even though they may have omitted literally to comply with the by-laws, as to the form of the contract for the payment of the money, the company itself cannot be shielded from liability on account of that omission of its con- trolling officers. The case in all its features differs from that of Bank r. Church, 39 Hun. 498, where the note was neither sanctioned by the cor- poration, nor given by the officers conjointly required to act in the transaction of its business. The pres- ent note WHS tjie act of the officers, conjointly, of a business corporation empowered to borrow money and pro- vide for its payment, substantially the same as that might be done by an un- incorporated partnership." 210 POWER OF AGENTS AND OFFICERS. [ 160 relating to the ordinary concerns of its business. 1 It may be shown by the testimony of any one who knows the fact that one is the general manager of a corporation. 2 A corporation which has authorized its agents to sign " all notes and business paper," will be liable on accommodation notes given by him in the name of the corporation to a lona fide holder, taking them in good faith, for value before maturity, notwithstanding any want of authority of the agent to execute them for the purposes for which they were given. 3 The business manager of a manufacturing corporation cannot be assumed, as a matter of law, to have implied authority to agree, in behalf of the corporation, to pay for medi- cal attendance, however small the sum, on one whom he has reasonable ground to believe to have been injured by the fault of the corporation. 4 An engineer employed by a railroad corpora- 1 Whitaker v. Kilroy, (1888) 70 Mich, struction Co. r. Fitzgerald, (1890) 137 635; s. c., 38 N. W. Rep. 606. U. S. 98; s. c., 11 Sup. Ct. Rep. 36. z Corning v. Walker, 14 N. Y. Wkly. Cases as to the power of a president Dig. 314. In Negley v. Counting of a corporation growing out of his Room Company, (City Ct. N. Y. 1886) being, in the management of its af- 1 N. Y. St. Repr. 299, the evidence fairs, its managing officer. Siebe v. that the agent of a corporation signing Joshua Hendy Machine Works, 86 a promissory note as "manager," Cal. 390; s. c., 25 Pac. Rep. 14; Lan- "had mostly the entire charge of the caster County v. Cheraw & C. R. R. business," has been held sufficient to Co., 28 S. C. 134; s. c., 5 S. E. Rep. show that his act in executing the 338; Kenton Insurance Co. v. Bow- note was within the scope of the gen-, man, 84 Ky. 430; s. c., 1 S. W. Rep. eral powers conferred upon him, and 717; Marlatt v. Levee Steam Cotton iiicidental to, and necessary for, the Press Co., 10 La. 583; s. c. , 29 Am. conduct of the corporation's business. Dec. 468; Topeka Primary Assn. r. Citing Farmers' Bank of Bucks County Martin, 39 Kans. 750; s. c., 18 Pac. v. McKee, 2 Pa. St. 318. Rep. 941; Bambrick v. Campbell, 37 3 Bird r. Daggett, (1867) 97 Mass. Mo. App. 460; Grafius v. Land Com- 494. pany, 3 Phil. 447; Ceeder v. H. M. 4 Swazey v. Union Manufacturing Loud & Sons Lumber Co., 86 Mich. Co., 42 Conn. 559. As to the power 541; s. c., 49 N. W. Rep. 575; 24 of an officer of a corporation author- Am. St. Rep. 134; Chicago, etc., R. i/ed to draw checks and drafts, and R. Co. v. Coleman, 18 111. 297; s. c., charged with the general management 68 Am. Dec. 544; Steamboat Company of the business of the corporation, in r. McCutcheon, 13 Pa. St. 13; Smith the absence of contrary instructions v. Smith, 62 111. 493; Richmond, etc., by the board of directors to bind the R. R. Co. v. Snead, 19 Gratt. 354; s. corporation by notes given for moneys c., 100 Am. Dec. 670; Dougherty v. used to pay off indebtedness of the Hunter, 54 Pa. St. 380; Moser v. corporation, which was a railroad cor- Kreigh, 49 111. 86; Chicago, etc.. R. poration, in the construction of its R. Co. c. Boone Co., 44 111. 247; Voris road, see Fitzgerald & Mallory Con- r. Renshaw, 49 111. 425. 161] PBIVATE CORPORATIONS. 211 tii MI, 1)\ virtue of his position, lias no power to bind the corpora- tion by his contracts. 1 To bind the corporation special authority to the engineer must be- shown. 8 The secretary of a corporation has no authority to give a memorandum of indebtedness of the coqwration, and such u memorandum would not be negotiable. 8 The unauthorized execution of a promissory note by the secretary of a corporation for money borrowed, may be ratified by the board of directors of the corporation authorized by its by-laws to borrow money and execute securities therefor, and the corpora- tion be bound by such ratification. 4 It is in the power of the supervising agent of a corporation, made by its charter its execu- tive officer, having the care and management of its business under the direction of the general board of directors, to accept a draft for the corporation where there is no restriction upon the general jxjwere conferred upon him. 5 161. A manager's power. In a case where one as man- ager of a corporation, to which position he had been duly appointed, negotiated a loan with another, and gave the latter his note for the amount payable to the order of the corporation, which note was indorsed by him as such manager, and as collat- eral security for its payment he delivered with the note mortgage bonds of the corporation, the New York Court of Appeals said the evidence " was sufficient to permit the court to submit, as it did to the jury, the question whether the debt, to recover which this action was brought, was that of the company." The court below was requested to charge that before a verdict could be found for the plaintiff the jury must be satisfied by affirmative proof that the manager was authorized to indorse the name of the company on the note by prior resolution of the executive committee or by the board of directors or by ratification, by reso- lution or some equivalent act of such committee or bond. The court held that there was no error in the charge, which sub- stantially was that the jury, to reach such result, must find either 1 Gardner r. B. & M. R. R. Co., 70 Hascall r. Life Association of Me. 181. America, 5 HUD, 151. As to the 1 Ibid. power of a superintendent of a corpo- * Sears r. Trustees Illinois Wesleyun ration operating in a foreign country. University, (1862) 28 111. 188. see Rathbun t. Snow, (1890) 123 N. Y. 4 Nebraska & K Farm Loan Co. t. 348. Bell, 68 Fed. Rep. 826; 8. c., 7 C. C. A, 258. 212 POWER OF AGENTS AND OFFICERS. [ 162 prior authority or subsequent ratification, and that it could be evidenced by general course of business as well as by resolution. 1 162. Manager of a foreign incorporation. Certain notes were signed by the president of a construction company, an Iowa corporation, and certain others by an auditor of the corpo- ration, payable to the order of certain banks, and indorsed by one who was appointed a manager for the construction company in its work of constructing railways in Nebraska. Upon these notes the latter realized money through the banks and used it in pay- ment of bills of the construction company for labor, etc., on their work of construction. When the notes became due this manager in Nebraska arranged or paid off the notes as indorser, and they were assigned over to him. He brought action upon them against the company in the Nebraska courts, and the foreign corporation defendant had the cases removed to the federal courts. When the case came before the Supreme Court of the United States, in the opinion rendered, FULLER, Ch. J., for the court, said of the evidence, that it " tended to show that Mallory [the president of the construction company] was authorized to build the line of [several railroad companies], being a distance in the aggregate of about six hundred miles of railroad, and which cost some seven millions of dollars ; that he had full charge of the location and construction of the road ; that he was authorized to draw checks and drafts, and all these notes and drafts were made, accepted or authorized by him ; that the directors not only did not give contrary instructions in the first instance, but knew of the giving of the notes and drafts, and did not disaffirm the action of the president, and that the proceeds were used for the payment of construction liabilities of the company in every instance, either directly or in taking up paper, the proceeds of which had been so used." The argument before the court was 1 Huntington v. Attrill, (1890) 118 of the board of management, con- N. Y. 365; s. c., 23 N. E. Rep. 544. traded to lease the club house to In Deller v. Staten Island Athletic plaintiff, who agreed to maintain a Club, (1890) 56 Hun, 647; s. c., 9 N. restaurant for the exclusive use of the Y. Supp. 876, it was held that where members and their guests, subject to the board of management of a corpo- the approval of the house committee, ration like defendant was authorized plaintiff might recover for refresh- by the by-laws to make necessary con- ments furnished to guests of the club tracts and regulations, and the officers at the request of members of the of the club, acting under a resolution house committee. 162] PRIVATE CORPORATIONS. 213 that there could be no recovery on the notes and drafts in ques- tion, 1 (cause it was said they were made by the president or auditor of the company without the knowledge or consent of the board of directors; and, further, that the notes in the first two causes of action n;unr. Fitzgerald, (1890) 187 U. 8. 98; a c., 11 Sup. Ot. Rep. 36. The instructions of the United States Cir- cuit Court in this case to the jury were as follows: ' ' That if they found from the evidence that the presi- dent was given entire management in building the railroad, and in the in- curring of liabilities and paying of debts incurred therein, he might ap- point other agents, such as a cashier and auditor, for the purpose of making the calculations on pay-rolls and on contracts for building the road, and might empower any one of such agents who made such calculations upon the pay-rolls of the amount due to those who did the work by contract or otherwise, to draw any checks or bills or sight drafts necessary to pay the name, and ' if it becomes necessary for the benefit of said company to exe- cute promissory notes or to draw sight drafts, the said president would have ample authority to do the same, and might likewise empower the cashier, or the party whose duty it was to ascertain the amounts due to contract- ors, materialmen and persons working upon the construction or building of said railroad by the construction com- pany, to draw drafts or checks, or even make promissory notes, and that the same, if done for the company or for its use and benefit, would be bind- ing upon the said company, unit *. tin- president received from the directors certain instructions which limited his authority in the premises.' " The court also instructed the jury: "As to the promissory notes which were indorsed by the plaintiff, and upon which he was held as indorsee, if the jury found from the evidence that said notes were executed in good faith for the presi- dent of the construction company, and that the proceeds, or the proceeds of the notes and drafts of which the notes in question were renewals, were re- ceived by and used for the benefit of the construction company, and you further find that the plaintiff is not the holder and owner of said notes, you will find for the plaintiff in the full sum of the notes, with interest " And further: " And although there may be a provision in the by-laws of said con- struction company requiring certain formalities in the execution of a prom- issory note or draft, yet that does not necessarily make such formalities es- sential to the ratification of the con- tract; but if yon find from this evi- dence that said notes were given for the purpose of paying off debts that were due by said construction com- pany, and that the directors of said construction company had full know I edge of the same and assented to this transaction, to the signing and execu- tion of the notes, you will find thai said acts of the president have hem fully confirmed, and you will find for the plaintiff the full amount of said with interest, provided you find 214 POWER OF AGENTS AND OFFICERS. [ 163 163. Authority of a manager. One, a physician, manag- ing a medicine company, a corporation organized under the laws of New Jersey, who had been intrusted witli the management so far as the collection of debts due to it and payment of debts due by it, had placed in a bank for collection certain checks payable to the order of the corporation, indorsed in the name of the cor- poration by himself. The total amount of the collections were paid to him by the bank, and it appeared that a part of the sum, he failed to pay over to the corporation or on its account. The corporation brought action against the bank for this balance, denying the authority of this person to indorse, etc., the paper the plaintiff was the owner of the arose, would not change the binding same, and is now the lawful holder of character of the obligation. Twin- Lick them." It was said by the Supreme Oil Co. v. Marbury, 91 U. S. ?>81; Court on the merits of the case: "If the Gardner v. Butler, 30 N. J. Eq. 702, moneys were used to pay off indebted. 721; Harts v. Brown, 77 111. 226; ness of the company arising in the con- Again, there was evidence to the effect structionof the road, and for work done that [the plaintiff] indorsed the notes under proper authority, the transac- at the request of the president. Inas- tions were in pursuance of the author- much as the defendant was answerable ized purposes of the corporation, and for the indebtedness which the money occurred in its legitimate business, received upon the notes went to pay, The execution of the paper could not if in order to obtain that money [the be held to be in excess of the powers plaintiff] was called on to indorse the given, and it was clearly the duty of notes, and compelled to protect his in- the directors to give contrary instruc- dorsement, he could not be treated as tions if they wished to withdraw the a volunteer. There would be no ele- general management from its presi- ment in such a transaction of the vol- dent, and to disaffirm the action of untary payment by one of another's their agents promptly and at will, if debt. So, if [the plaintiff] was the they objected to it. Indianapolis manager of the work under the presi- Rolling Mill v. St. Louis, etc., R. R. dent, and the money was used to pay Co., 120 U. S. 256; Cresswell n. Lana- off the sub-contractor, materialmen han, 101 U. S. 347. The company and hands, then, upon the refusal of was liable upon the original indebted- the company to repay, [the plaintiff] ness, and its change of form in order had the right to take up the notes and to relieve the pressure of the creditors have them assigned to him; and was by the direction, with the partici- whether he was the owner and holder pation, and the request of, the presi- of the notes was left to the determina- dent. We perceive no want of power tion of the jury. By the first section and no omission of essential formali- of the by-laws, the officers of the corn- ties in what was done. Another mere pany were declared to be ' a ' president, fact that [the plaintiff] was a stock- vice-president, secretary and treasurer, holder in and a promoter and director and such other officers as may be of the company, and, witli the presi- deemed necessary to carry out the dent, the manager of the work in the object of the articles of this incor- prosecution of which the indebtedness poration." 163] I'KIVAIl i:i "K VTK 215 belonging to the ci.inj.aiiv. ami claiming that .-itch authority was onlv in its treasurer. The trial court refused the requc>t f the bank on the trial to instruct "that if the jury shall find that by the consent of the [corporation this person] had conducted tho plaintiffs business, had paid bills, sold goods, received and paid out moneys for the [corporation], and wa* in fact -tensibly in charge of the business, then [he] had apparent authority to indorse the drafts in question and receive the money in question, and it was immaterial whether or not he had actual authority." The Supreme Court of Xew York, in (Jeneral Term, held that tin- refusal to instruct, as requested, was error, f.r. said they: "Cor- porations can act only through their ohVer> and agents and, if a person has been instructed by the officers to carry .n the business, the acts of that person must be deemed to be binding upon the corporation in all cases where the parties dealing with him have not notice or knowledge of his want of actual authority." 1 1 Craig Medicine Co. r. Merchants' nt the meeting of the stockholders for Bank of Rochester, (1891) 59 Hun, 561; the election of directors, vote when s. c., 14 N. Y. Supp. 10. But the absent by giving a written proxy to court considered another point a more some other person. This is also true radical reason for reversing this judg- of the statutes of New Jersey, put in tnent, to wit: It appeared that the evidence, but there is no law in New treasurer had been given a proxy by Jersey that permits a director to vote the other stockholders to represent by proxy at board meetings. The gen- them in the meeting to be held in Xew eral rule there, as in this state, and Jersey to organize the corporation and universally, is that it requires a quo- to vote for them. This he did, organ- rum of directors or managers as trus- i/ing the company, electing himself tees of a corporation to transact busi- and the persons he represented as a ness, and that, in the absence of a board of directors, he only being pres- statute making a different number ent, and afterwards, in a meeting of such quorum, a majority of the whole its board of directors represented by board is required. The principal himself alone, elected officers, includ- claim, therefore, made by the plaintiff, ing himself as treasurer. It was said that it had a legally elected tre.-is as to the law applicable to this state of urer, who alone could transact busi- facts: " We know of no principle up- ness of the corporation of this < -harac plicablc to the discharge of corporate ter, cannot be maintained. The proxy functions, by which directors or trus or power of attorney, put in evidence, tees of the corporation can vote at tin- did not give [its holder) the right to meeting of the board of directors or vote in the name of the directors who trustees by proxy. Under the act of should be chosen at the stockholders' this state (Chapter 40, Laws of 1848) meeting, ami if it had, it would have for the organization of companies for been utterly void. It was not known, manufacturing, mining, mechanical or indeed, who the directors would IH-. chemical purposes, stockholders may. I'nder the power of attorney [he] had 216 TOWEB OF AGENTS AND OFFICERS. [164 164. What is not within the duties of a cashier of a corporation. The Michigan Supreme Court has declared in a case before it that compromising claims, settling unliquidated damages, and releasing debts due to the corporation, are acts which do not come within the ordinary duties of a cashier, book- keeper, or corresponding clerk. 1 the right to elect other persons than those whom he did in fact designate as directors. In the absence, therefore, of a legally authorized treasurer, any person in the position of [the person here] who had general management of the business, or any director, as [the one who signed for him] is shown to be, had the power to indorse the cor- poration's name for the purpose of collecting commercial paper made pay- able to its order. The [bank], having acted in perfect good faith, has turned its collections over to the proper per- son representing the corporation. There being no treasurer by election of the directors, and none in fact by the usual conduct of the business, ex- cept the person acting for the [corpo- ration] in this instance, it follows that the manager or any director of the cor- poration could, in the absence of a positive statute, sign the corporation name for the purposes of the collect- ing of commercial paper." 1 Delta Lumber Co. r. Williams, (1888) 73 Mich. 86; s. c., 40 N. W. Hep. 940. Arguendo, the court said: " The statute authorizing the forma- tion of corporations for manufacturing purposes enacts that the stock, prop- erty, affairs and business of every such corporation shall be managed by its board of directors. The board shall choose one of their number to be president, one to be vice-president, and also a secretary and treasurer. The office of cashier is not one that is named in the act, and although such corporations are authorized to elect, in such manner as they may determine, all necessary officers, and to prescribe their duties, yet no testimony in the case was introduced to show what the duties of the cashier were defined to be. In banking institutions the authority of a cashier has become pretty well defined by common usage. He is considered the executive officer through whom and by whom the whole moneyed operations of the bank in paying or receiving debts, or dis- charging or transferring securities, are to be conducted. Ang. & A. Corp. 299. 'But his authority does not ex- tend so far as to justify him in alter- ing the nature of the debt, or chang- ing the relation of the bank from that of a creditor to that of an agent of its debtor. And an agreement by the president and cashier of a bank, that an indorscr shall not be liable on his indorsements, is not binding on the bank. Bank c. Dunn, 6 Pet. 51; Bank r. Jones, 8 Pet. 16. In the absence of any thing in the charter or by-laws of the corporation known as the ' Delta Lumber Company ' defining the duties of the cashier of such corporation, and in the absence of any showing as to the usage of this company, or of manufacturing corporations in this state, by which the duties of a cashier may be inferred, we cannot ascribe to him greater powers as an agent of the corporation than would pertain to the agent of a banking corporation. He may be considered the executive officer of the financial operations of the cor- poration; and whether he would, in an emergency, be considered as author- ized to sell and convert the personal property of the corporation into money to meet its obligations, need, 100,166] PRIVATE CORPOK ATI.. 217 << 165. Auditing board of a corporation. In the absence of any proof of authority conferred upon an auditing board of a manufacturing corporation of New York, beyond the usual func- tion.- of such ;i hoard to allow or reject claims, such an audit- ing hoard, it has been held, had no authority to rescind a con- tract which it was claimed in the action against the corporation hu debtor by releasing a debt due to it. * Turner r. Chillicothc & Des Moines without express authorization. Bank K. R. Co., (1873) 51 Mo. 601. r. Dunn, 6 Pet. 51; Kirk r. Bell, 12 & Kalaiua/.oo Novelty Manufacturing Kng. Uw & Eq. 889; Hoyt r. Thomp- Co. t>. McAlister. 86 Mich. 827. son, 5 N. Y. 820." E. Carver Co. r. Manufacturers' 1 Skinner c. Walter A. Wood Mow- Insurance Co., (1856) 6 Gray, 214. 218 POWER OF AGENTS AND OFFICERS. [ 167 authorized by the corporation. 1 On a debt being paid to the treasurer of a corporation lie lias no power to assign the security without direction from the board of directors. 2 A vote of the directors of a corporation authorizing its treasurer to hire money on such terms and conditions as lie may think most conducive to the interests of the corporation to meet certain of the accept- ances by him of the drafts of the corporation upon him, carries with it authority to indorse drafts drawn by himself to accom- plish the object. 3 Mere lapse of time will not destroy the official character of the last secretary of a corporation so as to prevent his releasing a mortgage given to the corporation. 4 In a case where the authority of a treasurer of a corporation to sell material or products of the same was questioned, and one of the by-laws of the corporation was put in evidence providing that the treasurer " should discharge the duties usually and customarily pertaining to" this officer and other testimony that witness was familiar with the duties of cordage and other manufacturing cor- porations at the place where the contract was executed and where this particular corporation was located, and that they were accus- tomed to buy and sell merchandise and to sign and accept con- tracts such as was made in this case, it was held by the United States Circuit Court of Appeals that the authority of the treasurer to bind the corporation by this contract was one for the jurv. 5 167. Power of a treasurer as to transfer of a note. In the absence of evidence of authority, the title to a note will not pass by the indorsement of the treasurer of a corporation in his official capacity. 6 A treasurer of a corporation being intrusted by it to take notes, an indorsement by him will bind the corpora- 1 Peterborough Railroad r. Wood, 61 a statue to be used as an advertisc- N. H. 418. ment of its business; that the concur- 2 Ballou v. Campbell, 5 Wend. 572. rence in such case of the whole or of 3 Belknap r. Davis, 19 Me. 455. the majority of the board of directors 4 Kimball v. Goodburn, 32 Mich. 10. was not essential. As to the power of 5 National Cordage Co. v. Pearson a treasurer of a corporation, see Colum- Cordage Co., 55 Fed. Rep. 812; s. c., bia Bank . Gospel Tabernacle Church, 5 C. C. A. 276. In Ellis . Howe (1889) 57 N. Y. Super. Ct. 149. As to Machine Co., 9 Daly, 78, it was the power of a treasurer of a lumber, held that the treasurer of the sewing ranch and mining company, see Rum- innchine company, owning with his bough 0. Southern Improvement Co., brother, the president of the company, (1893) 112 N. C. 751. nearly the entire capital, had power to 6 Knight T. Lang, 4 E. D. Smith, bind the corporation by a contract for 381; s. c., 2 Abb. Pr. 227. 168] PRIVATE CORPORATIONS. 219 tii >n, his authority to indorse them being implied from his being trra-uivr and being intrusted with the sec tiri ties, and that they are made payable to the treasurer, or to him as treasurer. 1 In case the directors of a corporation by vote authorize its treasurer to indorse notes of the corporation to a third person, or such treasurer be suffered to draw and accept drafts, to indorse notes payable to the corporation, and to do other similar acts whereby he is held out to the public as having the general authority implied from his official name and character, an indorsement of a note made in pursuance of such express or implied authority would pass a valid title to the indorsee. 3 168. Power of a treasurer as to execution of a note. A treasurer of a corporation may be given authority by a corpora- tion by parol to execute a promissory note in its name. 8 Where a treasurer of a corporation has been authorized to give the note of a corporation in payment of a corporate debt, he may do so after the lapse of several years, provided the debt is not barred by the Statute of Limitations. 4 The authority to execute a note of a corporation in an officer of the same may exist under a by-law of the corporation, or be based upon its custom in such matters. If its custom is to permit its treasurer to execute its promissory notes, the corporation will be bound by a note exe- cuted by such treasurer, especially where it receives the benefit of the money loaned upon the notes. 5 The board of directors of a 1 Perkins v. Bradley, 24 Vt. 66. is that the authority is not presumed 'Lester r. Webb, (1861) 1 Allen, 34. from the mere fact that the person as- Odd Fellows r. First National Bank sumed the right to give a note in the of Sturgis, 42 Mich. 461; 8. c., 4 N. name of the corporation. A corpora - W. Rep. 158. tion is an artificial person, which must 4 Hay ward r. Pilgrim Society, (1838) act within certain limits. It differs 21 Pick. 270. from a natural person. If an iudivid- Foster v. Ohio-Colorado Reduction ual gives his note, it is not necessary A- Mining Co., (1883)17 Fed. Rep. 130. to prove anything in the way of au- McCRAKY, J., in this case charged the thority, but a corporation must act In- jury in these words: "Upon the first way of agents, and the authority of question, as to whether this is the note the agent who acts for it is not pre- of the defendant corporation, that is sumed. It may, however, be shown, to be determined upon the question either by showing an express authority, whether the person who executed tin; as, for example, a resolution of the note on behalf of the corporation, board of trustees authorizing a certain * * * the treasurer of the company, party to execute a note on behalf of was authorized to execute such an in- the corporation, or by a provision of strument. The law upon tin* sulijeet the constitution or by-laws of the cor- 230 POWEK OF AGENTS AND OFFICERS. [ 169 construction company authorized the officers of the company to execute a note for nine thousand dollars and a chattel mortgage upon the rolling stock of the company to secure the payment of the same. The officers executed the note and mortgage and stip- ulated therein for attorney's fees in case of suit for the collection of the same. In a suit to foreclose the mortgage, a District Court of Iowa refused to allow attorney's fees. Upon an appeal, the Supreme Court said as to this matter : " This was an explicit direction to execute a note for nine thousand dollars and interest, and no more. The company did not, by any official action, authorize the execution of a note in any amount exceeding said sum in any event. We think the court correctly held that the measure of liability was nine thousand dollars and interest." l It is not within the ordinary powers of the treasurer of a corpora- tion, acting as its financial agent, to give the note of the corpora- tion for the debt of a third person ; neither is it within the ordi- nary powers of the directors of a corporation, unless there is an urgent necessity to do so to subserve the interests of the corporation. 2 169. Authority of a treasurer to borrow money by means of sterling contracts. In a federal court case the action was assum/psit for breach of contract by a railroad com- pany in not placing in the hands of the drawers of a foreign bill of exchange money to meet it when matured. The company's poration authorizing a certain officer it, and, especially, if they received the to execute promissory notes. It might benefits of transactions of this sort, be shown in that way, but I believe it which they permitted the treasurer to is not claimed that there is anything enter into." of this kind here. It may also be ' Hardin v. Construction Co., 78 shown by the course of dealings of the Iowa, 729; s. c., 43 N. W. Rep. 543. corporation and by facts and circum- See, also, Pacific R. M. v. Dayton, stances which are sufficient, in the S. & G. R. Ry. Co., 5 Fed. Rep. 852; judgment of the jury, to show that s. c., 7 Sawy. 61; Schallard n. Eel the party who executed the note had River Steam Navigation Co., (1886) 70 the authority. If it was the custom Cal. 144; 8. c., 11 Pac. Rep. 590. For of this corporation to permit the treas- a case showing under what circum- urer to execute its promissory notes, stances the signing of a note by the and if he was in the habit of doing so, treasurer of a corporation was unau- with the knowledge of the trustees, or thorized, see Medberry v. Short, 15 N. of the corporation which means, of Y. Wkly. Dig. 227. course, the trustees they had, by 'Stark Bank v. U. S. Pottery Co., 34 recognizing that custom and acting Vt. 144. upon it, themselves become bound by 169] PRIVATE CORPORATIONS. 221 treasurer had borrowed money by the purchase of a foreign bill .change and entered into the contract signing the name of tin- corporation by himself "Treasurer." The question in the case was whether he had authority to bind the corporation in this way. The insistment of the plaintiff was that such authority was to be found in the by-laws of the corporation. COLT, J., in his opinion, recites the by-law's provision that the treasurer " shall collect and receive all assessments, incomes and moneys that may be due to the corporation, and disburse the same as the board of directors may order ; he shall surrender notes and other promissory papers on payment thereof, and discharge such mort- gages as may have been given securing the same ; he shall keep a regular set of books, containing the accounts of the corpora- tion, and of all its funds that may pass through his hands ; and shall lay before the directors monthly a written statement of all notes, drafts, promises, contracts made, signed, indorsed or sur- rendered by him, an abstract of all monevs received and paid by him, .and a statement of all property bought or sold, and of such other matters as the directors may deem important." He then said : " The fact that this by-law directs the treasurer to lay before the directors monthly a written statement of all notes, drafts, promises and contracts signed or indorsed by him does not, I think, confer upon him the authority to do these acts with- out their direction or approval. To confer such broad and general powers on the treasurer of a corporation is certainly unusual. The court should not hold that such authority is vested in a treasurer by implication from the language of a by-law, but the by-law should expressly give such authority, if it was intended to be so conferred." 1 1 Page . Fall River, W. & P. R. loan of money on such contracts. On Co., (1887) 81 Fed. Rep. 257. 258, 259. the other hand, the plaintiff introduced The defendant called several officers evidence that at the time of this trans- of different railroads, who testified action the borrowing of money by that, in their experience, they never means of sterling contracts similar to knew railroads to borrow money upon the one now in controversy was a SIK-II contracts as this ; also two presi- usual and ordinary way of borrowing dents and one cashier of Boston banks money in Boston among houses hav- wcre called, who testified, in sub- ing foreign capital to loan, by persons stance, that to their knowledge such not importers or requiring to use contracts were not an ordinary and money abroad. Upon this the court usual method of borrowing money, said: " It may be true that to ordinary and that they had never known of the bankers this way of borrowing money 222 POWER OF AGENTS AND OFFICERS. [170 170. Power of a treasurer to indorse in name of cor- poration a note for accommodation. It has been held in one of the courts of New York that a negotiable note indorsed in the name of a manufacturing corporation by its treasurer for the was unusual or unknown, but to bankers having foreign funds it seems to have been a common mode. To bankers like these plaintiffs there would be nothing unusual or cal- culated to excite suspicion for any one desiring a loan to apply to them, and for them to make it in such form as was most convenient to them at the time. There is no proof that [the treasurer] suggested the form the loan should take. The inference rather would be that he applied to the plaintiffs, and they suggested the mode adopted. The fact that it was not customary for railroads to borrow money in this way was not sufficient to put the plaintiffs upon their guard. or to excite suspicion of irregularity. The plaintiffs were lenders of foreign money in the Boston market. They were applied to by one who was a customary borrower of home capital from other parties, and whose notes were bought by institutions not only in this state, but out of it. Why should they not loan their funds, under these circumstances, in a man- ner not unusual with them and bankers of their class ? If the de- fendant had desired to restrict its treasurer to borrowing money from [one certain bank] or through [certain parties] or to the form of borrowing by promissory notes, it could have done so by formal and proper action on the part of the directors. In the absence of any such restriction the defendant must be held liable. When the authority of the agent is left to be inferred by the public from powers usually exercised by the agent, it is enough if the transaction in question involves the same general powers though applied to a new subject-mat- ter. Merchants' Bank. State Bank, 10 Wall. 604. ' It is not necessary in order to constitute a general agent, that he should have done an act the same in specie with that in question. If he has usually done things of the same general character and effect, and with the assent of his principals, that is enough.'" COWEN, J., in Commercial Bank of Erie . Norton, 1 Hill, 501, 503. The right to recover in this case rested mainly on the ground of an implied authority on the part of the treasurer to make this contract, be- cause the corporation held him out to the world as its general fiscal agent authorized to negotiate loans, borrow money, make notes and manage its whole, financial business. The court said : ' ; The legal principle relied upon by the plaintiff is well stated in Lester v. Webb, 1 Allen, 34 : ' The rule is well settled that if a corporation per- mit the treasurer to act as their gen- eral fiscal agent, and hold him out to the public as having the general au- thority implied from his official name and character, and by their silence and acquiescence suffer him to draw and accept drafts, and to indorse notes payable to the corporation, they are bound by his acts done within the scope of such implied authority.' See, also, Merchants' Bank T. State Bank, 10 Wall. 604; Mining Co. . Anglo-Calif ornian Bank, 104 U. S.192." Upon the facts in this particular case the court then considered the ques- tions, whether the directors by their course of conduct, held the treasurer out to the public as the fiscal agent of the corporation, having authority to make and indorse notes for the cor- 171] PRIVATE CORPORATION-. 223 accommodation of the maker could not be enforced against the corporation where the note did not concern any business of the corporation and there was no by-law or resolution authorizing tin treasurer to indorse negotiable paper or any proof of a recog- ni/.ed com>e of l>u>ine \>\ which the treasurer was held out as -- ing such power, or any evidence that the corporation had ratified the act or derived any benefit from it though the note was in the hands of a bonafide holder. 1 j$ 171. Power of a treasurer to indorse note of another corporation. A trading corporation sought in an action to recover of a former treasurer the amount of money it had been compelled to pay on account of an indorsement in its name made upon a note of another corporation, contending that the indorsement was an act "///'/ //'/, .v the trading corporation. It appeared that the defendant at the time of indorsing the note in question, and for five years prior thereto, was the treasurer and general manager of the plaintiff. As such general manager he was allowed to exercise his discretion in managing plaintiff's busi- ness. During all the years that he was plaintiffs manager the poration, and, if so, whether there was ceeds never reaching its treasury), anything so unusual in this trans- said McADAM, Ch. J., " under these action as to have put the plaintiffs on circumstances, was not a corporate tlu-ir inquiry. COLT. J., said: "I act." Wahlig r. Manufacturing Co., have no doubt that the directors by (N. Y. City Ct. Gen. T., 1890)5 N. Y. allowing [the treasurer] for several Supp. 420; Mather r. Trust Co., (N. years and for a large amount to sign Y. City Ct. Spl. Term, 1890) 7 N. Y. notes for the corporation, most of Supp. 213; Westerfield r. Radde, 7 which were sold to different banks in Daly 326; s. c., 55 How. Pr. 369. the Mate and smiic out of it some of "[This] treasurer had no power to the directors going so far in recogni- lend the credit of the corporation. If tion of [his] authority as to indorse the indorsement was not a corporate the notes conferred upon him. so act, the fact that the plaintiff was a far as the public is concerned, an bona fide holder cannot even under implied power to borrow money, Mechanics', etc., Assn. v. New York, which the corporation cannot now dis- etc., Lead Co., 85 N. Y. 505, make it pute. As to the nature of this trans- a corporate charge. In such a case action, I am unable to conclude that the remedy would seem to be against it was of such an extraordinary char- the treasurer who acted without cor- acter as to relieve the defendant." poratc sanction, (Green's Brice Ultra 'Wahlig r. Standard Pump Mfg. Vires, 634) upon the theory that, where Co., (N. Y. City Ct. Spl. Term, 1890) the act does not bind the principal, it 9 N. Y. Supp. 739. " The act of the binds the person who, without author- treasurer " (the corporation receiving ity, assumed to act as agent." no benefit from the note, and the pro- 224 POWER OF AGENTS AND OFFICERS. [ 171 plaintiffs board of directors left the direction and management of the business to his judgment and habitually held no meeting* except an annual meeting. The plaintiff was organized as a cor- poration under the laws of Connecticut for the purpose of manu- facturing and dealing in certain classes of goods, and to exercise such mercantile powers as might be convenient and necessary for the prosecution of its particular business. It had been the practice of the plaintiff to extend financial assistance to parties with whom it had business relations. The whole management of its business was, in fact, intrusted to this treasurer. He made a contract with a carbon manufacturing company upon behalf of his corporation by the terms of which the latter was to receive and sell the greater part of the carbon manufactured by the former company upon certain terms, etc. For the purpose of increasing its manufacture of carbon, the carbon company applied to the treasurer, as representing the trading corporation, for assist- ance, and made its promissory note for $10,000, payable to the order of the corporation, which note the treasurer in the corpora- tion's name indorsed and procured to be discounted, and handed over the proceeds to the carbon manufacturing company. The Supreme Court held adversely to the claim of the corporation that this note was an accommodation indorsement by its treas- urer, and, therefore, ultra vires. 1 1 Holmes, Booth & Haydens v. Wil- raised here, therefore, is whether a lard, (1889) 53 Hun, 629; 5 N. Y. loan of money by a corporation is Supp. 610. VAN BRUNT, P. J., for the ultra vires. We have not been re- court, said: "The transaction as it f erred to any authority or principle, took place between the carbon com- under which such a transaction can be pany and the defendant, representing held ultra vires of a corporation, par- the plaintiff, was simply a loan of ticularly a trading corporation which money The carbon company gave has the right to exercise such mercan- its note, payable to the order of the tile powers as may be convenient and plaintiff, and the plaintiff loaned the necessary for the successful transac- money upon the note. How it got the tion of its business, which clearly money was immaterial, whether by gives it the authority to extend mer- having the note discounted upon its cantile facilities to the persons dealing own credit, or otherwise, does not alter with it if in its judgment it thinks it the relations of the parties. It was a for the benefit of its business so to do. loan made between the plaintiff and The transaction, therefore, between the carbon company, by and through the plaintiff and the carbon company its treasurer, and there is nothing in was in no respect ultra vires. As to the case going to show that there was the power of the treasurer of the cor- any accommodation indorsement, or poration to use its credit and money in anything of that sort. The question such a way, it was said: " It is suffi- 172] PRIVATE COKI'oItATIoXS. 825 172. When a corporation will be bound by a note exe- cuted by its treasurer. In a case where a bank discounted a note for a private corporation " in the usual course of its business without notice of any defect or infirmity," and its good faith was not questioned, the Supreme Court of Massachusetts held that if the note was signed by an officer authorized generally to give notes in its behalf the corporation would be liable, although tin- agent in signing this particular note exceeded his authority or the powers of the corporation. 1 cient to say that the evidence shows sons with whom the plaintiff had conclusively that it had been the prac- dealings. If corporations choose to tice of this corporation to lend money place the whole of the management of and extend financial assistance to par- their business for the purpose of ex- ties with whom it had business rela- pedition in the hands of a single indi- t ions. It is true t hut it is claimed that vidual, and give him a general author- the only evidence of any such course ity to act as under the circumstances is that the defendant during his ad- ministration often gave financial assist- may seem best to him, unless absolute fraud is shown on his part, there with whom is intrusted all the corporation, can powers which the ance to customers by him, but that seems to be no ground upon which a such acts were not reported to the right of recovery can be had against board of directors. But the evidence him for any such acts. Certainly a fails to establish this proposition. It mere mistake in judgment does not is true that the subsequent treasurer render him liable. Trading corpora- says that such accommodations were lions are necessarily managed in a not extended to any but the customers more informal way than those of a by him, but there is no evidence but different character. They arc volun- that it had been the practice prior to tary copartnerships, having u right of this time to give financial assistance survivorship, not dissolved by reason to others than customers strictly of the death of any one of the parties speaking, in the shape of extending in interest, and a director or officer or their paper as is claimed to have been manager only done by [the last treasurer]. And the business of it appears without contradiction that exercise all the it was not customary for the board of board of directors could exercise under directors to give the manager direc- the same circumstances in the general tions in these matters; that he always management of the corporation busi- exercised the authority, and it was not ness. Hoyt t>. Thompson, 19 N. Y. customary to bring it before the board 209. Even if we concede that the of directors. In other words, the corporation had no power to lend its whole details of the management of money, yet, when it is found that it the corporation were, as above stated, had been in the habit of so doing, and committed to the general manager, that it had been the course of business Under this state of things, it is difficult of the corporation, certainly an officer to see how the defendant can be held cannot be held liable simply because liable, because of his action, in con- he has continued the practice." ducting the business in precisely the ' Merchants' Nat. Bank of Gardiner same way in which it had heretofore t>. Citizens' Gas Light Co. of Quincy, been done, and extending aid to per- (1893) 159 Mass. 505; 8. c., 34 N. E. 29 226 POWER OF AGENTS AND OFFICERS. [ 173 173. When a corporation is bound by acts of treasurer. In a recent case before it the Supreme Court of New York, in General Term, has held that where the treasurer of a businr-v- corporation was also permitted to become and act as its sole finan- cial manager, the corporation would be chargeable, irrespective of the question of authority, in fact, with liability for acts done by him within the apparent scope of the authority conferred Rep. 1083, citing Monument Nat. Bank T. Globe Works, 101 Mass. 57. BAK- KER, J., f or the majority of the court, said, arguendo : "It is not necessary that the authority of an officer or agent to sign notes in behalf of a corporation should appear in the by-laws, or should have been expressly given by a vote of the directors or of the stock- holders. In Lester t. Webb, 1 Allen, 34, it was said: ' The rule is well set- tled that if a corporation permit their treasurer to act as their general fiscal agent and hold him out to the public as having the general authority im- plied from his official name and char- acter, and by their silence and acqui- escence suffer him to draw and accept drafts and to indorse notes payable to the corporation, they are bound by his acts done within the scope of such im- plied authority. Fay v. Noble, 12 Cush. 1; Williams r. Cheney, 3 Gray, 215; Con ver r. Insurance Co., IN. Y. 290. Ou the facts found at the trial the plaintiff might well claim, if the jury believed the evidence, that the treasurer had authority to indorse the notes in suit, derived, not from any express direction, but from the course of conduct and dealing of the treas- urer with the knowledge and implied assent of the directors of the corp^ra- tion.' " See, also, McNeil v. Chamber of Commerce, 154 Mass. 285; s. c., 28 N. E. Rep. 245; Mining Co. v. Anglo- CalifornianBank, 104 U. S. 192. "But," said the Massachusetts court, "cases where the actual authority of an officer is inferred from a course of business known to and permitted by the stock- holders or directors of a corporation, do not touch the question whether au- thority is to be implied as matter of law from the name and nature of the office itse'f. In the present case the j ury were instructed that the treasurer of such a corporation as the defendant company has, by virtue of his office, authority to sign a note which shall bind the corporation, and the defend- ant contends that this instruction was incorrect. The incidental powers of some officers or agents have become so well known and defined, and have been so frequently recognized by courts of justice, that certain powers are implied as matters of law in favor of third per- sons who deal with them on the as- sumption that they possess these pow- ers, unless such persons are informed to the contrary. The officers and agents usually mentioned in this cate- gory are auctioneers, brokers, factors, cashiers of banks and masters of ships. See Merchants' Bank c. State Bank, 10 Wall. 604; Case v. Bank, 100 U. S.446. Treasurers of towns or cities in this commonwealth are well-known offi- cers, and their powers are very limited. They are in general to receive, keep and pay out money on the warrant of the proper officers of the towns and cities. Treasurers of business corpo- rations usually have much more ex- tensive powers, and the decisions of this court hold that the treasurer of a manufacturing and trading corpora- tion is clothed, by virtue of his office, with power to act for the corporation in making, accepting, indorsing, issu- ing and negotiating promissory notes 173] PRIVATE CORPORATIONS. 227 upon him by the corporation. In this case, for instance, the treasurer of a water works company had been permitted, through the oiuiiin of its other officers to direct its financial manage- ment or supervise his acts, to become and act as its sole financial manager, and had made and negotiated some fifty promissory notes in its name during a period extending over about a year and a half. The court held that the company was liable to a bonafide holder for value of a promissory note executed in its name by such treasurer, which matured while he was still treasurer, and the proceeds of which, so far as received by him, had been applied to the use of the corporation, although the note was not specially authorized. 1 and bills of exchange, and that such negotiable paper in the hands of an innocent holder for value, who has taken it without notice of any want of authority on the part of the treasurer, is binding on the corporation, although with reference to the corporation it is accommodation paper. Narragansett Bank r. Atlantic Silk Co., 3 Met. 282; Bates r. Iron Co., 7 Met. 224; Fay v. Noble, 12 Cush. 1; Lester P. Webb, 1 Allen, 34; Bunk r. Winchester, 8 Allen, 109; Bird r. Daggett, 97 Mass. 494; Monument Nat. Bank t. Globe Works, 101 Mass. 57; Corcoran r. Cattle Co., 151 Mass 74; 8. c.. 23 N. E. Rep. 727. While it is possible that most, if not all, of the cases in which this rule has been stated as law hare some special circumstances from which the treas- urer's authority could be inferred, and that the court was influenced in the de- cisions by the well-known fact that in many of the manufacturing corpora- tions of this commonwealth the treas- urer not only has the custody of the money, but is the general financial manager, and often the general busi- ness manager of the corporation, the rule itself has been frequently and broadly stated in our decisions and is well known both to the officers of manufacturing and trading corpora- tions and to those of banks and finan- cial institutions. It could not now be abrogated or unsettled without dis- turbing commercial transactions. There are, however, many corpora- tions which transact more or less busi- ness to which the rule has been held not to apply. Thus, it does not apply to a college (Webber r. College, 23 Pick. 302); nor to a parish (Packard v. Society, 10 Met. 427); nor to a monu- ment association (Torrey v. Dustin Monument Association, 5 Allen, 327); nor to a municipality (Bank v. Win- chester, 8 Allen, 109;; nor to a savings bank (Tappan r. Bank, 127 Mass. 107); nor to a horse railroad company (Craft r. Railroad Co., 150 Mass. 207; s. c., 22 N. E. Rep. 920)." 1 Perry t>. Council Bluffs Water Works Co., (1893) 67 Hun, 456; 8. c., 22 N. Y. Supp. 151. The court ap- proved the findings and the reasoning and conclusions of the referee in this case, O'BRIEN, J., speaking for the court, referring to them thus: "He finds that during the period from some time in the month of October, 1885, to February 27, 1887, Harry Allen, as treasurer of the defendant corporation, made and issued in the name of the defendant, and to which the name of the defendant was signed by himself as treasurer thereof, some forty or fifty promissory notes, to the order of and POWER OF AGENTS AND OFFICERS. 174. When a corporation will not be bound by the act of its treasurer. In a case before the Supreme Court of New York the corporation provided for all its obligations by the issue of bonds. Parties, among whom was its treasurer, became pos- sessed of these bonds by agreeing to pay the debts of the com- pany. To discharge the personal liability thus incurred, the treasurer discounted notes of the company made by him without indorsed ' Allen & Stead,' which were negotiated and money obtained thereon; that the reason for the mak- ing of such promissory notes to the order of Allen & Stead was that they were acting as the financial agents of the defendant, and it was to give ad- ditional credit to such notes, the credit of the corporation itself being poor, and, although the by-laws of the de- fendant required the countersigning by the president, none of these notes so issued was so countersigned; that the note in suit .was, in form, similar to these others; that during all this pe- riod, with the exception of one in May, 1886, no meetings of the board of di- rectors were held, and at the one meet- ing no business was transacted other than the re-election of officers of the defendant; that Allen, though he sought to consult and advise with the president of the corporation, was re- ferred to the latter*s law partner, who was also a director in the corporation; that none of the officers or directors used or exercised any official supervis- ion over Allen or his acts and transac- tions as treasurer, except the director who was the president's law partner, and who, it would appear, was not only consulted with respect to the making of the promissory notes, and the obtaining of money thereon, but concurred in the very beginning with the making of such promissory notes; that further, he not only advised the making and issuing of such notes from time to time, but personally indorsed a large number of them, and one with the name of his firm, of which the president was a member. A review of the evidence supporting these findings will sustain the referee and justify his conclusion that Allen was practically the corporation, and that the case is brought within the principle laid down in Fifth National Bank v. Navassa Phosphate Company, 119 N. Y. 256, because he was not only the treasurer of -the defendant, but, as said in that case, ' he was consciously invested by the company with the broad general power inseparable from the position in which it placed him as the sole man- ager of its affairs at its principal place of business.' Acting, therefore, within the apparent scope of the authority conferred upon him by the corpora- tion, the latter is charged with liabil- ity, irrespective of the question of au- thority in fact." This particular note had been placed as collateral security with a certain party who loaned a cer- tain amount upon it, under an agree- ment that it was to be paid within a few days, with interest, at the rate of five dollars a day until such time as the loan was paid. The court limited the measure of damages in the recovery to the amount loaned by this person, with legal interest from the date of his loan. It was said in the opinion : 'Taking the facts here, we think that this note was not valid as a legal obli- gation in the hands of the payee nego- tiating it, or in the hands of Bradford, who delivered it to the plaintiff as col- lateral security for a loan made by him. but that when transferred to the plain- |174] PRIVATE CORPORATIONS. its authority or knowledge, or tliat of its officers. It was sought to hold the corporation liable in an action l>y the hank which dis- counted them upon the ground that the treasurer was a financial officer of the corporation, and, therefore, held apparent authority to indorse the notes, so far as bona fide purchasers were con- cerned, and upon another ground that the previous conduct of the treasurer had been such in issuing the notes that the corpora- tion must be held to have authorized the making and indorsement of the notes in suit. It was held by the court that the treasurer of a corporation engaged in the business of operating water works did not have, by virtue of his office, any implied authority to borrow money and give the corporation's note therefor. 1 tiff it became in bis hands a vega'v obligation against the defendant, but only to the extent of what was ad- vanced upon the faith thereof. We think the principle of the cases, which, under such circumstances, would pre- vent a profit being made out of the transaction, is applicable, and that, while the plaintiff is entitled to protec- tion to the extent of the moneys ad- vanced, and legal interest from the date of the loan, he cannot recover either the face value of the note, with inter- est thereon, nor the amount loaned, with interest at the rate agreed upon by Bradford, of five dollars a day." 1 First Nat. Bank of Middletown v. Council Bluffs City Water Works Co., (1890) 56 Hun, 412; s. c., 9 N. Y. 8upp. 859. In support of their con- tention the counsel of the bank cited Bank of Batnvia t>. New York, L. E. & W. R. H. Co., 106 N. Y. 195; s. c., 12 N. E. Rep. 433, and Bank of Au- burn r. Putnam, 1 Abb. Dec. 80. PRATT, J., upon the question win tlicr the facts of the case brought it within the rules of the cases cited, said: "There was no evidence that any part of the proceeds of the notes sued on came to the use of the company. The bonds and money which [the treasurer] received for these notes he retained. As to the bonds, the evi- dence was that he still had them. Aa to the money, it went into his indi- vidual bank account, and he refused to My that he paid any debt of the company out of that bank account after he received the money. He would not even say that he kept the money for the payment of what the company owed him, although he tried to produce that impression. There was no evidence, however, that the com- pany owed him anything, except his general stnteemnt that they owed him something, but what the something was he did not attempt to say. Of course, as treasurer of the company, he could not issue its notes and sell them, and pocket the proceeds, under the pretense that the company owed him money, without showing some authority outside of himself for such a transaction, and without establish- ing, in the most satisfactory manner, that the company was indebted to him for the amount which he so obtained. The referee found that the proceeds of some of the previous notes made by [the treasurer] were applied 'to at least some extent,' to the payment of the debts and obligations of the de- fendant. This fact would tend to es- tablish the company's liability fr tin- notes sued on, under the theory that they were responsible in thus having 230 POWER OF AGENTS AND OFFICERS. [ 175, 176 175. Another illustration of such a case. In a Massa- chusetts case it appeared that a stockholder, who was the treas- urer of a street railway corporation, wrote to a customer that lie could lend the proceeds of bonds sold by him for her to the cor- poration, and she told him that she would so lend a part of the proceeds to it, and left the amount in his hands, receiving from him a note for the amount made in the corporation's name by him alone as treasurer. She was ignorant of and made no inquiries as to the by-laws of the corporation, which provided that he could sign notes only as the directors might require, which notes, to bind the corporation, were to be countersigned by the president, but acted in good faith, believing that the treasurer of the corporation also acted honestly and had authority to make the loan and to give a note for the same binding upon the corpora- tion. The treasurer had no such authority in terms, and, being a defaulter, used the loan to cover up his defalcation by paying debts of the corporation. The Supreme Court of Judicature held that his customer in the stock brokerage business could not recover against the corporation either upon the note or for money had and received. 1 176. When contracts of a chief engineer will bind a rail- road corporation. It appeared in a Michigan case that certain individuals organized a railroad corporation for the purpose of constructing a line of railroad. Two of these individuals entered held out [the treasurer] as their agent him to do so. The finding with re- to make their notes. But in order to gard to the application of the proceeds create such an agency by representa- of the notes, therefore, does not go for tion or estoppel, it is essential that the enough to establish a liability in this principal shall have knowledge of the case. The fact that an agent has, in assumption by the agent of the pow- one or more instances, made notes and ers he has exercised. In order to ere- applied the proceeds in part payment ate a liability in this case, therefore, of his principal's debts, without his it was necessary to go a step further knowledge, creates no liability on his in the findings, and to find that the part for his subsequently making company had knowledge of the fact notes in the name of the principal." that [the treasurer] had so applied the ' Craft v. South Boston Railroad proceeds of these notes. There not Co., (1889) 150 Mass. 207; s. c., 22 N. only is no such finding, but the referee E. Rep. 920. Upon the first point it has expressly found that the directors was said: " Whatever may be true of had no knowledge that [he] had as- trading corporations there is nothing sumed to make the notes of the com- in the nature of the business of a pany, and that they never authorized horse railroad corporation, or of the ri;i\ AH r.,i;poi:.vM"- into an agreement, by wliieh the- third intere.-tcd party \vas to construct the road, to be paid in bond-, and .-tork. This latter was the principal promoter of this railroad enterpri>e. T I ie work was to l)e done under the supervision of a chief engineer. The work for building the road was let to a >iil>-<-ontra<-tor. The plaintiff in this action had furnished supplies for this work to the sub-contractor. Failing to be paid, this action against the com pany resulted. In it the plaintiff claimed that the goods were delivered upon orders given by the company's agent, and upon its credit. The principal question in the <-;i-,- aro>e upon the authority of the agent to bind the company. The Supreme, Court of Michigan held that the question of the authority of the agent was one of fact properly >ul>mitted to the jury, and reviewed the evidence and affirmed the judgment against the company. They said of the testimony : " [It] brings the case within any one of several well-established rules. If the company relinquished to [this contractor] the matter of construction of this road, and [he] knew that [its chief engineer] was contracting these obligations in the name and upon the credit of the com- pany, [the contractor] must be deemed to have adopted them. 1 1 is knowledge was the company's knowledge, and the company is liable. If the officers of the company were advised that [the chief engineer] had incurred the indebtedness to plaintiff in the name and upon the credit of the company, and with that knowl- edge did not protest, but, on the contrary, corresponded directly with the plaintiffs and * % aid that account, plaintiffs were justified duties of a treasurer of such a corpo- debts of the company, which the ration, which implies that the treas- money of the company, if he had not urer, by virtue of his office, has au- embezzled it, would have been used to thority to borrow money for the com- pay. The only reasonable inference pany and to give its notes therefor, is that [the treasurer's] primary pur- It does not appear that the company pose in using the money in this way in any way held out [their treasurer) was to escape detection and to benefit to the public or to the plaintitl as hav himself. Whether it WMt benefit to ing any such authority, or that treas- tin- company that he was able to ob- urvrs of horse railroad corporations tain and use money for this purpose is customarily have or exercise any such necessarily uncertain. The money authority." Upon the second it was was not borrowed boiut ji< > Railroad Na- the [corporation] ought to be implied tionnl Hank r Lowell. KW .Mass. 214; in this case, because [its treasurer) was Agawam National Bank r. South a defaulter, and the money wa> used Iladh-y, 128 Mass. 503." to cover up his defalcation by paying 232 POWER OF AGENTS AND OFFICERS. [ in relying upon that action as an assurance of [the chief engineer's] authority, and extending further credit, and defend- ant is estopped froni^ the denying the authority of [its chief engineer]. If [the latter], in the exercise of the authority given to him by the contract, in view of [the sub-contractor's] inability, was prosecuting the work for and on behalf of the company, and incurred this indebtedness in such prosecution of the work, the plaintiffs were entitled to recover. If [the chief engineer] was entering into contracts for the work upon the road, employ- ing men and purchasing supplies in the name of the company and upon its credit, and the officers of the company knew of -the fact, or had been advised of instances of like conduct and remained silent, the company cannot now be heard to say that such person so acting was without authority." * In another action against this railroad company for supplies furnished to the sub-contractor in the construction of its road, the same court held that upon the evidence the principles of the last case were established, and that the railroad company was properly found liable, not only upon the verbal arrangement made by the chief engineer with the plaintiff through its managing officer, but also upon a written guaranty of the sub-contractor's orders for sup- plies made by the engineer. 2 They further held in this case that the third of the then parties organizing this railroad company, with whom the two entered into the agreement for the construc- tion of the railroad, who was its president, could bind the corpo- ration for supplies used in the construction, though not acting by any corporate authority. This president was at the same time president of the supply company which brought this action. It was contended that from this fact, and his powers being limited in the contract with his associates for the construction of the road, which provided that " no indebtedness shall be incurred and no expenditures made without the free consent and co-opera- tion of all the parties to the agreement," his knowledge of this limitation was the knowledge of the plaintiff, and, therefore, the 1 Hirschmann r. Iron Range & Iluron Mich. 541; Whitaker r. Kilroy, 70 Bay R R. Co., (1893) 97 Mich. 384; Mich. 635, 638; Bcattie r. Railroad Co., s. c. ( 56 N. W. Rep. 842. The court 90 N. Y. 643. referred in its discussion to the follow- s Michigan Slate Co. v. Iron Range ing cases as in point: Olcott r. Rail- & Huron Bay R. R. Co., (1894) 101 road Co.. 27 N. Y. 546, 558; Ceeder t. Mich. 14; s. c., 59 N. W. Rep. 646. H. M. Loud & Sons Lumber Co., 86 7 7 1 PRIVATE OORPOR ATI* 233 latter was estopped from the recovery. The court held adversely to this contention. 1 177. Ratification by corporation of agent's acts gen- eral rules. If a trading corporation take and hold the benefit derived from a contract made for it by an agent not duly author- ized, it thereby makes the contract its own by ratification or adop- tion and will thereby be estopped from disputing its liability rlim-nii.* A corporation will be held liable for materials fur- nished for its use and benefit by the order of one not expressly authorized to give such order, where its officers have knowledge of the order and do not object to it. 8 Ratification of an unau- thorized act of an agent of a corporation will be inferred from failure on the part of the corporation to promptly disavow it upon knowledge of the act being brought to it. 4 The ratification of an unauthorized act of an agent of a corporation is equivalent to a previous authority, and such ratification need not be by any formal vote or resolution of the corporation, or be authenticated by the corporate seal. 5 A ratification of an act of an officer of a corporation in making a contract may be implied by the acts of the corporation as well as expressed by its vote. The acts and assent of corporations may be shown and inferred from facts and circumstances. 6 Before a corporation can be said to have ratified 'Ibid. The court said: " A party San Francisco, 16 Cal. 265; Fraylor P. may act in the double relation of agent Souora Mining Co., 17 Cal. 594; Ros- f or both parties." Adams Mining Co. r. borough r. Shasta River Canal Co., 23 Senter, 26 Mich. 73; C'olwellr. Keystone Cal. 556; Allen r. Citizens' Steam Iron Co., 36 Mich. 51; U. 8. Rolling Navigation Co., 22 Cal. 28; United Stock Co. v. Atlantic &G.W. R Co., 34 States r. Dandridgc, 12 Wheat. 70; Ohio St. 450; Mayor, etc., r. Inman, Olcott r. Tioga R. R. Co., 27 N. Y. 57 Ga. 370; Manufacturers' Sav. Bank 558; Hoyt r. Thompson, 19 N. Y. 215; f. Big Muddy Iron Co.. 97 Mo. 88; Bank of Kentucky r. Schuylkill Bank, s. c., 10 8. W. Rep. 865; Kitchen r. 1 Parsons' Sel. Cas. in Equity, 250. Railway Co., 69 Mo. 224; Fitzsim- 'Beattie r. Delaware, Lack. & West, mons v. Express Co., 40 Ga. 330. See, R. R. Co., (1881) 12 N. Y. Wkly. Dig. as to contract made by one styled en- 334. gineer of the railroad corporation, * First National Bank r. Frickr, Wilson r. Kings County Elevated R. (1881) 75 Mo. 178. R. Co., (1889) 114 N. Y. 487. Campbell r. Pope, (1888) 96 Mo. 'Pixley v. Western Pacific R. R. Co., 468; s. c., 10 8. W. Rep. 187. (1867) 88 Cal. 188; Gas Company r. Louisville, New Albany & Chicago San Francisco. 9 Cal. 453; Argonti r. K\. Co. r. Carson. (1894) 151 111. 444; 30 34 POWER OF AGENTS AND OFFICEES. [ 177 an unauthorized contract of its agent by receiving the considera- tion of the contract, there must be proof that the corporation, through its proper officer, knew the terms of the contract and received the money on that account. 1 A contract having been made by an agent of a corporation out of the usual course of business of the corporation, and his receiving money as a consid- eration of the contract and paying it to the corporation, the reten- tion of the money by the latter will not constitute an adoption of the contract, unless it appears that the corporation knew on what account the money was paid and what were the terms of the contract. 2 Farmers & Citizens' Bank v. Sherman, mont, 60 N. Y. 96; Bommer r>. S. S. 6Bosw. 181; Hoyt v. Shelden, 3 Bosw. Co., 81 N. Y. 468; Castle v. Lewis, 267; Houghton v. Dodge, 5 Bosw. 326; (1879) 78 N. Y. 131, affirming 13 Hun, Madison Avenue Baptist Church r. 298; Eickland v. Menasha Wooden Baptist Church in Oliver St., 2 Abb. Ware Co., 68 Wis. 34; Paxton Cattle Pr. (N. S.) 254; s. c., 32 How. Pr. 335. Co. r. First Nat. Bank, 21 Neb. 621; What amounts to a ratification of the Holmes r. Kansas City Board of Trade, contracts of officers or agents. MA- 81 Mo. 137; Pauling v. London Ry. rine Bank v. Butler Colliery Co., 52 Co., 8 Exch. 867; Beverley . Lincoln Hun, 612; s. c. ( 5 N. Y. Supp. 291; Gas Co., 6 Ad. & El. 829; Tnskaloosa, Mobile & M. Ry. Co. . Gilmer, 85 etc., Co. r. Perry, 85 Ala. 158; M( !- Ala. 422; s. c., 5 So. Rep. 138; ledge r. Boston Iron Co., 5 Cush. Campbell v. Pope, 96 Mo. 468; s. c., 158, 175; Smith r. Martin Anti-Fire 10 S. W. Rep. 187; Hamilton v. Bates, Car Heater Co., 64 Hun, 639; s. (Cal. 1894) 35 Pac. Rep. 304 (holding c., 19 N. Y. Supp. 285; Brower r. there was no ratification of an agree- Brooklyn Trust Co., 21 N. Y. Supp. ment of the president that the corpo- 324: Tryon r . White & Corbin Co. , 62 ration should assume the debts of a Conn. 161; s. c., 25 Atl. Rep. 712; person); Frank v. Hicks, (Wyo. 1894) Weatherford, M. W. & N. W. R. Co. 35 Pac. Rep. 475; Bibb v. Hall, (Ala. r. Granger, (Tex. Civ. App. 1894) 22 1894) 14 So. Rep. 98; Nebraska & S. W. Rep. 70. K. Farm Loan Co. v. Bell, 58 Fed. * Pennsylvania, Del. & Maryland Rep. 326; s. c., 7 C. C. A. 253; West Steam Navigation Co. r. Dandridge, 8 Salem Land Co. r. Land Co., 89 Va. G. & J. (Md.) 248. As to estoppel to 192. deny authority of officers and ratifica- 1 Hyde v. Larkin, (1889) 35 Mo. App. tion of their acts on the part of a cor- 365. As to corporations receiving the poration, see Tuskaloosa Cotton Seed benefit of a contract made by its agents Oil Co. v. Perry, 85 Ala. 158; s. c., 4 So. or officers being considered as ratify- Rep. 635; Morrell v. Long Island R. Co. , ing it. see Jourdan v. Long Island R. (N. Y. City Ct. Spl. T.) 1 N. Y. Supp. R. Co., 115 N. Y. 380; 8. c. ; 22 N. E. 65; Fitch v. Lewiston Steam Mill Co., Rep. 153; Scott t>. W., etc., R. R. Co., 80 Me. 34; s. c., 12 Atl. Rep. 732; Metro- 86 N. Y. 200; Wild v. New York, etc., politan T. & T. Co. v. Domestic T. & M. Co., 59 N. Y. 644; Decker r. G., T. Co., 44 N. J. Eq. 568; s. c., 14 Atl. etc., Co., 61 Hun, 516; Hoag r. La- Rep. 907; Alabama Great So. R. R. 178] PKIVATK . "i:!'.'UATIOX8. 235 3178. Modes of ratification. The United States Circuit Court of Appeals for the eighth circuit held that the board .i li rectors of this corporation upon the promissory note of which tlii> action was brought by the receiver of the bank which loaned tlu- corporation money on the note, who were authorized by its by-laws to borrow money and execute securities therefor, ini^lit ratify the unauthorized execution of the promissory note by the secretary of the corporation, and thus the corporation would be bound. 1 In a case where the foreman of a mining corporation, with the knowledge and acquiescence of the officers of the cor- poration but without any special request advanced money to pay the debts of the corporation, and the corporation, with full knowledge of all the facts, acquiesced in the acts of its officers and agents in their dealings with the foreman, the Supreme Court of Nevada held that such knowledge and acquiescence amounted to a ratification of the acts of the foreman and rendered the corporation liable to him for the money so advanced. 2 Co. t. South & North Alabama R. R. Co. v. Troy & Lansingburgh K. R. Co., 84 Ala. 570; s. c., 3 So. Rep. Co., (1872) 7 Laos. 240. What does 286; Hoosac Mining & Milling Co. v. not: Harrington r. First Nat. Bunk of Donat, 10 Col. 529; 8. c. ( 16 Pac. Rep. Chittcnango, (1873) 1 T. & C. 361. In 157; Second Nat. Bank r. Pettier & Licbfritz r. Dubuquc Street Railway Stymus Mfg. Co., 56 N. Y. Super. Ct. Co., (1878)48 Iowa, 709, the managing 216; 8. c., 2 N. Y. Supp. 644; Getty director of a corporation having t. C. R. Barnes Milling Co., 40 Kans. knowledge that an agent of the coin- 281; 8. c., 19 Pac. Rep. 617; Corn Ex- pnny had borrowed money and ap- changc Bank r. American Dock & plied it to the payment of corporate Trust Co., 78 Hun, 400; s. c., 29 N. indebtedness, the corporation was held Y. Supp. 158; Thomas v. City Nat. liable for the sum borrowed. Bank, (Neb. 1894) 58 N. W. Rep. 943; ' Nebraska & Kansas Farm Loan Moyer t. East Shore Terminal Co., Co. v. Bell, (1893) 58 Fed. Rep. 326; (1898)41 S. C. 300; 8. c., 19 S. E. Rep. citing Allis r. Jones, 45 Fed. Rep. 051; Norton r. Alabama National 148; Indianapolis Rolling Mill Co. r. Bank, (Ala. 1894) 14 So. Rep. 872; St. Louis, Ft. S. & W. Ry. Co., 120 Martin r. Santa Cruz Water Storage U. 8. 256 ; 8. c. , 7 Sup. Ct. Rep. 542; Co., (Ariz. 1894) 36 Pac. Rep. 36 Pittsburgh, C. & St. L. Ry. Co. r. (where there was held to have not Keokuk & II. Bridge Co., 181 I E been a ratification); Currie r. Bowman, 378 ; 8. c., 9 Sup. Ct. Rrp. It" (1894) 25 Or. 364; s. c., 85 Pac. Rep. Martin r. Victor Mill & Mining 848 (ratification of execution of a mort- Co., (1885) 19 Nev. 180; s. c., 8 I'M. . gage); Church r. Sterling, 16 Conn. 398; Rep. 161. A ratification of an agent's Howe r. Keeler, 27 Conn. 554; John- use of the rorporaiimi's funds for son . Smith, 21 Conn. 682: Hewitt r. "special purposes " by :i resolution of Wheeler, 22 Conn. 564; Hyde r. Lar ihr dim-tors, held not to be void, as kin, 35 Mo. App. 365; Union Bridge constituting :i fraud upon the stock- POWER OF AGENTS AND OFFICERS. [ 179 179. Illustration of ratification of contract of agent. In a late California case it appeared that a corporation, by resolu- tion of its directors, authorized its president to execute a mort- gage to secure a loan at a rate of interest and for a length of time specified. The mortgage executed by him was for a shorter period than authorized, and provided that the interest should be paid monthly ; that a failure to pay interest when due rendered the principal due and that the mortgagees should recover attor- ney's fees in case of foreclosure. In an action to foreclose this mortgage the assignee of the corporation appointed after the suit was begun, being made a party, defended upon the ground inter alia that the execution of the mortgage on terms which were a departure from the terms named in the resolution of the directors was in excess of the authority of the president and not binding upon the corporation. The facts that the president of the corporation included in the note and mortgage terms and condi- tions which the corporation had power to authorize, but which it did not authorize him to insert ; that the corporation received the consideration of $17,000 from the plaintiffs and applied the money to its uses, including the payment of a prior mortgage upon its property and the extinguishment of the lien thereof ; that the holders. Clarke. American Coal Co., s. c., 33 Pac. Rep. 728; Willis v. St. (1892) 86 Iowa, 436. As to contracts Paul Sanitation Co., (1893) 53 Minn, being made valid by ratification by a 370; s. c., 55 N. W. Rep. 550; corporation, see Dubuque College r. Augusta, T. & G. R. Co. t>. Kittel, 52 Dubuque, 13 Iowa, 555-560 ; Beach on Fed. Rep. 63 ; s. c., 2 C. C. A. 615; Priv. Corp. 195; Oregon Ry. r. 2 U. S. App. 409; Hitchings v. St. Oregon Ry. & Nav. Co., 28 Fed. Rep. Louis, N. O. & O. Canal & Transp. 505; Greenleaf v. Norfolk Southern Co., 68 Hun, 33; 6. c., 22 N. Y. Ry., 91 K C. 33 ; First Nat. Bank v. Supp. 719; Tingley . Bellingham Fricke, 75 Mo. 178; Kelsey r. National Bay Boom Co., 5 Wash. St. 644; s. Bank, 69 Pa. St. 426; Eureka Co. v. c., 32 Pac. Rep. 737; Goldbeck v. Bailey Co., 11 Wall. 488, 491; Gold Min- Bank, 147 Pa. St. 267; Haines 9. ing Co. v. National Bank, 96 U. S. 640, Detrick, 75 Md. 256 ; Smith v. Martin 644; Pacific Rolling Mill Co. v. Day- Anti-Fire Car Heater Co. , 64 Hun, 639; ton Ry., 7 Sawy. 61, 67; Wai worth Co. s. c., 19 N. Y. Supp. 285; Seymour v>. Bank v. Farmers' Loan & Trust Co., 16 Association, 64 Hun, 632; McComb v. Wis. 629 ; Connett . City of Chicago, Association, 134 N. Y. 598 ; Shaver v. 114111. 233; Wood v. Whelen, 93 111. Hardin, 82 Iowa, 378; Hayden . 153. Ratification generally : Nims P. Wheeler & Tappan Co., 66 Hun, 629 ; Mt. Hermon Boys' School, 160 Mass. s. c., 20 N. Y. Supp. 902 ; Seal . 177 ; s. c., 35 N. E. Rep. 776 ; People Puget Sound Loan & Imvest. Co., 5 r. Eel River & E. R. Co., 98 Cal. 665 ; Wash. St. 422 ; s. c., 32 Pac. Rep. 214. 180] PRIVATE CORPORATIONS. 'Jo 7 corporation, by its representations, declarations and acts, through its directors, intentionally led the plaintiffs to believe, and th-v did believe, the president of the corporation was authorized to execute the note and mortgage for one year, with interest pay- ;iltlr monthly; that the corporation, with full knowledge of the terms and conditions of the note and mortgage, received and used the consideration of $17,000, and paid the interest thereon monthly as the same became due for about four months, were held sufficient to constitute a ratification of the acts of the presi- dent of the corporation and sufficient to support the invocation of an estoppel in pais. 1 180. What does not amount to a ratification. A treas- urer of a Massachusetts savings institution for the corporation became a party to an assignment for the benefit of creditors, and thereby undertook to release one of the promisors on a joint and several note belonging to the institution. The by-laws of the corporation, concerning the duties of the treasurer or as ex ojfieio secretary, after enumerating several particulars, provided gener- ally that " he shall perform and discharge all such other duties, in addition to the above, as are usually required of the treasurer and secretary of similar institutions." There was no record of any vote of the institution to release any claim against any per- son, or to cancel, or discharge, or receive payment, partial or in full, of any debt of any person whatever. Tl>e binding effect of this action of the treasurer upon the corporation being for the consideration of the Supreme Court, it was held that the treasurer of an incorporated institution for savings had no authority, as such, and without being specially authorized thereunto, to exe- cute a release in the name of the corporation. Further, they held that the facts that payments of dividends were subsequently made to the treasurer's successor in office, and indorsed on the note of the one making the assignment, and entered in the books of the institution, as so much received of the assignees of the promisor, and the treasurer's account and cash, including the sum so received, and the notes of the institution, including the note in question, were subsequently examined by a connnittrf and certified as correct, were not acts which amounted to a ratiti- 1 Gribble e. Columbus Brewing Co. , (1898) 100 Cal. 67; s. c., 84 Pac. Rep. 527. 238 POWEB OF OFFICERS AND AGENTS. [ 180 cation of the release. 1 It appeared, in an action upon a written contract executed in the name of a corporation by its president, that there was no vote, either of the corporation or of the directors, giving the president authority to execute the contract ; that under the by-laws, the directors might confer upon him such authority ; that there were five directors, of whom the president was one, and there was evidence that one director, besides the president, knew of this contract, but there was no direct evidence that the other three directors had any knowledge of it. The jury were instructed that if " the corporation, represented by its entire board of officers, knew of and ratified the contract, it would be as binding as if the corporation had authorized it by express vote," with this addendum : " But all directors of a cor- poration are presumed to know what it is their duty to know, what they are able to know, and what they undertook to know when they accepted the responsibility of directors, and a jury have a right to suppose that the directors of a corporation have a knowledge of its concerns. In the absence of direct and positive evidence of the knowledge of the directors, jurors have a right to assume that they are doing what they were appointed to do, and that they know what they are appointed to know." The Supreme Court of Massachusetts held such instruction to be erroneous. 2 1 Dedhain Institution for Savings v. fication may be shown by proving Slack, (1850) 6 Cush. 408. that the officers who had the power to 8 Murray v. Nelson Lumber Com- authorize the act knew of it, and pany, (1887) 143 Mass. 250; s. c., 9 N. adopted it as a valid act of the corpo- E. Rep. 634. MORTON, Ch. J., speak- ration, although no formal vote is ing for the court, said: " It is a well- passed by them. Sherman . Fitch, settled rule that a ratification by a 98 Mass. 59; Lyndeborough Glass Co. principal of the unauthorized acts of v. Massachusetts Glass Co., Ill Mass, an agent, in order to be effectual, must 315; Kelley r>. Newburyport Horse be made with a knowledge on the Railroad, 141 Mass. 496. In the case part of the principal of all the mate- at bar, therefore, it was incumbent rial facts. And the burden is upon upon the plaintiff to show that the the party who relies upon a ratifica- directors, or at least a majority of tion to prove that the principal, hav- them, knew of the contract and its ing such knowledge, acquiesced in terms, and that, with such knowledge, and adopted the acts of the agent. It they acquiesced in and adopted it. is not enough for him to show that the But the instructions given by the principal might have known the facts court gave to the jury a different by the use of diligence. Combs v. test. Under them, the jury would Scott, 12 Allen, 493. Where the al- naturally understand that it was not leged principal is a corporation, a rati- necessary to find that the directors $ 180] PRIVATE CORPORATIONS. 889 knew uf t in- contract, and that it would ho sufficient if, in their judg- ment, the dim-tors, by the use of dili might have known it. Tin- instruction-* arc i-vm broader than this. us tln-y told tin- jury that the directors wrre presumed to know wlmt they were able to know, and that the jury had the right to suppose that the directors of a corporation had a knowl- edge of its concerns." Knowledge of officer imputable to the corporation. Anderson r. Kinley, (Iowa, 1894) 58 N. W. Rep. 909; Merchants' Nat. Bank v. Tracy, 77 Hun, 443; s. c., 29 N. Y. Supp. 77; Huron Printing & Bindery Co. t>. Kittleson, (S. D. 1894) \V. Rep. 283; Willard r. Deniuc-. 50 N. J. Eq. 482. Estoppel of corpo ration to deny authority of its officers and agents. Dall.-i* /. Columbia Iron A: St, ! Co., 158 Pa. St. 446; 8. c., 27 All. Rep. 1055; St. I/>uis & 8. F. R. Co. v. Kirkpatrick, 52 Knns. 104; 8. c., 34 Pac. Rep. 400; Duggan t. Pacific Boom Co., 6 Wash. 593; 8. c., 84 Pac. i;< l> M7; Merchants' Nat. Bank r. Citi/.cns' Gaslight Co., 159 Mass. 506; s. c., 34 N. E. Rep. 1083; Jourdan v. Long Island R. Co., 115 N. Y. 880; s. c., 22 N. E. Rep. 153; Beach t>. Miller, 130 111. 162; s. c., 22 N. E. Rep. 464; Brown r. Wright, 25 Mo. App. 54. CHAPTER V. FRAUDULENT ACTS OF OFFICERS. 181. General rules. 182. General rules continued. 183. Breaches of trust. 134. Officers interested in contracts with a corporation. 186. Directors of an insolvent cor- poration preferring them- selves to other creditors. 186. Directors contracting with a syndicate composed of them- selves when such a con- tract cannot be rescinded. 187. Directors issuing shares of stock to themselves. 188. Officers profiting by their rela- tion to the corporation. 189. Repudiating or avoiding such contracts. 190. Rules as to such contracts. . 191. Circumstances under which the directors cannot avail them- selves of the defense of the invalidity of the contract. 192. Purchase by officers of debts due by, or property of, cor- poration. 193. Purchase and sale of property of corporations by officers. 194. Illustrations of a sale of prop- erty to corporation which was not fraudulent. 195. When a transfer of prop- erty of corporation will be upheld. 196. Officers voting themselves sala- ries or compensation. 197. Interest upon exorbitant salary voted officer recoverable. 198. Contracts between corporations having the same directors in part. 199. Issue of worthless, or overissue of, stock. 200. False representations of offi- cers deceit. 201. A leading English decision on this subject. 202. The rule adhered to in England. 203. Officers conspiring to wreck a corporation. 204. President conspiring against a corporation terms on which the corporation could rescind the contract made by him. 205. Promoters of corporations ac- countable for profits. 206. Promoters obtaining stock of corporation for nothing, 207. Jurisdiction of equity courts as to breaches of trust, etc. 208. When a court of equity is not open to the complaints of stockholders. 209. Remedy in equity. 210. Malfeasance of the president of a corporation a stockhold- er's remedy. 211. When a demand upon a direct- ory to bring suit is not re- quired. 212. When a stockholder may bring an action. 213. Dissolution of a corporation by a scheme of stockholders and a sale of the property to themselves. 214. The rights of the minority in such a case. 215. Principles applied to this par- ticular case. 216. When a fraudulent assignment of a mortgage by the treas- 181] urer of a corporation will bind it. 217. When a corporation may re- cover money fraudulently paid out by its treasurer. 218. When a corporation must re- spond for damages resulting from a fraudulent issue of its tocfc. 241 219. The same subject a Massa- chusetts derision. j-jit Tin- vaine Milijeet a Pennsyl- vania decision. 221. When a u-puration may not respond for damages. 222. A Massachusetts decision on this subject. 181. General rules. Directors of a corporation will be held responsible to the stockholders for losses from fraud, embezzle- ment, willful misconduct, breach of trust and for gross inatten- tion or negligence, as a result of which fraud has been perpe- trated by agents, officers or co-directors. 1 It is now well settled that directors and managers of corporations are equally within the rule which guards and restrains the dealings and transactions between trustee and cestui que trust and agent and his principal, such directors or managers being in fact trustees and agents of the bodies represented by them.* Bank directors are not mere agents, like cashiers, tellers and clerks. It is the duty of the board to exercise a general supervision over the affairs of the bank and to direct and control the action of its subordinate officers in all important transactions. * * * They invite the public to deal with the corporation, and when any one accepts the invitation he has the right to expect reasonable diligence and good faith at their hands, and if they fail in either, they violate a duty they owe not only to the stockholders but to the creditors and patrons of the corporation. 8 The directors of a banking or other corpora- tion are, in the management of its affairs, only trustees for its creditors and stockholders, and are bound to administer its affaire according to the terms of its charter and in good faith. If they fail in either respect they are liable to the party in interest who is injured by it for a breach of trust and may be made to account with him in a court of cliancery. 4 The character of directors as 1 Spering's Appeal, (1872) 71 Pa. St. 11. * Cumberland Coal & Iron Co. c. Parish, 42 Md. 598; Cumberland Coal A Iron Co. t>. Sherman, 30 Barb. 558; Stewart F. Lchigh Valley Railroad Co., 88 N. J. Law, 505; Gardner t. Butler, 80 N. J. Eq. 702; Kitchen r. St. Louis, 31 etc., Railway Co., 69 Mo. 224; Chou- teau t>. Allen, 70 Mo. 290; Ilubbard r. N V. etc., Investment Co., 14 Fed. Rep. 679. * United Sodcty r. Underwood, 9 Bush, 609. Sec. also, Bank r. Wulfe- kuhler. Ml Kans. 60. 4 Bank r. St. John, > Ala. 566. 242 FRAUDULENT ACTS OF OFFICERS. [ 181 agents of a corporation for the management of its affairs for the benefit of its stockholders and creditors forbids the exercise of their powers for their own personal ends against the interest of the corporation. Their position is one of great trust, and to engage in any matter for their personal advantage inconsistent with it would be to violate their duty and to commit a fraud upon the company. 1 They cannot, as agents or trustees, enter into or authorize contracts on behalf of those for whom they are appointed to act and then personally participate in the benefits. Hence all arrangements by directors of a corporation to secure an undue advantage to themselves at its expense, by the forma- tion of a new corporation as an auxiliary to the original one, with an understanding that they, or some of them, should take stock in it, and then that valuable contracts should be given to it, in the profits of which they, as stockholders in the new corporation, are to share, are so many unlawful devices to enrich themselves to the detriment of the stockholders and creditors of the original corporation, and will be condemned whenever properly brought before courts for consideration. 2 A director of a corporation is a trustee of the corporation, and is under the disability which attaches to all trustees in dealing with trust property and in trans- acting the business pertaining to the trust. He cannot act as trustee and for himself at the same time, and will not be per- mitted to make a profit to himself in his dealings with the cor- poration. It is against public policy to allow persons occupying fiduciary relations to be placed in such positions as that there will be constant danger of a betrayal of trust by the vigorous opera- tion of selfish motives. 3 1 Wardell t. Railroad Co., (1880) 103 505; Gardner v. Butler, 30 N. J. Eq. U. S. 651. 702; Foster t. Oxford, W. & W. Ry. 2 Ibid.; citing Great Luxembourg Co., 14 Eng. Law & Eq. 306; Aber- Railway Co. v. Maguay, 25 Beav. 586; deen Ry. Co. r. Blakie, 1 MacQueen Benson r. Heathorn, 1 Y. & Cal. C. C. H. L. 461. As to the duties of direct- 326; Flint & Pere Marquette Railway ors and the restrictions upon their Co. . Dewey, 14 Mich. 477; European action in matters of the corporation & North American Railway Co. v. growing out of their trust relation in Poor. 59 Me. 277; Drury r. Cross, 7 Bird Coal & Iron Co. r. Humes, (1893) Wall. 299. 157 Pa. St. 278: s. c., 27 Atl. Rep. 3 Barnes r. Brown, (1880) 80 N. Y. 750; 33 W. N. C. 174, Mr. Justice 527; citing Rislcy r. Indianapolis, B. DEAJJ said: "A director is a trustee & W. R. R. Co.. 62 N. Y. 240; Butts for the entire body of stockholders, . Wood, 37 N. Y. 317; Stewart r. and both good morals and good law Lehigh Valley R. R. Co., 3* N. J. Law, imperatively demand he shall manage 182] FRAUDULENT ACTS OF OFFICERS. 243 182. General rules continued. A director of a corporation cannot become a contractor with the corporation nor can he have any personal or pecuniary interest in a contract between the cor- all the business affairs of the company with a view to promote, not his own i -is, but the common interests, and he cannot directly or indirectly derive any personal profit and advan- tage by reason of his position distinct from his co-shareholders. 1 Potter on Corp. 330; Moraw. on Corp. 517, 518. And by assuming the office he undertakes to give his best judgment in the interests of the corporation in all matters in which he acts for it un- tranimeled by any hostile interest in himself or others. There is an inherent obligation as his part that he will in no manner use his position to advance his own interest as an individual as distinguished from that of the corpo- ration. Cumberland Coal & Iron Co. r. Parish, 42 Md. 598; Hill t. Frazier, 22 Pa. St. 320. And all secret profits de- rived by him in any dealings in regard to the corporate enterprise must be accounted for to the corporation, even though the transaction in which they were made advantaged the corpora- tion of which he was director. Par- ker r. Nickerson, 112 Mass. 195." Fiduciary relation of directors to shareholders discussed, and English and American decisions on the sub- ject examined. 26 Can. Law J. 66. In McQourkey r. Toledo & Ohio Central Ry. Co., (1892) 146 U. 8. 536, a case involving the right of the pur- chasers of railway property under a foreclosure sale to certain rolling stock which was claimed to be the property of those representing a "contract," the Supreme Court of the United States, speaking through Mr. Justice BROWN, thus refers to the acts of the directors in the matter: " The directors of this road were evidently acting in two inconsistent capacities. As directors they were bound to watch and protect the interests of the road and obtain the rolling stock upon the most advantageous terms. As holders of the car trust certificates, or repre- sentatives of such holders, it was to their interest to lease the same at the best possible rate and to make sure that as directors this rolling stock should never become their property except at the highest price. In other words, they were both buyers and sell- ers or lessors and lessees of the same property," and their action was con- demned by the court upon authority of the cases of Wardell v. Railroad Co., 103 U. S. 651; Oilman, etc., Rail- road Co. r. Kelly, 77 111. 426; Whelp- dale v. Cookson, 1 Ves. Sr. 9; Drury r. Cross, 7 Wall. 299; York Buildings Co. t. Mackenzie, 3 Paton (Scotch) App. Cas. 378; People v. Overyssel Town- ship Board, 11 Mich. 222, and others. The competency of the mortgagee to impeach this transaction was ques- tioned in McGourkey v. Toledo & Ohio Central Ry. Co., supra. Upon this question it was said: "A contract of this kind is clearly voidable at the elec- tion of the corporation, and when such corporation is represented by the direct- ors against whom the imputation is made, and the scheme was in reality di- rected against the mortgagees, and had for its very object the impairment of their security by the withdrawal of the property purchased from the lien of their mortgage, it would be mani- festly unjust to deny their compe- tency to impeach the transaction. The principle itself would be of no value if the very party whose rights were sacrificed were denied the bene- fits of it." 244 FRAUDULENT ACTS OF C TICERS. [ 182 poration and a third person. 1 A board of directors who have made a barter of the assets oi the corporation for personal gain cannot, by an act purporting to be an acceptance for the corpo- ration of an equivalent for the assets, conclude tile stockholders or their representatives from showing that no equivalent was actually received. 2 Officers of a corporation have the custody and charge of its property, and occupy the relation of trustees of the stockholders. They have no right to enter into or partici- pate in a combination as, in this case, with a holder of a few bonds secured by a mortgage of the property ol the corporation, a rail- road company, who had obtained a judgment upon his bonds in a state court and entered into an agreement with certain officers to have a sale of the property in an obscure place unknown to others interested and buy in the property, the object of which combination is to divest the corporation of its property and obtain it for themselves at a sacrifice, or at the lowest price possible. To seek their own profit at the expense of the corporation, its stockholders, or even its bondholders, is forbidden by their rela- tion to the corporation. 8 It being the duty of a director of a cor- poration to know its financial condition, he cannot avail himself of any dereliction of sucn duty to secure a personal advantage over other creditors of the corporation. 4 Directors acting hon- estly for wnat they esteem the best interests of the corporation, and not willfully perverting their powers, but only misjudging them, will not be held to account for money expended in such case. 6 The directors of a corporation created for the sale of lands may reject offers fo the lands, this being within their dis- cretion, and though imprudently done, if there be no fraud, they will not be liable for any loss resulting therefrom. 6 Where expenditures may be made by directors of a corporation in carry- ing out its prime object, even if such expenditures be ultra, mres y stockholders knowing of them and not objecting until long after their completion, cannot compel the directors of the corporation 1 Port v. Russell, 36 Ind. 60. account for all moneys and profits re- 9 Guild v. Parker, 43 N. J. Law, ceived by them out of the property or 430. its use. 8 Jackson t>. Ludeling, (1874) 21 Wall. 4 Clay v. Towle, 78 Me. 86; s. c., 616, ordering the setting aside and can- 2 Atl. Rep. 852. celing as fraudulent and void the 5 Watts' Appeal, (1875) 78 Pa. St. sale and purchase of the property by 370. these conspirators and holding them to 6 Ibid. 182] FRAUDULENT ACTS OF OFFICERS. 245 to account for the moneys expended. 1 When the act of direct- ors of a corporation complained of is to be followed by large expenditure of money a stockholder should not only make his protest within a reasonable time, but should follow it up by active jiivvi'iitivr measures. Six years', for instance, omission to pro- ceed will effectually bar a stockholder's right to an action against diivctors for the misuse of corporate property. 2 A court of equity will set aside the sale of corporate property sold for much less than its value, on a sale by trustees of a corporate mortgage, if sh. La Fayette, Bloom- White Mountains (N. H.) Railroad, 50 ington & Mississippi Ry. Co., (1878) 71 N. II. 60. 111. 200. 4 Jesup r. Illinois Central R. Co., ' Chouteau t. Allen, (1879) 70 Mo. (1890) 48 Fed. Rep. 488. Jlu Attaway t>. Third National Bank, Ward P. Davidson, (1886) 89 Mo. (1887) 98 Mo. 486; s. c., 6 8. W. Rep. 446. 16. 246 FRAUDULENT ACTS OF OFFICEE8. [ 182 tion to debts due the officers, to the exclusion of other creditors, by such officers will not be permitted. 1 A trustee of a corpora- tion can make no agreement for the appropriation of the prop- erty of the corporation, authorized by his own vote, that will be valid against the corporation. And where an action is brought against a trustee to compel him to account to the corporation for its property thus appropriated, he cannot defend on the ground that he was a creditor of the corporation and voted as one of its trustees to transfer the property of the corporation to himself as a creditor to pay the debt of the corporation due to him, and then, at a subsequent meeting of the board, by his own vote, car- ried a resolution to ratify such disposition of the property. 2 In a case where the controlling directors of two corporations were the same persons it was held that a preferential mortgage given by one to the other, as security for payments and liabilities result- ing from an acceptance of drafts by the latter for the accommo- dation of the former, was invalid because it operated to protect the officers of the accepting company against personal liability for their maladministration in accepting paper for accommodation. 8 A corporation having been officially declared insolvent by its directors, and they having determined to wind up its affairs with a view of paying its debts, the directors cannot deliver the assets 1 McNeill v. Lacey, (1890) 33 ill. officer to loan money to a corporation App. 310. In Hart v. Brockway, 57 and take a mortgage to secure the Mich. 189; s. c., 23 N. W. Rep. 725, loan upon the same terms and in the where the directors of a railway cor- same manner as other persons, see poration had collected subscriptions Mullanphy Savings Bank v. Schott and taken aid notes to be used in build- (1890) 135 111. 655; 8. c., 26 N. E. Rep. ing the road and in discharging exist- 640, affirming 34 111. App. 500. Cases ing obligations, the court held that an in which the transactions of the corpo- individual director could not apply ration with its directors were held to such funds as he had collected to the be valid. Hannerty r. Standard payment of his own personal share of Theater Co., (1891) 109 Mo. 297; s. c., any obligation made jointly with the 19 S. W. Rep. 82; In re Pyle Works, other directors. (1891) 1 Ch. ,173. What class of con- * Gildersleeve v. Lester, (1893) tracts made by directors with each 68 Hun, 532; s. c., 22 N. Y. Supp. other are voidable. Mallory t. Mallory- 1026. Wheeler Co., (1891)61 Conn. 131; s. c., 3 Hutchinson T. Sutton Manufactur- 23 Atl. Rep. 708. An illustration of a ing Co., (1893) 57 Fed. Rep. 998. See, case in which a director cannot sell to also, Lippincott v. Carriage Co., 25 himself. Green v. Hugo, (1891) 81 Fed. Rep. 577; Howe v. Tool Co., 44 Tex. 452; s. c., 17 S. W. Rep. 79. As Fed. Rep. 231. As to the right of an to acts by directors where their inter- 183] FRAUDULENT ACTS OF OFFICERS. 247 of the corporation to one of the board in payment of his debt, to the exclusion of its other creditors. 1 183. Breaches of trust. Should direr-tors pay ,.\.-r the funds of a corporation in their hands or in it- treasury to an indi- vidual upon a pretended claim which they know, or mu>t Ix? pre- sumed to know, is wholly unfounded in law, they will IK- guilty of a breach of trust. 8 Directors of a bank are personally resjxmsi- ble for damages resulting to the bank from their acts or neglect. 8 The measure of damages in an action against them would IKJ the extent of the injury. 1 ( )h x icers of a bank are the airent> of the corporation, and will be held liable for the abuse of their trust wltBrever the agents of an individual will be. 5 Directors are t is adverse to the corporation, see $15,000, for 81 7,250, to an irrosponsi- "Waite r. Mining Co., 38 Vt. 1H; Waite blc person, and with the connivance of r. Mining Co.. 37 Vt. 608. his son, who was the cashier of the 1 Williams r. Jackson County Pa- bank, this irresponsible pretended pur- trons of Husbandry, (1886) 33 Mo. App. chaser of stock hypothecated the stock K5~. fora loan of the largest amount named 'Butts r. Wood, (1862) 38 Barb. 181. above, and received bills of the bank In this case one who was secretary and for the same. It was charged in the treasurer of the corporation, as well as action that this was a conspiracy be- one its directors, presented a claim to tween these parties by which the bank the ooard of directors for compensa- was to be crippled and the president to tion for his services as secretary, and realize for his stock from the bank the claim was allowed and ordered to more than its real value. It was held be paid by the vote of the three di- that whether the transaction was rectors present, himself being one of treated as a willful violation of the them, his father another, and a relative duty which the president and cashier the third. The Supreme Court of New owed to the bank, growing out of their York, in General Term, speaking official relations to it, or as a direct through JOHNSON. J., said: "The conspiracy to cripple and defraud it. transaction challenges the most jealous the parties concerned in it were liable and seven- scrutiny, even if there was to the bank for the damages which it legal color for the claim. But as there had sustained in consequence of their was in fact no legal claim the court is acts. Further, that in such a case no in duty bound to pronounce this dis Im-hr* on the part of the bank, short position of the funds of the company, of the Statute of Limitations, would thus made, fraudulent and void as constitute a defense to the action, against the other stockholders. It isa 'Austin r. DanieK < I*l7i I l>enio. clear abuse of trust, and should not be -JUU. In this case tin- otlicers of the allowed to stand." bank purchased state stocks to carry 1 Percy r. Millaudon. 3 La. 568. on a private undertaking in which 4 Ibid. In Ilion Bank r. Carver, they were enirsiired. and signed a con (1857)81 Barb. 230. it appeared that a tract oliligini; the bank to pay for tin- director of the bank, its president, pre- stock, and then took money from the tended to sell his slock, amounting to bank to fulfill their engagement. They 248 FRAUDULENT ACTS OF OFFICERS. [ 183 authorized to manage and conduct the business of a corporation, to audit and pay its debts and make such contracts as are within the ordinary scope and business of the corporation. They are not, however, authorized to vote away the funds of the stockhold- ers upon claims known by them to be fictitious or unfounded, for such would be a breach of their trust. They have not the power, as directors, to mortgage or consolidate the corporation with any other corporation, or compel stockholders to surrender up the stock owned by them, or to accept stock in another corporation. This power exists only in the stockholders. 1 Directors of a cor- poration knowingly issuing bonds of the corporation falsely pur- porting to be " first mortgage bonds," and placing them in the hands of an agent who sold them to a purchaser who was igtio- rant of the fact that they were not first mortgage bonds, have been held liable to the purchaser of the bonds who suffered by the deception of the indorsement upon the bonds that they were k ' first mortgage bonds/' 2 It is beyond doubt that the directors of a banking or other corporation are, in the management of its affairs, only trustees for its creditors and stockholders, and are bound to administer its affairs according to the terms of its char- ter and in good faith. If they fail in either respect they are liable to the party in interest who is injured by it for a breach of trust, and may be made to account with him in a court of- chan- were held liable to the receiver of the 150; citing Blatchford r. Ross, 54 Barb, bank for the money so taken. The 42. money, it appeared further, was taken * Clark P. Edgar, (1884) 84 Mo. 106, for this purpose by the cashier with affirming s. c., 12 Mo. App. 345. In the assent of the president, the Jinan- Bartholomew v. Bentley, (1852) 1 Ohic cial officer of the bank. It was further St. 37, the Supreme Court of Ohio, in held that this assent of the president which a verdict had been rendered in did not protect the cashier, as it ap- the Supreme Court on circuit in favor peared that he was a party to the pri- of a holder of bills of a bank against vate enterprise in which the money its managing officers under the statute was to be used. As to the liability of of that state, allowing a recovery the directors of a moneyed institution against unauthorized bankers, and the for improperly obtaining and dispos- case reserved to the Supreme Court on ing of the funds or property of the a motion for a new trial, the court corporation, see Franklin Fire Insur- denied the motion, holding that the ance Co. ?. Jenkins, 3 Wend. 130. As fraud upon the charter, and the com- to the degree of diligence, required bination to defraud the public would from directors of a corporation in the prevent those participating in it from case of its corporate affairs, see Scott claiming any protection under its pro- v. Depeystcr, 1 Edw. 513. visions to escape private responsibility. 'Kelsey r. Sargent, (1886) 40 Hun, 1S4] FRAUDULENT ACTS OF OFFICERS. 249 rv. 1 Should a bank allow its stockholders to withdraw its funds to tin- amount of their sub-criptions, and to \\-t- them without security, in their private bu>ine>s, >udi conduct will he a fraud on it- creditors which would render its director.-, liable in equity for the amount BO withdrawn, and each agent who participated in the fraud individually responsible for the amount traced to his hands and all profits made from its use. 2 It was further held in this case that the surrender to the bank's agent of its notes, and the acceptance from him of his draft on a third jrerson, was but the substitution of one security for another, and did not extin- guish the original liability on the notes, unless the draft was drawn in good faith and accepted as an absolute payment and di- charge of the notes ; and even if it was through the fraud of the agent accepted as an absolute payment, the fraud would pn it from so operating. 3 Directors of a moneyed corporation who release shareholders from the payment in full of their shares, would be guilty of a breach of trust. 4 184. Officers interested in contracts with a corporation. -Under the general authority giving to the president and cashier of a bank entire control of all financial matters of the bank, unrestricted by the by-laws or rules of the board of directors or stockholders, the Supreme Court of Minnesota has held they could not bind the hank by any contract to which they, or either of them, were parties. 5 A contract made between a 1 Bank of St. Marys . St. John, own private business, in payment for Powers & Co., (18o4) 25 Ala. 566; cit- u purchase made for his own benefit, ing Attorney-General v. Aspinall, 2 A general authority to transact the Myl. & Cr. 625; Attorney-General r. business and manage the finances of Kell, 2 Beav. 575; Attorney -General r. the bank would not authorize such a Corp. of Leicester, 7 Beav. 176. use of its property. Nor do we see * Bank of St. Maryg r. St. John, that the case of defendant is in any Powers & Co., (1854) 25 Ala. 566. way aided by trying to make out of it Ibid a satisfaction of the note by sub- 4 Walton r. Hake, (1881) 9 Mo. App. stitutiug for it the promise of [the :,;:, president] to the cashier that he would Rhodes, Assignee, r. Webb, (1877) pay to the bank the amount of tin- 24 Minn. 292. GII.FILLAN. Ch. J., note; for general authority in the said: " The transaction [in this case], president and cashier to make MI briefly stated, was an attempt by tin- tracts on behalf of the bank would be president to use the property of the subject to the rule of law that an bank, this note, [upon which the agent or trustee cannot birul his prin- aasignee's suit was brought], in his cipal, or <;*t>n ' Pa. St. 126; West St. Louis Sav. Bank v. Shawnee County Bank, 95 U. S. 557; Cook v. Berlin Woolen M. Co., 43 Wis. 433. In Hubbard v. New York, N. E. & W. Investment Co., (1882) 14 Fed. Rep. 675, 676, NELSON, D. J., said: " A director of a corporation is not absolutely prohibited by law from entering into a contract with the cor- poration through his co-directors. Whether such a contract is binding upon the corporation must depend upon its terms and the circumstances under which it was made. Owing to the peculiar relation which the direct- ors owe to the corporation, being 1 Atlanta Hill Mining Co. v. Andrews, Butts -r. Wood, 37 N. Y. 317; Kelsey (1887) 55 N. Y. Super. Ct. 93; citing c. Sargent, 40 Hun, 150. I 184] M:.M i>i I.I.N i A. i- Of OKI n i KS. to purchase the right of way for its road, will not be allowed to r.\l>ciid tin.- fiunls of the corporation in expensive erections upon land necessary for the purpose, and at tin- same time to purchase or hire the land in their individual right and avail themselves of the tit It- thus acquired to make extortionate demands of the cor- poration for the use of the land, and in default of submission to such demands, to destroy the erections they may have made as agents for and at the expense of the corporation. 1 That some of the directors and stockholders of a corporation who, as such, voted for a resolution authorizing the execution of mortgages of its property to secure certain debts may have been guarantors and indorsers upon most of them will not invalidate the mort- gages. 2 It appeared in a case in the federal courts that the strictly trustees, and their position be- ing in every sense fiduciary, their con- tracts with the corporation should be scanned, if not with suspicion, at least with the most scrupulous care. The validity of such a contract must, there- fore, depend upon the nature and terms of the contract itself, and the circumstances under which it is made. The motives of the parties are not necessarily material, but the effect of the provisions of the contract must be especially regarded, and if they are pernicious and tend to work a fraud on the rights of the corporation and stockholders, in such case the directors must be regarded as having no au- thority to enter into it." Applying these rules to the case in hand, the court held a contract made by a di- rector with the corjMjration, granting to him enormous commissions without regard to the debts or other liabilities of t lie corporation, to affect injuriously the rights of the stockholders and to give this director a right, without re- gard to the rights of the creditors or the liabilities of the corporation, to be unreasonable and beyond the powers of his co-directors to make with him. 1 Blake r. Buffalo Creek R. R. Co., (1874) 56 N. Y. 485. RAPALI.O. .1.. speaking for the court, said: " Well- settled rules forbade their [the direct- ors] acquiring for themselves the prop- erty which it was their duty to acquire for the company, and which was nec- essary for its purposes. Such a deal- ing would be equally objectionable as purchasing from the company land which it was their duty to sell on its behalf. In respect to this last class of d ealings directors of corporations stand upon the same footing as ordinary trustees. Citing Aberdeen Railway Co. r. Blakie, 1 MacQueen, 461; Hoffman Coal Co. r. Cumberland Coal & Iron Co. , 16 Md.456; Cumberland Coal fe Iron Co. t>. Sherman, 30 Barb. 553. It is a rule of equity of universal application that no person can be permitted to pur- chase an interest in property when he has a duty to perform in relation to such property which is inconsistent, with the character of a purchaser." [Citing] Hingo t. Binns, 10 Pet. 269; Van Epps r. Van Epps, 9 Paige, 28S; Torrey r. Bank of Orleans, ! Pai^f. 649; 8. c., on appeal, 7 Hill. 1W; Car ter f. Palmer, 1 Dru. & Walsh. ?.': York Buildings Co. r. Macken/ie. * Bro. P. C. 4','; Gardner r. Ogden. .>.> N. Y. :7; Anderson r Li-m.ui - N y -.>:;.; I'.tuwn r. Qrnnd Rapids Parli-r Furniture Co., 58 Fed. Hep. 286; 8. c., 252 FRAUDULENT ACTS OF OFFICERS. [ 184: directors of a manufacturing corporation and one other stock- holder conceived the idea that more extensive works for their business should be erected. When submitted the proposition failed to receive the approval of the majority of the stockholders. Thereupon these parties, with their own funds, erected such buildings for the purpose of carrying on the same business. The corporation, through its meetings, afterwards determined to pur- chase this property of these directors and their associate. The latter sold it at a profit to the corporation, but not for an unconscionable price. The directors had refrained from voting in the meeting of stockholders which determined to purchase until it was ascer- tained by them that a majority of the stock represented favored the purchase. After a lapse of two years a stockholder sought to make these directors account for the profits they had made to the corporation. It was held in the United States Circuit Court for the western district of Pennsylvania that neither the stock- holder nor the corporation was entitled to such relief, there hav- ing been shown no fraud, nor other conduct contrary to their duty growing out of their fiduciary character on the part of these directors in the transaction. 1 It appeared in another case in the federal court that one, acting as agent for the promoters who subsequently organized a corporation and became its original stockholders, made a contract with another corporation for a safety vault for the use of the corporation the promoters of which lie represented. It was to be furnished for $7,250 cash ; the agent induced them to give him a contract specifying the con- sideration to be $13,000, and also upon the statement a false credit of $5,750 as paid by him ; for this latter sum he received from the company he represented shares of its stock at par value, which was issued to him in consideration of his supposed pay- ment of that amount. In this action the corporation contracting with the agent was held liable to the company he represented for 7 C. C. A. 225, following Bank of Co. v. Kittel, 52 Fed. Rep. 63; s. c., 2 Montreal c. J. E. Potts Salt & Lumber U. 8. App. 409; 2 C. C. A. 615. Co., 90 Mich. 345; s. c., 51 N. W. Rep. ' Barr c. Pittsburgh Plate Glass Co., 512. That a contract is not made void (1892) 51 Fed. Rep. 33; affirmed by the by the simple fact that the president United States Circuit Court of Ap- of a railroad corporation, unknown to peals for the third circuit in Barr v. the other directors, has an interest in a Pittsburgh Plate Glass Co., (1893) 57 construction contract made with the Fed. Rep. 86; 8. c., 6 C. C. A. 260. corporation, see Augusta, T. & G. R. 185] FRAUDULENT ACTS OF OFFICERS. tin- amount which ho had thus fraudulently obtained from it. The court also held that the fact that the agent was alao a stock- holder in the plaintiff corporation did not affect its right to recover for the fraud perpetrated; and further, that where the t'minlulent contract was made by defendant's president, who was its managing officer, and made its contracts, the defendant could not escape liability on the ground that this transaction was con- ducted by the president without its knowledge or concurrence. 1 185. Directors of an insolvent corporation preferring themselves to other creditors. The majority of the directors of a manufacturing corporation organized under the laws of Illinois, with knowledge of its insolvency, paid off certain debts of the corporation, for which they were liable as guarantors, and took a judgment note of the corporation therefor, due one day after date, without grace, under which judgment was confessed in favor of such directors, and all the property of the company was levied on by execution issued on that judgment. The Supreme Court of Illinois held that the acts of the directors in attempting to secure themselves at the expense of other creditors were fraudulent and void, and were properly set aside at the instance of such other creditors. 8 The directors of an emlmr- 1 Grand Rapids Safety Deposit Co. ing the solvency of the corporation, . Cincinnati Safe & Lock Co., (1891) the directors are the agents or trustees 45 Fed. Rep. 671. of the stockholders, and owe no duties * Roseboom v. Whktaker, (1890) 132 or obligations to others, but that the 111. 81. BAILEY, J., for the court, in instant the corporation becomes insol- support of this holding, said: " There vent, their relations and duties become can be no doubt of the propriety of so materially changed. The assets of the much of the decree as declares the corporation then become a trust fund judgment by confession to be fraudu- for the payment of its creditors, and lent and void as against the creditors the directors can no longer deal with of the corporation, and orders it to be them for their own advantage, or in vacated. This precise question was such way as to gain priority for thnn fully and elaborately discussed by this selves over other creditors. They are court in Beach r. Miller, 180 111. 162, then within the scope of that wise and and the rule tlu>re laid down must be equitable rule adopted by courts of held to control the present case. We* equity for the protection of eettui qua there held that, so long as a corpora- tnutent or beneficiaries, which pro- tion remains solvent, its directors may, Dibits trustees and persons standing in with the knowledge of the stockhold- similar fiduciary relations to exercis- ers, deal with the corporation, loan it their powers or manage or appropriate money, take security or buy property the property of wlii< h they liave con- of it, the same as a stranger; that, dur- trol for their own profit or emolument, 254 FRAUDULENT ACTS OF OFFICERS. [185 rassed corporation, holding claims against it which they wished to protect, had the notes of the corporation payable to themselves drawn and antedated, and had them discounted by a bank. The}' then caused to be executed a deed of trust conveying all the assets of the corporation as security for these notes, among others. It was held in the United States Circuit Court for the western district of Missouri, in a proceeding by unsecured creditors to set it aside, that, being a security for debts upon which the directors were themselves liable as indorsers, it was, in effect, a preference to themselves, and fraudulent and void. 1 or, as it is sometimes expressed, shall not take advantage of their situation to obtain any personal benefit to them- selves at the expense of the cestui que trust." 1 Consolidated Tank Line Co. v. Kan- sas City Varnish Co., (1891) 45 Fed. Rep. 7. PHILIPS, J., after referring to the apparent insolvency of the cor- poration, said: " When a corporation, in its business affairs, is thus inarticulo mortis, whatever may yet be main- tained on divided opinions as to its right to dispose of its property so as to give a preference to some general creditor, the law is too well settled, at least in this jurisdiction, to admit of extended discussion that its directors cannot make a disposition of the assets so as to secure themselves, directly or indirectly, a preference over general creditors. This is the rule of the Mis- souri courts. Williams v. Jones, 23 Mo. App. 132; Mill Co. r. Kampe, 38 Mo. App. 229; Roan r. Winn, 93 Mo. 503; s. c., 4 S. W. Rep. 736. It is not too much to say that it is the estab- lished doctrine of the federal courts. It is strongly maintained by Judge THAYER in the eastern district of this state. White, etc., Manufacturing Co. r. Pettes Importing Co., 30 Fed. Rep. 865; Adams r. Milling Co., 35 Fed. Rep. 433. See, also, Lippincott v. Carriage Co., 25 Fed. Rep. 577; Koehler v. Iron Co., 2 Black, 715-721; Railroad Co. v. Howard.7 Wall. 392; Twin-Lick Oil Co. v. Marbury , 91 U. S. 587. In Graham v. Railroad Co., 102 U. S. 161, Mr. Jus- tice BRADLEY said: 'When a corpora- tion becomes insolvent, it is so finan- cially dead that its property may be administered as a trust fund for the benefit of its stockholders and cred- itors. A court of equity, at the in- stance of the proper parties, will then take those trust funds, which, in other circumstances, are as much the abso- lute property of the corporation as any man's property is his. The most recent discussion of this question is to be found in the very able opinion of Judge WOODS, in Howe r. Tool Co., 44 Fed. Rep. 231. I cannot better ex- press the strength of the reason why a director should not be permitted to prefer himself, under circumstances like those under review, than by quot- ing his language: 'A sound public policy and a sense of common fairness forbid that the directors or managing agents of a business corporation, when disaster has befallen or threatens the enterprise, shall be permitted to con- vert their powers of management and their intimate, or, it may be, exclusive, knowledge of the corporate affairs into means of self-protection, to the harm of other creditors. They ought not to be competitors in a contest of which they must be the judges. The neces- sity for this limitation upon the right to give preferences among creditors, when asserted by a corporation, may KKAUnULKNT ACTS OF OFFICERS. $ 186. Directors contracting with a syndicate composed of themselves when such a contract cannot be rescinded. .if the late case- liefoiv the New York Court of Appeal* it- a- fact- that a railroad corporation <>f that .-fate, through it.- director-, reru^ni/intr the importance <>f a connection ly rail with another point, proniott-.l the luiilding of a street line of rail- way to accomplish this purjMisc. The directors of this road not 1m ve been perceived in earlier times, but the growing importance ami variety of m.xlern corporate enter- prises and interests, I think, will com- pel its recognition and adoption. * * * Whether or not such prefer- ences are fairly given is an impractica- ble inquiry, because there can be, in ordinary cases, no means of discover- ing the truth, and consequently the presumption to the contrary should in every case be conclusive. Concede that it is a question of proof, and that a preference in favor of a director will be deemed valid if fairly given, and it may as well be declared to be a part of the law of corporations that, in cases of insolvency, debts to directors, and liabilities in which they have a special interest, may lirst be discharged. That will be the practical effect, and the example's will multiply of indi- vidual enterprises prosecuted under tin' Bruise of corporate organizations for the purpose, not only of escaping tin- ordinary risks of business done in the owner's name, which may be legiti- mate enough, but of enabling the pro- moters and managers, when failure comes, to appropriate the remains of the wreck by declaring themselves favored creditors. Besides, in consist- ency with that equality which equity loves, such favors involve too many possibilities of dishonesty and success- ful fraud to be tolerated in an enlight- eiieil system of jurisprudence.' The flame thought was in the mind of Mr. Justice MII.I.KK, in Sawyer r. Hoag, H Wall. 620. when he obscr\c.l ' When we consider the rapid develop- ment of corporations as instrumentali- ties of the commercial and business world, in the last tew years, with the corresponding necessity of adapting legal principles to the new and vary ing exigencies of this business, it is n<> solid objection to such a principle that it is modern, for the occasion for it could not sooner have arisen.' It was insisted on behalf of the hanks that, although the deed of trust might be voidable as against the directors, yet the banks were to be regarded as borni fide purchasers. To this it was said: ' Hut are the banks such purchasers? In the first place, they parted with nothing on the faith of the deed. They loaned the money, as their evi- dence shows, on the indorsement of the directors. They never asked for this deed. They did not know of its existence until after it was executed and recorded. They may IMJ accorded the presumption of the law in their favor that where such a deed is for their benefit, they are presumed to ac- cept its provisions. But it is apparent on the face of the deed, and from the facts known to the banks, that the deed inured to the benefit of the di- rectors as indorsers of the notes held by the banks. The hanks could not, therefore, take without being privy to the wrong attempted by the directors. It the law were otherwise, the rule could be of no avail which seeks t prevent Mich .tire, tors 'from prefer rinir debts in the payment of which they have a personal interest,' as de- clared in Adams r. Milling Co., 85 Fed. Hep. 435."" 256 FRAUDULENT ACTS OF OFFICERS. [ 180 became the directors of the new corporation, and they arranged a plan by which the construction of the road was to be done by a syndicate composed of themselves, and when completed a con- tract of lease of this connecting road, which had $1,000,000 of bonds issued upon it and $500,000 of shares of stock, the lessee company guaranteeing interest of seven per cent upon the bonds and dividends of seven per cent upon the shares of stock, as a rental for the road. The main corporation, the lessee, going through insolvency, the hands of a receiver, and finally into a new corporation, it having been sold to a purchasing committee, and reorganized, continued to use the property leased. At the suggestion of the receiver the shares of the stock of the lessor com- pany were purchased by the successors of the lessee company to such an amount as would give them control of the company, as a means of reducing the rental of this desirable and indispensable connection. The successors then suspended the payment of the guaranteed dividend upon the shares. This resulted in the bring- ing of this action by the few individual holders of the stock against the company then using the property under the lease to enforce a specific performance of the contract of guarantee of dividends. The one question as to the liability of the successor of the lessee company remaining, in the opinion of the court, was whether the taint of original fraud in the procurement of the lease operated to prevent the enforcement of the obligations of that instrument. In discussing the question, GRAY, J., deliver- ing the opinion, said : " That the contract of lease was voidable and quite indefensible because of the immoral conduct of the directors, who abused their trust in procuring its execution, I quite concede. The proofs could lead to no other finding than that the lease and the rental guarantee were the work of a com- bination or syndicate composed of members from the boards of directors of the two companies, who caused the same to be made by the [lessee company] for purposes of their own individual gain and in fraud of that company's rights. The identity of certain of the directors of each company when the lease was made, the interest of four of these common directors in the contract for the construction of the [lessor company's] road, and in the stock and bonds to be guaranteed, as a condition of the leasing of the road, stamped the whole transaction as a fraud upon the [lessee company], and brought it under the condemnation of the rule 187] FRAUDULENT ACTS OF OFFICERS. - ~ wl i id i forbids those who fill fiduciary pfi-iti.ms from making u-- of tlii'in to benefit their personal interests." ' Hut while holding this contract of lease by the lessee railroad corporation and a guaranty of interest on bonds and dividends upon stock to be tainted with fraud by reason of the original transaction and voidable at the option of the lessee corporation, the Court of Appeals held that by acquiescence and use of the property for so long a time the complainant, successor to the original lessee, had so far ratified the contract that it could not ask of a court of equity to rescind it. 2 187. Directors issuing shares of stock to themselves. A Kansas corporation, an agricultural society, had been organized with a capital stock of $5,000, divided into 1,000 shares of $5 each, and 590 shares of said stock were subscribed, but no notice was ever given and published where books of subscription would be open. The corporation continued in existence seven years, and became possessed of valuable real estate, and afterwards sold the same. After this sale, the officers and directors of the cor- poration, without the knowledge or consent of the other stock- holders, issued to themselves the remaining stock at par value, and then declared a dividend upon the entire stock issued of $25 per share. In an action by a stockholder to enjoin these officers and directors from paying out such dividend and to cancel the stock issued to themselves, the Kansas Supreme Court held that the action of the officers and directors was without authority and in fraud of the rights of the other stockholders and a plain breach of duty upon the part of such officers. 3 1 Barr r. New York, L. E. & W. R. that the corporation has no power to R. Co., (1891) 125 N. Y. 263, 274; s. C., prescribe the character or qualification 26 N. E. Rep. 145. of its stockholders; that the policy of * Ibid. the law. as declared by express terms * Arkansas Valley Agricultural So- of the statute, is to make corporations ciety t. Eichholtz, (1801) 45 Kans. 164. open to all persons alike to become The directors claimed before the court members and stockholders, etc. The that the taking of stock in a corpora- Supreme Court said: "This rule, as tion stood upon a different footing applied to the directors or officers of a than ordinary contracts of corpora- corporation, cannot be upheld. The tions in prosecuting the business en- principle of public policy forbids terprises for which they are organi/.rd: transactions of this kind. It appears that any person has a right to sub- from the evidence that the property scribe for stock in any corporation, so owned by this corporation had been long as there are shares to be taken; sold, and the proceeds [of the sale] 33 258 FRAUDULENT ACTS OF OFFICERS. [ 188 188. Officers profiting by their relation to the corpora- tion. The directors of a corporation cannot speculate with the funds or credit of the corporation and appropriate to themselves the profits of the speculation ; neither can they make sales, as purchasers for the corporation, and take advantage of their posi- tion as directors, and either directly or indirectly speculate upon the corporation. 1 Holding the fiduciary relation they do to the stockholders of the corporation, its directors and managers cannot be permitted to acquire interests adverse to such relation. 2 Thus, a director contracting with certain parties for the construction of a railroad for the corporation he represents, cannot receive or held by its officers. The assets at the not permit directors to manage the time of the sale belonged to the then affairs of a corporation for their per- stockholders, and the directors and sonal and private advantage, and this officers had no right to subscribe for rule, we think, applies to the disposi- the remaining stock at par, and enrich tion of unsubscribed stock, as well as themselves to the detriment and loss to other contracts. The character and of the other shareholders. The direct- relation of directors and officers of ore cannot lawfully benefit or favor a corporation require of them tho any particular shareholder or class highest and most scrupulous good of shareholders. Every authority faith in their transactions for the cor- possessed by them is a power and poration and the stockholders." Hair- discretion in the directors, who are T. Bridge Co. , 8 Kans. 466, and author- trustees for the benefit of all the ities there cited; Ryan r. L. A. & N. shareholders alike, which is to be W. Ry. Co., 21 Kans. 365; Hentig 9. exercised for the benefit of all of them. Sweet, 33 Kans. 244. As to what 1 Waterman on Corp. 620; Harris ?. directors may do, see Holder . La N. D. Rid. Co., 20 Beav. 384. The FayetteR. R. Co., 71 111. 106; Rollins effort on the part of the directors and v. Clay, 33 Me. 132; Abbott v. Ameri- officers of a society to obtain the un- can Hard Rubber Co., 33 Barb. 578; subscribed stock at par, when they Bedford R. Co. v. Bowser, 48 Pa. St. knew that each share of the stock 29; Taylor v. Miami Export Co., 5 already issued was worth eighteen Ohio, 162; 19 Cent. Law J. 305-310; times its face value, was clearly a 18 Cent. Law J. 130; Union Mut. fraud upon the rights of the other Life Ins. Co. v. Frear Stone Mfg. Co., stockholders, and a flagrant violation 97 111. 537; Burke v. Smith, 16 Wall, of their duties as directors and officers 390; Penobscot R. Co. v. Dunn, 39 Me. of such association. The officers and 587. directors of a corporation are trustees ' Redmond v. Dickerson, (1853) 9 N. of the stockholders, and in securing J. Eq. 507. As to president and di- to themselves an advantage not com- rectors not being allowed to speculate mon to all the stockholders, they com- in claims against the corporation, sec mit a plain breach of duty. Koehler McDonald T. Haughton, (1874) 70 N. C. r. Iron Co., 2 Black, 715; Shorb *. 393. Beaudry, 56 Cal. 446; 1 Morawetz * European & North American Ry. Private Corp. 518. The law does Co. r. Poor, 59 Me. 277. 188] FRAUDL'I.KNT ACTS OF OFFICERS. 259 ru(;iin :un j>;irt of the profit.- ;iri>in^ f nun tin- contract for his mil ii.-i- and liciiufit. 1 Where directors of a ferry company, in their individual names bought a steamboat, and then, as dim-t- ors pun-liu.-ed it of themselves for the corporation at a large advance on its cost and value, the transaction was held to be a fraudulent one ; it was held, also, that the profits made by the directors inured to the benefit of the corporation, and that the latter could recover the profits from them, with interest. 2 The rule gen- erally is that one acting in a representative or fiduciary capacity is not allowed so to deal with the subject-matter of his agency or trust as to benefit himself privately, and an agent or trustee who thus makes a profit out of his agency or trusteeship must account for the same to his principal or cestui que trust y and it may be conceded that the rule applies, as a principle of public policy, without regard to the actual fairness of the transaction, or the merits of the.services rendered, or the price paid, in case of a sale or purchase. 8 Where it was represented by promoters of a mining corporation, who afterwards became its trustees, that it would take the proceeds of the whole of its capital stock to purchase certain mining proper- ties, and the trustee, to whom the whole stock was turned over for the purpose, actually purchased it with the payments made for certain shares of stock, less than half the issue, and appropri- ated the rest of the shares of stock to himself and others, without actually paying any money, and concealed the facts from the stockholders who had paid for their shares, it was held that 1 Ibid. for the company, was not precluded * Parker r. Nickerson, (1878) 112 from making such contracts in his Mass. 105. own name, but, having done so, he 8 Bristol r. Scranton, (1893) 57 Fed. using all the facilities afforded by the Rep. 70, 78; citing Bugden v. Cross- company in performing them, would land, 3 Smalt* & G. 192; McKay's Case, not be allowed to make profit out of 2 Ch. Div. 5; Pearson's Case, 3 such use, but would be held to account Ch. Div. 807; Parker r. McKenna, to the company for all that he received L. R, 10 Ch. App. 96; Iron Works for the services performed by it. For Go. v. Grave, 12 Ch. Div. 738, 746; an illustration of what will not be held Railway Co. r. Blukic, 1 Macq. 461; a fraudulent sale to a corporation, Wardell v. Railroad Co., 103 U. 8. where parties purchasing property at 651, 658. In Keokuk Northern Line a low figure before the organization Packet Co. e. Davidson, 95 Mo. 467; of a corporation sold it at a much a. c., 8 8. W. Rep. 545, it was held larger figure to the corporation, but tlml the president of the packet com- there was some evidence of fraud or puny, after having endeavored to ob- deception, see Stewart t. St. Louis, Fort tain contracts for carrying the mails Scott & W. R, Co., 41 Fed. Rep. T8&, 260 FRAUDULENT ACTS OF OFFICERS. [188 this defendant occupied a fiduciary relation to the corporation and the subscribers, and could not, nor could his associates, who were also familiar with the facts, make, through concealment from the subscribers, any profit from the transaction, and they should be held accountable for the stock which they had retained, or its proceeds. 1 The law will not permit, for instance, one in whose person are vested the offices of vice-president and treasurer of a corporation with the management and control of the corporation 1 Brewster v. Hatch, (Sp. Term Sup. Ct. 1881) 10 Abb. N. C. 400; citing Blake . Buffalo Creek R. R. Co., 56 N. Y. 485; Cumberland Coal & Iron Co. . Sherman, 30 Barb. 553; Bag- nail v. Carlton, L. R, 6 Ch. Div. 371; Erlanger v. New Sombrero Phosphate Co., L. R., 3 App. Cas. 1218; Simons . Vulcan. Oil & Mining Co., 61 Pa. St. 202. In East New York & Jamaica R. R. Co. v. Elmore, (1875) 5 Hun, 214, it appeared that the corpo- ration had subscribers for seventy-two shares of its stock, who had agreed to pay par value for it. All the shares within its power to issue having been already issued, the treasurer and presi- dent purchased the number of shares at a price far below par, and trans- ferred them to those subscribers on the corporation's books, charging the cor- poration par value for them. In an action against the treasurer to recover the profits he made in the transaction, it was held that the treasurer could not, by charging over the stock at its par value, make the corporation his debtor, and thus extinguish his lia- bility for moneys received by him or its treasurer. For an illustration of when a purchase by one trustee, and, at the same time treasurer, of a corpo- ration in his own behalf will inure to the benefit of the corporation, see Einsphar et al., Trustees First Ger- man Lutheran Zion Church of Adams Co. v. Wagner, (1882) 12 Neb. 458. As to when and the circumstances under which a mortgage of the personal property of a corporation executed to its president, who was also a director, by his vote and that of another of the three directors, will be held fraudulent, see Burley . Marsh. (1881) 11 Neb. 291. As to officers and stockholders con- tracting with corporation, see Charter Gas-Engine Co. . Charter, 47 111. App. 36; Central Trust Co. v. Bridges, 57 Fed. Rep. 753; s. c., 6 C. C. A. 539; Barr v. Pittsburgh Plate Glass Co. , 57 Fed. Rep. 86; 8. c., 6 C. C. A. 260; Foster v. Belcher's Sugar Refining Co., 118 Mo. 238; s. c., 24 S. W. Rep. 63; Wile & Brickner Co. V. Rochester & K. F. Land Co., 4 Misc. Rep. 570; s. c., 25 N. Y. Supp. 794; Milbank r. Welch, 74 Hun, 497; s. c., 26 N. Y. Supp. 705. As to directors dealing with themselves or acting in matters where they are interested, see Coleman v. Second Avenue R. R. Co., 38 N. Y. 201; Blatchford r. Ross, 5 Abb. Pr. (N. S.)434; s. c., 37 How. Pr. 110; 54 Barb. 42; Ogden v. Murray, 39 N. Y. 202; Bliss v. Matteson, 45 N. Y. 22. As to various rules governing con- tracts in which directors have an inter- est, see Duncomb v. New York, Housa- tonic & Northern R. R. Co., 84 N. Y. 190; Western R. R. Co. v. Bayne, 11 Hun, 166; Barnes v. Brown, 80 N. Y. 527. As to a contract with a corpora- tion entered into at a special meeting of directors being void because of absent directors not having notice, see Hill v. Rich Hill Coal Min. Co., (Mo. 1894) 24 S. W. Rep. 223; Minneapolis Times Co. t>. Nimocks, 53 Minn. 381. 188] FRAUDULENT ACTS OF OFFICERS. 261 also allowed liiin, to so manage the affairs of the corporation as suit to his own pecuniary advantage. And iu case such an otliccr speculate in the funds of the corporation, or buy claims against it at a discount, he will be required to account to the civilitors or stockholders of the corporation for any profit that results from Midi transactions. 1 The contract made by a director of a corporation to secure a personal advantage to himself will be 1 Thomas v. Sweet, (1887) 87 Kans. 183; 8. C., 14 Pac. Hep. 54-5. For a Strong opinion on the subject of the duties of officers to the corporation, see Ryan c. L., A. & N. W. Ry. Co., 21 Kans. 365. In Powell t>. Willamette Valley R. R. Co., (1887) 15 Or. 393; B. c., 15 Pac. Rep. 663, where the at- torney, who was also a director in an insolvent corponition, hud been em- ployed by third parties to buy up the claims of creditors of the corporation with a view to its reorganization, it was held that his relation to the com- pany required of him the utmost good faith towards the creditors of the company in his dealings with them in the mutter, but where they had re- ceived all that their claims were worth, the fact that he had not informed them of the contemplated reorganiza- tion would not constitute a fraud upon the creditors upon this attorney and director's part. In Smith t>. Los Angeles Immigration & Land Co- operative Assn., (1889) 78 Cal. 289; s. c., 20 Pac. Kep. 677, a resolution of a quorum of four directors, authorizing renewal of notes of the corporation in favor of two of the four directors, was held to be void and of no effect. In Rudil c. Robinson, (1889) 54 Hun, 339; 8. c., 7 N. Y. Supp. 535, the corpora- tion had been formed under the laws of New York, and succeeded to the business of a linn. One holding a claim against this firm was a trustee of the corj>oration, and with two others of the board ronstituted a majority. These two, it was shown, represented the first named, or acted in concert with him in any matters in which he was interested. He had from time to time aided with money the corporation upon call. Finally he had had action taken by the board of trustees, by which he had himself paid a debt out of the corporation's funds which he held against the firm which it suc- ceeded. The Supreme Court of New York held that he should account to the receiver of the corporation for this money received for this debt of the firm, together with interest upon it, and also for all excess of interest over and above legal interest which, through the action of himself and other trus- tees, he had received upon moneys ad- vanced to the corporation, as also the profits he had received in certain trans- actions and "ventures "in which he had advanced the money and arranged for a division of the profits between himself and the corporation, upon the ground that he had no right to sham, in the profits of the business which be- longed exclusively to the corporation itself. An illustration of when the profits of a director must inure to the benefit of the corporation: Paducah Land, Coal & Iron Co. v. Hays, (Ky. 1893) 24 8. W. Rep. 287. As to the effect of laches of a stockholder in complaining of a profit made by a di- rector in connection with a sale of the stock of a corporation, and an illustra- tion of what a director might do for which he would not be held account- able, see Keeney v. Converse, (1894)99 Mirh. 316; s. c., 58 N. W. Rep. 835. 262 FRAUDULENT ACTS OF OFFICERS. [188 held to be void or to inure to the advantage of the corporation. 1 An agreement made by a majority of the directors of a corpora- tion among themselves, privately and unofficially, that they should be paid a percentage upon all the money raised upon the credit of a bond of indemnity, signed by them, against the future indebtedness of the corporation, has been held not to be binding upon the corporation. 2 Directors or other officers of a corpora- tion contracting with another for work and material, paying an excessive price for the same, and reserving to themselves a dis- count or commission, will be held to an accountability to the cor- poration for what they have profited. 8 Where directors own all 1 Sargent v. Kansas Midland R. R. Co., (1891) 48 Kans. 672; s. c., 29 Pac. Rep. 1063. 2 Butler v. Cornwall Iron Co , (1853) 22 Conn. 335. 3 Perry v. Tuskaloosa Cotton Seed Oil Mill Co., (1890) 93 Ala. 364; s. c., 9 So. Rep. 217. In Farmers & Mer- chants' Bank of Los Angeles v. Downey, (1879) 53 Cal. 466, where a director of the bank who had taken from the borrowers a note running to the bank for the principal sum loaned, at a rate of interest therein stipulated, but at the same time, and as part of the same transaction, made an agree- ment with the borrowers that they should permit him to participate with them in the profits of a purchase and sale of certain lands, it was held that he could not be permitted to retain for himself the profits thus contracted for, but must surrender those profits to the bank for the benefit of all the stock- holders. As to a city treasurer making profit on public funds, see City of Chi- cago v. Gage, 95 111. 593. As to officers accounting to the corporation or stock- holders or creditors of the corporation for profits growing out of transactions in behalf of the corporation in which they are interested, see Ward . David- son, (1890) 89 Mo. 445; s. c., 1 S. W. Rep. 846. In Hutchinson v. Bidwell, (1893) 24 Or. 219; s. c., 33 Pac. Rep. 560, it appeared that the directors of an insolvent milling company leased the corporate property to themselves and operated the plant at a profit. The Supreme Court held that the directors were liable to account to the creditors of the corporation for the profits under the lease. In McClure t>. Levy, (1894) 79 Hun, 235; 8. c., 29 N. Y. Supp. 352, it appeared that one who had secured his election as presi- dent of a life insurance association and secured a board of directors sub- servient to his will, had gained possession of certain notes of the association which he had full knowl- edge could not be paid out of the re- serve fund of the association. He had this board order the payment of the notes by drawing all the funds the association had in bank properly be- longing to the reserve fund in his favor. The Supreme Court of New York in General Term held that the receiver of the association was enti- tled to recover from him the money thus wrongfully misappro- priated through his and other willing directors' action. That a president and vice-president of a railroad com- pany who had arranged to use certain bonds of the company secured by mortgages for their own private use instead of improving the railroad property, has been held to be such a fraud on the mortgage trustee and the bondholders as would enable a KKArWI.F.NT ACTS OF OFF!' the .-tuck i.f u corporation they are not within the rule prohibit- ing persons in a fiduciary relation from contracting for their own advantage in the name of their <-cstui que trust} court of equity, at the suit of one of the bondholders, to compel them to appropriate tin- proceeds of the bonds thus unlaw fully diverted to the pur- pose specified in the mortgage. Bel- den 0. Burke, 72 Hun, 51; 8. c., 25 N. Y. Supp. 601. It was held in IV ducah I ..and, Coal & Iron Co. o. Mul- hollaud, (Ky. 1894) 24 8. W. Rep. 624, that stock which was returned to directors purchasing land for the cor- poration to be used for their own per- sonal benefit, should be surrendered for cancellation unless in the hands of bona fide purchasers for value. Fora case holding that the acts of the presi- dent and trustees of a corporation in a reorganization, of the same, were not fraudulent, although a large personal profit accrued therefrom to the presi- dent who was the principal promoter of the reorganization, see Symmes r. Union Trust Co., 60 Fed. Rep. 830. McCracken e. Robison, 57 Fed. Rep. 375; s. c., 6 C. C. A. 400. That directors in u private corporation have no right, under any circumstances, to use their official position for their own individual benefit, sec Hoffman r. Keit-hert, (1888) 147 111. 274; Oilman, Clinton & Springfield R. R. Co. r>. Kelly, 77 111. 426, 434; Hoyle r. Platts- burg & Montreal R. R. Co., 54 N. Y. 814; Oliver r. Piatt, 3 How. 888; Speidel v. Henrici, 120 U. 8. 877, 386; Railroad Co. r. Durant, 95 U. S. :>7r, ; Van Epps r. Van Epps. 9 Paige, 2H. Contracts of corporations made with officers. President, etc., r. Ry. Co., 44 Cal. 106; Pickett r. School District, -.'.I Wis. 552; Cumberland Coal Co. r. Sherman, 30 Barb. 558; Port r. Un- sell, 36 Ind. 64; Railway Co. r. Poor, v.i Mr. 277; Gardner r. Butler. :: Eq. 702; Davis r. Mining ('>.. .") Cnl. 859; Copelaud r. Manufacturing Co., 47 Hun, 235; Thomas r. Railway Co., 1 M.Crary, 892. That they are not absolutely void: Bundy r. Jackson, 24 Fed. Rep. 628; Bank - Patterson, 7 Cranch, 299; Canal Brid-rr ". Gordon, 1 Pick. 296; Harts r. Brown, 77 111. 226. What may make them valid: 1 Beach on Priv. Corp. 402; Battelle t>. North- 11 (Vimnt Co., 37 Minn. 89; Pneumatic Gas Co. r. Berry, 113 U. 8. 322; Knowles r. Duffy, 40 Hun, 485; Santa Cruz Co. P. Spreckles, 65 CaL 198: Hill r. Nisbet, 100 Ind. 341; Richardson 9. Green, 133 U. 8. 80; Union Mut. Life Ins. Co. r. White, 106 111. 68; Smith r. Smith, 62 III. 493; Addison r. Lewis, 75 Va. 701; Stratton v. Allen, 16 N. J. Eq. 229. As to the effect of directors or other officers of corporation being interested in contracts, see County Court r. Balti- more & Ohio R. R. Co., 35 Fed. Rep. 161; Holt >: Bennett, 146 Mass. 436; s. c., 16 N. E. Rep. 5; Hancock r. Hoi- brook, 40 La. Ann. 53; s. c., 3 So. Rep. 351; Wasatch Min. Co. r. Jennings, 5 Utah, 385; s. c. , 16 Pac. Rep. 399. As to a director dealing with the corpora- tion for his own profit, see Schetter r. Southern Oregon Improvement Co., (1889)19 Or. 192; 8. c.. 24 Pac. Rep. 25. As to a president and trustee joining in voting hinisclf compensa- tion for services, see Copeland . John- son Manufacturing Co., (1890)47 Hun, 235. Transactions by officers with corporations: Raymond r. San Gabriel Val. Uml & Water Co., M Fed. Rep. 888; Langan r. Kmiu-klyn, 29 Abb. X. C. 1112; s. <.. -'" N V Supp. 404; Minn 9. I1H1.- Mi- Ice Co.. 98 Mich. 97; H. < .. :.:; N \V R,.p. -.MS; Beers r. New York Life Ins. Co., flfl Hun. 75; H. c., 20 X. Y. Supp. TSH : Main .T.-lliro Mountain Coal Co. r. Lotspeich. (Ky. 1894) 20 8. W. Rep. 377; Prince 264 FRAUDULENT ACTS OF OFFICERS. [ 189 189. Repudiating or avoiding contracts made by officers with themselves. A contract made by a director of a corpora- tion with himself may be repudiated by the corporation at the instance of the stockholders. 1 If the directors of a corporation exceed their authority or are recreant to their trust, the corpora- tion may repudiate their fraudulent contracts. 2 Contracts made by the directors of a corporation with one of their number are voidable at the election of the corporation, without reference to the question whether or not they are beneficial to the corpora- tion. 3 This doctrine may be applied where the contract is made by nominal directors who are in fact the mere instruments of the other contracting party, and act under his directions and as he wishes, in pursuance of a scheme planned by him by which they were placed in office, and a contract thus made would be void- able at the election of the corporation without proof of unfair- ness or fraud. 4 In order to defeat a contract entered into by its directors or in its behalf, in which one or more of them had a private interest, a corporation is not bound to show that the influence of the director or directors having the private interest determined the board's action. 5 Manufg. Co. v. Prince's Metallic Paint inquiiy, in an action by the trustee in Co., 20 N. Y. Supp. 462; Hannerty T. his private capacity to enforce the Theater Co., 109 Mo. 297; Societe ties contract in the making of which he Mines D' Argent et Fonderies de Bing- participated. The value of the rule ham P. Mackintosh, 7 Utah, 35. of equity, to which we have adverted, 1 Gardner t. Butler, 30 N. J. Eq. lies to a great extent in its stubborn- 702 ; Guild v. Parker, 43 N. J. Law, ness and inflexibility. Its rigidity 430. gives it one of its chief uses as a pre- 2 Metropolitan Elevated Ry. Co. r. ventive or discouraging influence, be- Manhattan Ry. Co., (Spl. Term cause it weakens the temptation to Sup. Ct. 1884) 14 Abb. N. 0. 103, dishonesty or unfair dealing on the 212. part of trustees, by vitiating, without 3 Central Trust Co. v. N. Y. City & attempt at discrimination, all trans- Northern R. R. Co., (Spl. Term actions in which they assume the dual Sup. Ct. 1887) 18 Abb. N. C. 381. character of principal and representa- 4 Ibid. tive. This rule has been declared and *Munson r. Syracuse, Geneva & enforced in a great variety of cases, Corning R. R. Co., (1886) 103 N. Y. but in none perhaps with more vigor 58 ; s. c., 8 N. E. Rep. 355, affirming and completeness, but upon principle 29 Hun, 76; s. c., 16 N. Y. Wkly. and authority, than in the leading case Dig. 212. ANDREWS, J., said: "The of Davoue v. Fanning, 2 Johns. Ch. law cannot accurately measure the 251, 252. But the case of Aberdeen influence of a trustee with his as- Railway Company r. Blakie & sociates, nor will it enter into the Others, 2 Eq. 1281, decided by the '0] FRAUDULENT ACTS OF OFFICERS. 265 . 190. Rules as to such contracts. The relation as a director and otlici-r to a corporation does not preclude him frpm filtering into contracts with it, making loans to it and taking its bonds as collateral security; but courts of equity regard such jM-r.-onal transactions of a party in either of these positions not, perhaps, with distrust, hut with a large measure of watchful care, and unless satisfied by the proof that the transaction was entered into in j^ood faith, with a view to the benefit of the company, as well as of its creditors, and not solely with a view to his own of Lords, is in many of its application to the particular case." f futures similar to the present one. VAN BRUNT, J., in Metropolitan In that case it appeared that the plain- Elevated Ky. Co. r. Manhattan R\ . tiffs were a manufacturing firm, and Co., (Spl. Term Sup. Ct. 1884) 14 that one of them was also a manager Abb. N. C. 103, 272, said : " The un- of the Aberdeen Railway Company, doubted rule of law in this state is, the defendant, and the chairman of the that every contract entered into by a board. At a meeting of the managers, director with his corporation may be they by resolution authorized their avoided by the corporation within a engineer to contract for iron chairs reasonable time, irrespective of the needed by the company. The agent merits of the contract itself. * * * contracted with the plaintiffs' firm. I can see no difference in principle be- lt did not appear that the member of tween the case of a director contract - the firm, who was also a manager and ing with his corporation and that of the chairman of the company, inter- directors of one corporation contract- meddled with the dealing on either ing with themselves as directors of side, further than that it may be another corporation. The evils to be assumed he was at the meeting which avoided are the same, the temptations authorized the engineer to procure a to a breach of trust are the same, the supply of chairs. The plaintiffs want, of independent action exists, brought their suit to enforce specifi- and the divided allegiance is just as cally the performance of the contract, apparent." As to rules governing or in the alternative to recover dam- where directors act in their own inter- ages for its non-performance. After a est. see March r. Eastern Railroad, decision in their favor in the lower 48 N. H. 515 ; Fisher r. Concord court, the company appealed to the Railroad, 50 N. II. 200; Richards r. House of I/ords, where the ruling was New Hampshire Ins. Co., 43 N. H. unanimously reversed on the ground 253 ; Ashuelot Railroad r. Elliott, 57 that the contract was condemned by N. H. 397. As to the acts of school the rules of equity, as having been trustees, so far as they should be made between the company of which iH'iicficial to themselves, being void. one of the plaintiffs was a nwnaircr see Rhodes r. McDonald, 2 Cushman. and a private firm of which he was a (Miss.) 418. As to contracts between member. The opinions of Lord Chan- a dim-tor and a corporation, being crellor CKANWOKTH and of Lord voidable only, seo Stewart t>. Lehigh BROUOIIAM vindicate upon impreg- Valley R. R. Co., (1876) 88 N. J. Law, nable grounds the general rule and its 505. 34 266 FRAUDULENT ACTS OF OFFICERS. [ 190 benefit, they refuse to lend their aid to its enforcement. 1 In this case, plaintiff's testator loaned to a railway corporation $100,000 upon its notes, and received from it 1,250 shares of paid-up stock as a bonus, and 200 mortgage bonds of the corporation, and the practical control of its board of directors. After this, he demanded of this board 100 more bonds, as further collateral, and they agreed to it. Subsequently, this board allowed him to have 300 more bonds, as collateral security for further advances of money, but he made no such further advances of money to the corporation. These 400 bonds he obtained at a time when he was acting as, and claiming to be, the treasurer of the corporation. After the corporation became insolvent he claimed to hold these 400 bonds, individually, as collateral for his debt. The Supreme Court of the United States held that, as between him and the creditors of the railway corporation, he could not, under the circumstances, hold them as collateral for his debt. 2 Promoters of a corporation, not representing it in any relation of agency, have no authority to enter into preliminary contracts binding the corporation, when it shall come into exist- 1 Mr. Justice LAMAR, in Richard- he can be regarded as standing in the son's Executor v. Green, (1890) 183 U. position of a legal and equitable 8. 30; s. c., 10 Sup. Ct. Rep. 280. pledgee, or that he ever acquired, as * Ibid. Speaking for the court, Mr. such pledgee, a lien on the 400 bonds. Justice LAMAR said: "We do not But even if there could be any doubt deny that cases may arise in which, if on this point, Richardson, himself, by everything were admitted to be fairly his own act, has removed it. He done, with the knowledge and acqui- waived and abandoned all claim to escence of the company, such a per- any lien, as a pledgee, by his volun- sonal possession as that which Rich- tary surrender and delivery of the ardson obtained, although not such an bonds to the sheriff of the county of actual delivery as the board had in- Xew York, as the property of the tended and directed, might be consid- company, to be sold under execution, ered as equivalent to a legal delivery. If the 400 bonds were not delivered to But under the special circumstances Richardson, as we think the court be- of this case, in view of the unfair low correctly held, it follows that the means employed by Richardson to unissued bonds were not subject to have the entire body of the company's attachment or to execution as valid bonds transferred from the custody of and binding obligations against the Ferry [the treasurer] into his own cus- company, and that Richardson's pur- tody, and the clandestine manner in chase at the sheriff's sale vested in him which he took out the 400 bonds from no title or ownership to them." See, that body, not only without notice of as to the title of Richardson to these the fact to the company, but with an bonds, and their sale under execution, implied, if not an expressed, denial of Sickles v. Richardson, (1881) 23 Hun, the transactions, we do not think that 559. 101 ] FRAl I>1 I.KNT ACTS OF OFFICERS. --'''7 , and if the sanction of the corporation to such a contract i.< by the act or co-operation of a director who has a pri- vate interest, the corporation may resist an action for specific performance, at least, in a case where it has not accepted the consideration, or taken the benefit of the contract. 1 191. Circumstances under which the directors cannot avail themselves of the defense of the invalidity of the contract. It appeared in an action in the federal court upon a contract, that a railroad company, a corporation in form only, by its president, entered into a construction contract, whereby the contractors agreed to complete the superstructure of the road, furnish materials and equip it by a certain date, and in payment therefor certificates for a fixed amount of its full paid-up stock and the same amount of first mortgage bonds were to be delivered to them. Contemporaneously with the making of this contract, and on the same day, the contractors agreed with one acting on behalf of certain directors who were the actual stock- holders, that if the contract were complied with by the company, they would pay to him one-half of the net profits realized from 1 Munson t. Syracuse, Geneva & advantages or disadvantages, whether Corning R. R. Co., (1886) 103 N. Y. a contract made under such circum- 58; s. c., 8 N. E. Rep. 355, affirming stances shall stand or fall." As to 29 Hun, 76; s. c., 16 N. Y. Wkly. contracts of officers dealing with Dig. 212. ANDREWS, J., referring to themselves being voidable at the op- tiii.s director, said: "He stood in the tion of the corporation, see Meeker r. attitude of selling as owner and pur- Winthrop Iron Co., 17 Fed. Rep. 48. chasing as trustee. The law permits In Pneumatic Gas Co. -n. Berry, (1885) no one to act in such inconsistent rela- 113 U. S. 322; 8. c., 5 Sup. Ct. Rep. tions. It does not stop to inquire 525, a release by the corporation to whether the contract or transaction one of its directors of all claims, -qui- was fair or unfair. It stops the in- table or otherwise, arising out of quiry when the relation is disclosed, transactions under a contract between and sets aside the transaction or re- the corporation and the director, made fuses to enforce it, at the instance of in excess of its corporate powers, was the party whom the fiduciary under- held to be valid, if made in good took to represent, without undertak- faith, and without fraud or coiu-ctil- ing to deal with the question of ment. As to contrails in \\ hi< -h tin- abstract justice in the particular case, interest of directors are adverse to the It prevents frauds by making them, corporation being voidable, at the op- as far as may be, impossible, knowing tion of the corporation or. upon its .that real motives often elude tli- nnt refuel. l>\ :i minority c.f stockholders, searching inquiry, and it lenve*, < Craves r Mono Lake Hydraulic neither to judge nor jury, tin- rk'lit to Mining Co.. (1890) 81 Cal. 808; 8. c., determine, upon a ronsidrr.it ion <>f its .'- 1'nc. Uep. 665. 268 FKAUDULENT ACTS OF OFFICERS. [ 191 the contract, out of the stocks and bonds. The road was com- pleted and it was agreed between the parties that the share of the directors in the net profits should be fixed at $150,000, for which the contractors were to give these notes. The latter paid $50,000 on this substituted contract, and this action was to recover of them the balance. SHIPMAN, C. J., for the United States Circuit Court of Appeals, refers to the defense made in these words : " The defense made, as a matter of law, was the invalidity of the contracts [original and substituted], because by the original con- tracts four directors had secretly provided for one-half of the profits which should arise out of the construction of the road, and it was claimed there could be no recovery, because the contract being void, no action could be maintained upon it or upon its successor." It was held that the principle which denounces the action of directors of a corporation who, professing to be its agents, and to be contracting in its behalf, secretly agree for a private and personal benefit to themselves, or agree to sell their official influence for personal gain, was not available as a defense by the directors in this particular case. 1 1 Robison v. McCracken, (1892) 52 by courts. The corporation which en- Fed. Rep. 726. SHIPMAN, C. J., said: tered into the construction contract ' ' The decisions of the courts of the was one in form only, and the agree- United States have been most strenu- ment for construction and division of ous in demanding that the directors of the profits was, in fact, made by all corporations shall act disinterestedly the stockholders, if Mason [another of in contracts which they make in be- the original subscribers] was not a half of the corporation for which they stockholder. But, assuming the exist- act, and in setting aside tainted con- ence of Mason's character as a stock- tracts between a director or an agent holder, and that an exorbitant contract and a third person for the sale of offl- of the entire body of stockholders for cial influence. Wardell v. Railroad their own pecuniary benefit can be Co., 103 U. S. 651; Thomas v. Rail- seasonably attached [attacked ?] by road Co., 109 U. S. 522; s. c., 3 Sup. existing creditors, it is well settled Ct. Rep. 315; Woodstock Iron Co. v. that, as a general rule, contracts of a Richmond & Danville Extension Co., corporation, which which were made 129 U. S. 643; s. c., 9 Sup. Ct. Rep. by directors who obtained a personal 402; West r. Camden, 135 U. S. 507; pecuniary benefit thereby, are not, on s. c., 10 Sup. Ct. Rep. 838; Providence that account alone, void, but are void- Tool Co. v. Norris, 2 Wall. 45." The able at the election of the parties who present case was there distinguished are affected by the fraud. This is from those just cited: " It is manifest clearly announced in Barnes v. Brown, that the facts in this case are of a dif- SON. Y. 527; Barra. Railroad Co., 125 ferent character from those which N.Y. 263; s. c.,26N.E.Rep. 145; Twin-' have ordinarily marked contracts Lick Oil Co. v. Marbury, 91 U. S. 587, which are the subject of just rebuke and Thomas v. Railroad Co., 109 U. S. 192] FRAUDULENT ACTS OF OFFICERS. 192. Purchase by officers of debts due by, or property of, corporations. A director may trade with, borrow from or loan money to a corporation on the same terms and in like man- ner as other persons. In loaning money to the corporation, how- ever, he must act fairly and be free from all fraud and oppres- sion ; and in so doing must act for the interest of the corporation and impose no unfair or unreasonable terms. 1 Directors may purchase the bonds issued by a corporation or other of its indebtedness in whatever form it exists. And if such bonds or indebtedness is secured by a trust deed, for instance, they have a right to proceed, if necessary, to sell the property for the satis- faction of such indebtedness as any other person. 3 If the cor- poration has money or property which can be converted into money with which to redeem its property from a judicial sale or from the lien of the trust deed, a purchase of the bonds or other indebtedness by directors, as a means of acquiring through a sale the property of che corporation, would be in bad faith, and a 522; s. c., 8 Sup. Ct. Rep. 315. In is an executed one; the defendants re- the latter case it is said, in substance, ceived and sold the entire stock and that those for whom the agent was bonds of the company and have the acting have the option to avoid such a fruits of the contract, a part of which contract, but until they exercise their they have paid, and the residue of option, and reasonably show that it is which they refuse to pay, upon the their purpose not to submit to the act ground that the contract was illegal in of the agent, the contract is in exist- its relations to the corporation. Cases ence, and is not a nullity. In this case, may arise where a court will have Mason, the remaining stockholder at nothing to do with the controversies the time, has not dissented, but desires in regard to the proceeds of a business to enjoy the contract. The corpora- of an inherently corrupt and wirkitl tion has never dissented. [The con- character, but this is not one of them, tractors] to whom the whole stock The weakness of the defendants' posi- was issued, made both contracts, paid tion is clearly disclosed in McBlair r. $50.000 upon the [substituted] con- Gibbes, 17 How 232; Brooks v. Mar- tract, the last payment being nine tin, 2 Wall. TO; Planters' Bank o. months after its date. Neither cred- Union Bank. 16 Wall. 483, and Rail- itors nor the present stockholders IKIVC road Co. p. Durant, 95 U. 8. 579. In ever dissented. The case clearly falls the bitter case the court said: ' The within the general rule whirh has appellee cannot claim adversely to been cited. It contains no circum- those for whom he acquired and holds stances which create an exception, and the property. The rights of otlu-rs, if make the contract one which is abso- such rights exist, do not concern him. lutely void. The condition of the He cannot vicariously assert them.'" defendants is this: They made a void- ' Harts r. Brown, (1875) 77 111. 22C. able contract with the plaintiff, which * Ibid, has not been avoided. The contract 2TO FRAUDULENT ACTS OF OFFICERS. [ 192 purchase by them of the property under such circumstances would not be sustained. 1 And if a sale were necessary by reason of a lack of means on the part of the corporation to relieve the property from the liens and prevent a sale of property beyond the amount necessary to pay the debts secured by the trust deed, though made with the assent and by direction of the directors, and they purchase it, the sale in this respect would be void, as it would be a sale to that extent in which the directors would be the vendors, and they could not purchase of themselves. 2 A trustee of a corporation may purchase with his own funds a judgment which has been recovered against the corporation for less than the amount due thereon, and in case he assigns it to a third per- son, the assignee may enforce the judgment against the corpora- tion for the full amount due upon it. 3 In case a director or trus- 1 Ibid. company. By fair dealing and in the 2 Ibid. legitimate business of the company he 3 Inglehart v. Thousand Island Hotel may become one of its creditors. Co., (1884) 32 Hun, 877. The Supreme Transactions of this character between Court of l^ew York in General Term an officer of the company and the corn- have said upon this subject: "That a pany itself are of frequent occurrence, trustee of a corporation organized and have received the approval and under the general laws of this state sanction of the courts as appropriate acts in a fiduciary character, is not a and not inconsistent with the duty subject of doubt, as he is intrusted which a trustee owes to the stock- with power and authority to be exer- holders and creditors of the company, cised in the interest of the stockhold- [Citing] Duucomb v. N. Y., H. & N. ers and creditors of the company. In R. R. Co., 84 N. Y. 190; Twin-Lick dealing with its property and in the Oil Co. v. Marbury, 91 U. S. 588. So management of its affairs he is subject also a trustee or director may, with his to the obligations and disabilities inci- own money, purchase for himself of a dent to that relation, and he must so third person a valid and subsisting act as not to permit himself or his own outstanding debt owing by the corn- private interests to interfere or com- pany and secure a perfect title thereto, pete with his duty to the company. Such a transaction is not even a ground [Citing] Hoyle v. Plattsburgh & Mon- for entertaining the suspicion that it is treal R. R. Co., 54 N. Y. 314; Cum- in violation of any duty which he owes berland Coal Co. v. Sherman, 30 Barb, the corporation, and there is no pre- 553; Twin-Lick Oil Co. v. Marbury, sumption of law against its fairness. 91 U. S. 588. It is not, however, If the obligation is valid the owner deemed to be inconsistent with the may sell and transfer it to any one duties which a trustee owes a com- who is willing to become a purchaser, pany to loan and advance to it moneys and he thereby secures an unquestion- to be used in transacting its legitimate able title. [Citing] cases supra ; Clark business and to meet its financial ?;.Flint&PereMarquetteR.Co.,5 Hun, wants and receive security therefor by 556. The other question to be con- mortgage or pledge of the assets of the sidered in this connection is, will the 192] FBAUDULENT ACTS OK OFFICERS. 271 >f a corporation geek tho enforcement of a judgment against it owned by himself by a sale of the proj>ertyor assets of the cor- poration, it would be incumbent upon him to act with the great- --t fairness and publicity and to do everything reasonable within life power to .-ecu re the highest price for the property sold; and if he should be guilty of any improper conduct by which he secures to himself the property of tho corporation for less than its fair market value, the sale may be set aside on the application of any of the parties intended. 1 One of the appellate courts of Missouri reversed a judgment in the court Ixilow, and held that tho president of a corporation who had voluntarily purchased a small debt against the corporation should lx? enjoined from levy- ing an execution for the payment of a balance on the claim where he had already taken valuable property of the corporation in part payment of it. trustee or director be permitted to eu- of his speculating in either its assets force a collection of the debt thus uc- or its indebtedness, for his own benefit, quired for its entire amount, or shall at the expense of the corporation, he be limited to the sum which he He is a trustee, and as such can never actually paid for the debt or obliga- be permitted to create such a relation tion ? I am unable to discover any between himself and the trust prop- good reason why he should not be per- perty as will make his own interest mitted to enforce judgment for the necessarily and effectually antago- full amount, nor can I find any de- nistic to that of his beneficiary. In cision limiting the trustee to the sum Covington & Lexington liuilroad Co. v. actually paid. In these times a large Howlcr,9 Hush (Ky.),468, a director had proportion of the mercantile, com- purchased at a judicial sale the rail- mrnial and manufacturing business road belonging to his corporation. It <>f the country is carried on by cor- was held, upon the principle just porations, and many of them issue, in stated, that the corporation had aright large amounts, securities in the form to have its road surrendered to it upon of negotiable instruments, payable in placing the director in statu quo. the future, which are purchased and * * * In McAllen r. Woodcock, a held as investments by capitalists and suit in ejectment, 60 Mo. 174. it was others, and it has never been ques- held that where, under execution tioned but that a director in a cor- against a corporation, its land waspur- poration of this character might pur- chased by one who was a stockholder chase the same of a third person at a and treasurer of the company, the pur- discount, and collect from the com- chase must be re garded as having been pany the entire sum secured thereby." made for the benefit of the association. 1 Inglehart Thousand Island Hotel and that the title thus acquired could < , , (iss 1 1 :;-,> Hun, 877. not be considered as hostile thereto." Brewster r. Stratnian, (1877)4 Mo. In Lingle e. National Insurance Co., App. 41. LKWIH. P. J., said: "The 4T> Mo. 109. the Supreme Court of fiduciary position held by the presi- Missouri a dinned the judgment of the dent of a corporation does not admit court below awarding out of the asset* 272 FRAUDULENT ACTS OF OFFICEES. [ 193. Purchase and sale of property of corporation by officers. Where a sale of the property of a corporation to raist- money to pay its debts may become necessary on account of the mismanagement of its affairs by the directors, and those directors for that purpose sell it to one of their number, the sale may be set aside. 1 For a sale and purchase under such circumstances to stand, it must be shown that there was a necessity for the sale and that the property of the corporation was bought by the direct- ors in open market at a fair price and without any undue advantage, in good faith and without the slightest unfairness. 2 A director of an insolvent corporation, buying its property at a sale under execution to which he is not a party, will be liable to the corporation for the value of the property less what he may have paid for it. 3 In case directors of a corporation divert its property from the payment of its debts, by which diversion cred- itors may be deprived of the opportunity to enforce their debts the injured creditors may have relief through a court of equity. 4 Should such a diversion of the corporate property charged to be injurious to the creditors be a sale of such property to one of the directors taking part in the transaction as buyer and seller, the directors must establish both the good faith of the transactions and that the sale was for the full value of the property. If these of the company to its president, upon company who suffered by the acts of a judgment which he had purchased its officer. But, in a case like this, against the corporation, the amount the creditors whose rights are im- he actually paid. The court said: paired should be permitted to make "At the time [appellant] purchased the objection." As to the incompe- the judgment he was president of the tency of a director in a corporation to company and acting for the company, become the purchaser of a portion of The company's interest and his, in its property, who has actively partici- the transaction, were identical, and pated in all measures pending the could not be separated. Whatever completion of the arrangements for its advantage he gained inured to its sale, with full knowledge of all the cir- benefit. To permit the chief managing cumstances attending their progress, officer of a company in such a man- see Hoffman Steam Coal Co. v. Cum- ner to speculate for his private gain berland Coal & Iron Co., 16 Sid. 456. would be detrimental to the company l Crescent City Brewing Co. v. Flan- and the other stockholders, and would ner, (1892) 44 La. Ann. 22; 8. c., 10 lead to fraud, injustice and wrong. So. Rep. 384. Public policy and morality alike for- * Ibid. bid that such a proceeding should be 3 Tobin Canning Co. . Fraser, (1891) sanctioned. It is true that in ordinary 81 Tex. 407; s. c., 17 S. W. Rep. 25. cases no person would have a right to 4 Wilkinson t>. Bauerle, (1887), 41 N. complain of the transaction but the J. Eq. 635; s. c., 7 Atl. Rep. 514. 193] FRAl 1-1 I I NT ACTS OF OFFICERS. 273 facts be not established the directors taking part in the sale will be held answerable to the creditors for their y the diversion of the corporate property. 1 Where a railroad company had become insolvent and discontinued its operations, and a director of the company had purchased certain railroad ties from the con- tractor furnishing them to the company, it was attempted to enforce an execution in favor of creditors of the corporation upon this property. ANDREWS, J., for the New York Court of Appeals, said : " Assuming that the plaintiff was disabled by the rule in equity from purchasing the ties on his own account or from hold- ing them as against the company, nevertheless the legal title was vested in him by the purchase, and the property could not be taken from his possession under an execution against the corpora- tion. * * * The purchase by a trustee of trust property is voidable, not void. The company could only claim the benefit of the purchase by the plaintiff on reimbursing the sum expended by him in obtaining the title." 2 A director, for instance, pur- chasing the lands of a corporation for one-tenth of their value, there would be raised against him a presumption of fraud, and he would be required to show affirmatively that the transaction was a perfectly fair one. 8 The Civil Code of California, section 2228, requires the highest good faith from a trustee towards his bene- ficiary, and section 2230 prohibits the trustee from taking part in any transaction adverse to the beneficiary. Under these sections the Supreme Court of that state has held a secretary of a corpo- ration, at the same time its general manager, to whom all its affairs were intrusted, to have been guilty of a fraud upon the corporation in secretly purchasing its property in his own name when sold under execution or at tax sales. 4 A director may loan money to the corporation, take a mortgage to himself securing the loan, and upon foreclosure of the mortgage may purchase the property and obtain title to the property mortgaged. 5 A director 'Ibid. Preston . Loughran. (1890) 68 Cornell . Clark, (1887) 104 N. Y. Hun, 210; 8. c., 12 N. Y. Supp. 818. 451; s. c., 10 N. E. Rep. 888. As to a purchase by a director of the 1 Woodroof v. Howes, (1891), 88 Cal. property of a corporation at a fore- 184; 8. c., 26 Pac. Rep. 111. closure mortgage sale being valid, 4 San Francisco Water Co. t>. Pattee, see Saltmareh . Spaulding, (1888) 147 (1890) 86 Cal. 623; a. C., 25 Pac. Rep. Mass. 224; s. c., 17 N. . Rep. 185. 816. 35 274: FRAUDULENT ACTS OF OFFICERS. [ 194 of a corporation cannot, for instance, take possession of corpo- rate property and set up his individual possession to the exclusion of the corporation of which he is an equitable trustee. 1 The directors of " a going concern," though the corporation be insol- vent, will not be held liable, as for a breach of trust, for making a bonajide advantageous sale out and out of the corporate assets, all of which assets may have been attached, to one of the attach- ing creditors on condition that he would cancel his own debt and discharge the debts of other attaching creditors, especially where the directors have no means with which to control the attachment suits, and the transfer be advised by counsel. 2 194. Illustrations of a sale of property to corporation which was not fraudulent. The corporation, upon the notes of which this action was brought in the federal court of the dis- trict of Kansas, in its answer denied the authority of the presi- dent and secretary of the company to execute or issue such notes, and further claimed that the notes were fraudulently and wrong- fully issued through the collusion of the officers and directors of the company, and without any consideration whatever therefor. The facts were that two of the directors had, previously to the organization of the company, purchased a roadbed for a very small sum of money. They afterwards caused the defendant company to be organized, and, while in the relation of directors with others of the newly organized company, contracted with the other directors to sell the roadbed to the company for $200,000 cash or bonds and $3,600,000 of the capital stock. The sale was formally ratified at a meeting of the directors and entered on the records of the company ; and afterwards the stockholders unan- imously approved the purchase. At the time of the sale there were no stockholders, and the stock issued was all that had been subscribed. The company had no property except its charter and the roadbed, and the notes [which were issued instead of bonds] and stock issued to [the vendors] had no marketable value. 1 Hoffman . Reichert, (1889), 31 111. movable property of a corporation App. 558. used in its corporate business and dis- * White, Potter & Paige Mfg. Co. able the corporation from fulfilling the n. Henry B. Pettes Importing Co., purposes for which it was created, (1887), 30 Fed. Rep. 864. That direct- see Abbot . American Hard Rubber ors have no power to sell the entire Co., 33 Barb. 578. 194] FRAUDl'LENT ACTS OF OFFICERS. 275 It \v;i> held that the sale was not fraudulent. 1 In a Kansas case it was attrmpti'il to make certain persons, directors of a railroad corporation, account for the profits made by them in selling to it a readied which they had purchased before the organization of the railroad corporation for a small sum for a much larger sum than they had paid. The Supreme Court ruled that the owners of 1 Stewart P. St. Louis, Ft. 8. & W. R. Co., (1887) 41 Fed. Rep. 736. FOSTER, .1., discussed the actions of these directors in the premises us fol- lows : "There is no doubt but the di- rectors [the vendors], and perhaps [another director], while directors of the company, used their influence to consummate this sale from themselves as individuals to the company; and it is altogether probable they had that object in view when they bought the roadbed from [the vendor to them]. But the question fjtill remains, were they guilty of fraud, deception or any other breach of good faith in their fiduciary relations as directors ? At the time they bought the property the defendant company had not been organized, and at that time, of course, they could not have held any I'nluciary relations to stockholders or any one else. When the sale to the company was made they did hold a position of trust, and were bound, in their official action, to faithfully and horn >tly execute their duties, and not to make a deal where their personal interest should be served at the ex- pense of the company they represented. Wardell r. Kail rand Co., 103 U. 8. 651; Ryan r. Railroad Co., 21 Kans. 865; Koehlcr c. Iron Co., 2 Black, 715; 1 Moraw. Priv. Corp. 517; Michaud r. Oirod. 4 How. 513. But it docs not follow that the directors are prohibited under all circumstances from dealing with a member or members of the board as individuals. But there must have been a fair open deal. It must have been free from fraud or col- lusion, and characterized by entire good faith." Hotel Co. v. Wade, 97 U. 8. 13; 1 Mor. Priv. Corp. 292, .VJ1. .>!.->; Van Cot t r. Van Brunt. 82 N. Y. 535; Simons r. Oil Co., 61 Pa. St. 202; Oil Co. . Densraorc, 64 Pa. St. 48; Rice's Appeal, 79 Pa. St. 168; Parker v. Nickerson, 137 Mass. 487. The judge then discussed the particular facts of this case in these words: "It does not appear in this case that there was any deception or fraud practiced by the parties. The property was open to inspection, and the approximate cost of constructing it was easily obtainable. Its value to the company for the purpose desired was not difficult to ascertain. I find no evi- dence of any representations as to its value or cost, or purchase prce, made by the parties selling; but there is record evidence that the board of directors several months after the sale, and with full knowledge of the transaction, formally approved and ratified it, and not only that, but subsequently, at a meeting of all the stockholders, the transaction was again ratified. Now, who were defrauded or deceived ? All parties directors and stockholders as- sented to it, and surely subsequent purchasers of the stock, or the cor- poration itself, cannot now object to it. 1 Moraw. Priv. Corp. 290. It is true the vendors got a very large ad- vance on the price they paid, but that is not alone the test by which the bona JUn Of the transaction is to be tried. 1 Moraw. Priv. Corp. 298. To them as individuals the property was of little or no value. To the railroad company it could be made worth the price paid 276 FRAUDULENT ACTS OF OFFICERS. [ 195 a graded roadbed could sell to a railroad corporation, the officers, directors and stockholders of which were composed of these owners, and receive in payment therefor shares in its capital stock at a time when those selling the roadbed owned and controlled the corporation, and are the absolute owners of all the stock issued by it, and where the terms of sale and the issue of the stock are matters of record on the corporation's books, and where the transaction occurs months before any other or additional stock is issued by the corporation. 1 This rule was based upon the fact that at the time of the purchase of this roadbed by the vendors of it to the corporation the corporation really had no corporate existence, and that there could not have existed any fiduciary relations between them before that time, because there was no corporation in existence to create them. 2 195. When a transfer of property of corporation will be upheld. These facts are disclosed in a New York case. A manufacturing corporation was organized for the purpose of manufacturing carpets by machinery covered by certain letters patent, and issuing licenses for the use of the invention ; its capital stock was $40,000, which was issued to the defendants, the owners of the letters patent, as the consideration for the assign- ment by them of the letters patent to the corporation. The actual value of the patent was much more than the sum specified^ and the transfer was made without regard to its value, as a con- venient mode of holding title, and for the exclusive benefit of the owners, who, as sole stockholders and trustees of the corpora- tion, carried on the business of issuing licenses to use the inven- for it; and the vendors bent every were deceived by misrepresentations energy to make the property useful to of the officers, their cause of action the company, and to make the enter- rests on that deception, and not in an prise successful, for their chances of attack on the original contract of getting money or any other value for purchase." the property depended very largely ' St. Louis, Ft. Scott & Witchita R. on the result. As before remarked, R. Co. v. Tiernan, (1887) 37 Kans. 606; parties having stock afterwards in the s. c., 15 Pac. Rep. 544. company cannot complain of the pur- * Ibid. There is a very full discus- chase. The records of the company sion of the questions relating to pro- show the transaction. It was not kept moters of corporations, their rights, a secret. There was no compelling duties and liabilities, as viewed in any person or municipality to take English and American courts, in this stock in the company unless they vol- case, untarily chose to do so; and, if they 1!>5] FRAUDULENT ACTS OF OFFICEB8. 277 and collecting royalties. Subsequently, concluding to go into tin- Imsiness of manufacturing, the defendants, as trustees, transferred back to themselves the letters patent, they surrender- ing the stock issued to themselves as above stated. The stock of the corporation was increased to $600,000, all of which was issued to defendants, they paying first $250,000 in cash, and for the iv.-iy the authority of the siiid: "A contract entered into by it trustees to themselves, nmy be set corporation by the authority or direr aside, in case it injures any public tion of its trustees, with themselves interest, or the private inUrcM of any 278 FRAUDULENT ACTS OF OFFICERS. [ 196 196. Officers voting themselves salaries or compensa- tion. The vote of a director for his own salary is manifestly illegal. 1 An agreement of directors to pay themselves a stipula- ted sum for services in the employment of a corporation is void. 2 The salary of the president of a corporation having been fixed by its directors, as the} r have a right to do, and accepting the office under their action, he cannot, by his vote as a director, increase his salary. 3 Where the superintendent of a corporation is also a director, his compensation must be fixed by corporate action, a record of which should be made upon the books of the corpora- tion. 4 Should directors, who are not entitled to compensation for their services as directors by the provisions of the charter of the corporation or by its by-laws, or some custom or usage allowing such compensation, make such allowance to themselves for past services and issue bonds or orders for such allowances, their acts will be void and of no effect. 5 Salaries voted by its board of direct- ors to one or more of their number, who are present and partici- pating in the action, are not binding upon a corporation. 6 Where shareholder or creditor, even though for the purpose of protecting share- the contract or transfer was executed holders from further loss, does not ad in good faith by the trustees. Dun- mit, we think, of doubt. Treadwell comb t. N. Y., H. & N. R. R. Co., 84 . Salisbury Mfg. Co., 7 Gray, 395." N. Y. 190. But this rule is not broad Hancock v. Holbrook, 9 Fed. Rep. 353; enough to condemn as void on the Boston & P. R. R. Co. t>. N. Y. & N. ground of public policy all contracts E. R. R. Co., 13 R. I. 263; Buford v. and transfers executed by a purely Keokuk L. Packet Co., 69 Mo. 611; private business corporation, with or Morawetz Corp., g 413 el seq. 1004. to its trustees, in good faith, in case ' Davis Mill Co. v. Bennett, (1889) no public or private interest is harmed 39 Mo. App. 460. thereby. Such contracts are not void, 2 Guild v. Parker, 43 N. J. Law, but voidable, at the election of those 430. who are affected by the fraud. Twin- 3 Ward . Davidson, (1886) 89 Mo. Lick Oil Co. . Marbury, 91 U. S. 587- 445. 589; Thomas v. Brownville, etc., R. R. 4 Besch v. West. Carriage Manufac- Co., 109 U. S. 522-524; Risley . In- turing Co., (1889) 36 Mo. App. 333. dianapolis, B. & W. R. R. Co., 62 N. 5 Maux Ferry Gravel Road Co. . Y. 240; Barnes . Brown, 80 N. Y. Branegan, (1872) 40 Ind. 361. 527-536; Munson t. S., G. & C. R. R. Kelsey v. Sargent, (1886) 40 Hun, Co., 103 N. Y. 58-73; Barr v. N. Y., 150. In Copeland v. Johnson Manu- L. E. & W. R. R. Co., 125 N. Y. 263- facturing Co., (1888) 47 Hun, 235, the 277." The court, in the opinion in this contracts made between one who was case, concluded with this statement: president and one of the trustees of "The right of a manufacturing cor- the corporation, and two of the other poration to discontinue its operations four trustees of the corporation, for when they have become unprofitable, the payment to him of fixed com- 196] FRAUDULENT ACTS OF OFFICERS. _'7' a board of directors had assigned to one of their number the per- formance of the duties of treasurer of the corporation, and no salary had been fixed for such office by the board, the Illinois Supreme Court assumed that the board chose to regard his serv- ices in that capacity as a part of his duty as director, and held that he could not recover an allowance made by them to him for such services. 1 The directors of a corporation occupying a fidu- ciary relation to it, should they vote themselves an excessive com- pensation for services in disposing of its stock, such an act would be an actual, not merely a constructive fraud. 2 In a case where the treasurer of a corporation had appropriated corporate funds to his own use as for a salary, and the court found the amount was excessive, the money was held to have been obtained by fraud and the treasurer liable for interest on the sum that he had thus appropriated. 8 In a case before the Supreme Court of New pcnsation for the performance of R. Co.. 27 Vt. 435; Butts . Wood, 37 services rendered by him for the cor- N. Y. 817; Mt-rriek r. Peru Coal Co., poration, being dependent for their 61 111. 472; Kockford, Rock Island & validity upon his vote, together with St. Louis R. R. Co. . Sage, 65 111. that of the two directors, were held to 328; Cheeney v. LaFayette, Blooming- be illegal. See, also, Coleman t>. ton & Western Ry. Co., 68 111. 570; Second Avenue R. R. Co., 38 N. Y. American Central R. R. Co. r. Miles, 201. 52 111. 174; Gridley r. LaFayette, B. Holder c. LaFayette, Blooming- & M. Ry. Co., 71 111. 200; LaFayette, ton& Mississippi Ry. Co., (1873) 71 B. & M. Ry. Co. c C'heem-y. s7 111 111. 106. It was said by the court : 446; Illinois Linen Co. r. Hough, 91 " [These directors] are managing a 111. 03. fund as trustees for the stockholders; 'Freeman 0. Stine, (Pa.) 33 Leg. and they have no right to use or Int. 268; Fareira P. Riter, (Pa.) 38 Leg. apropriate the funds of their cestuis qne Int. 450. trust to themselves. They have no * Wayne Pike Co. r. Hammons, power to waste, destroy, give away or (1891) 129 Ind. 368; s. c.. 27 N. E. misapply it, and when they were Rep. 487. In Emporium Real 1 elected by the shareholders, no pro- & Manufacturing Co. r. Emrie, (1870) vision having been made for their 54 111. 345, it was held that the presi- compensation, the stockholders had dent of the corporation, who, claiming a right to suppose they wt-re acting that the corporation was indebted to under the common-law rule, that, as him for his salary as president and for trustees, they could not claim pay services as attorney at law, had ment for their services." See Kirk caused the secretary of the corpora- Patrick v. Penrose Ferry Bridge Co., tion to assign to him certain certifi- 49 Pa. St. 121; Loan Association r. cates of purchase of land held by the Stum-met /.. 29 Pa. St. 534; New York corporation, and in their possession as & N. H. R. R. Co. r. Ketclmm, 27 officers, should surrender tli-. Rail- road, 54 N. Y. 315, 328; Blake . Railroad, 56 N. Y. 485, 490; Barnes v. Brown, 80 N. Y. 527, 535; Duncomb t\ Railroad, 84 N. Y. 190, 198; Robin- son v. Smith, 3 Paige, 222, 232; Koeh- lerfl. Iron Company, 2 Black, 715, 721; Bliss v. Matteson, 45 N. Y. 22; 1 Per. Tr. 207; Booth . Robinson, 55 Md. 419, 436, 440. * * * In England parliament has declared by statute (8 & 9 Viet. chap. 16) that no person in- terested in any contract with a corpo- ration shall be capable of being a director thereof, and if any director shall directly or indirectly be concerned in any contract with the corporation, his office shall become vacant. The office becomes vacant, although in a suit at law between the parties upon such a contract the contract is not held void. Foster v. Railway Co. , 13 C. B. 200. Such contracts are voidable in equity at the suit of a stockholder. We have no such statute; but reason and common sense, and all the analo- gies of the law, forbid that a person should act in a position of trust when self-interest conflicts with duty. The consciences of men in such positions will not stand the strain of self-inter- est. We approve the remarks of WELCH, J., in Goodin v. Canal Co., 18 Ohio St. 169: 'A director whose per- sonal interests are adverse to those of the corporation has no right to be or act as a director. As soon as he finds that he has personal interests which are in conflict with those of the company, he ought to resign. No matter if a majority of the stockholders as well as himself have personal interests in con- flict with those of the company. He does not represent them as persons, or represent their personal interest. He represents them as stockholders, and their interests as such.' Rolling Stock Co. v. Railroad, 34 Ohio St. 465, was a stockholders' bill for an injunction. The plaintiffs board of five directors 198] FRAUnri.KM ACTS OF OFFICERS. corporation for the construction of a portion of its road, the pay- ment to le made in the mortgage bonds of the latter. Two of the directors of the railway corporation were also parties in the construction contract. The other parties in the construction contract agreed to assume the subscriptions of all the individual directors of the railway corporation to the capital stock of that wore members of the defendant's board of thirteen. The bill was dismissed because not seasonably brought; and the remarks of the court, to the effect that the agreements ought to be set aside was valid because executed by a majority of the board without the in- terested directors, would seem to be dicta. Ashhurst's Appeal, 60 Pa. St. 291, and Watts' Appeal, 78 Pa. St. 870. are sometimes cited to the point that contracts or sales, made by a board of directors with or to some of their number, may be sustained in equity, and the remarks of the court are to the point that such contracts and sales may be upheld if their perfect fair- ness is shown. These cases were stock- holders' bills to set aside sales of prop- erty, upon the ground of a violation of fiduciary duty. Relief was denied upon the ground that the applications came too late. Flagg v. Kail way Co, 20 Blatch. 142; 8. c., 21 Am. Law Reg. 775, de- cides that where an agreement is nmde by the directors relinquishing the right to a guaranty of dividends to a corpo- ration by another corporation, the exe- cution of the agreement will not be enjoined at the suit of a stockholder, because three of the directors voting were also stockholders in the guarantor corporation, it appearing that, without counting their votes, a majority of the directors voted for the measure. In Butts 0. Wood, 38 Barb. 181; s. < [mi appeal] 87 N. Y. 817, the action of the majority of two in a board of three, passing upon the claim of a third
  • < t a-ode at the instance of one of the >t<>ek holders. St-r, also. Warden- of St. James r. Rector, etc., Church of the Redeemer, 45 Barb. 856; Kitchen v. Railroad, <>'.) Mo. -^i; Railnmd 9. Kelly, 77 111. 420; Koehler t. Black, etc., Iron Co., 2 Black, 720; Moraw. on ( 'or p. 245, and cases; 1 Perry on Tr. 207, and cases; Pierce on Railroads, 36- 40, and cases; Green Brice Ultra Vir. 477, note (a) and cases. Stockholders and creditors are entitled not only to the vote of a director in the board but to his influence and argument in discus- sion. Ogden v. Murray, 39 N. Y. 202, 207; Railway Co. v. Blakie, 1 Macq. (H. L. Cas.) 461, where the court said: ' It was Mr. Blakie's duty to give his co-directors, and through them to the company, the full benefit of all the knowledge and skill which he could bring to bear on the subject.' In Barnes c. Brown, 80 N. Y. 527, 536, the court said: ' If he [plaintiff] had attempted to perform the contract while he was director, the stockholders could probably have intervened by some suit in equity adapted to the nature of the case to nullify the con- tract as to him, or to restrain him as to the performance thereof, or to com- pel him to elect to resign his office of director, or to give up the contract.' Our conclusion upon this part of the case is. that the directors of the Con- cord could not make the contracts with the upper companies, nor settle tin- claims of those companies against the Concord. For the transaction of that part of the business of their ollicc they \\cre disabled by the underMandinir on which, the purpose for which, and i he interest in and by which, th'-y were elected." 284 FRAUDULENT ACTS OF OFFICERS. [ 198 corporation (which was worthless) and relieve the directors from all liability under it. This contract the Supreme Court of the United States held not to be enforceable in equity when resisted by stockholders in the railway corporation ; and the bonds issued under it to the construction company were held to be voidable at the election of the parties affected by the fraud, while in the hands of parties who took them from the construction company, not in the ordinary course of business, but under circumstances .which threw doubt upon their being holders for value or without notice. 1 The stockholders had been allowed to come into the suit for foreclosure of the mortgage and tiled their cross-bill. The court said : " In this condition of the case they are amenable to the rule that they who seek equity must do equity. It is just that they should pay a fair price for what they have received ; that this mortgage, given for the construction of the road, though excessive by reason of the fraud in the contract, should stand for the reasonable value of what the company actually received iu the way of construction. To permit these intervenors to defeat the mortgage on any other ground would be unjust, and would make the court the instrument of this injustice." 8 In a leading Missouri case, where a railroad corporation was not in financial condition to complete its road in all its branches, which was essen- tial to its proving profitable, an association of capitalists was formed, the object of which, as expressed in its articles, was the purchase of the bonds of the corporation, and ultimately, if found profitable to do so, the purchase of the road itself, provided the association could obtain control of the company. The bonds of the corporation were subsequently purchased of it, and the asso- ciation allowed to name a majority of the directors. It was insisted that this transaction was fraudulent by reason of the 'Thomas, Trustee, v. Brownville, indefensible." Referring to Ward ell Fort Kearney & Pacific R. R. Co., . Union Pacific R. R. Co., 103 U. 8. (1883) 109 U. S. 522; s. c., 3 Sup. Ct. 651, and same case in 4 Dill. 330, as in Rep. 315. The court said: "In the precise analogy to this, present case the stockholders of the * Thomas, Trustee, v. Brownville, corporation, whose officers accepted Fort Kearney & Pacific R. R. Co., those benefits at the hands of the par- (1883) 109 U. S. 522; s. c., 3 Sup. Ct. ties with whom they were, in the name Rep. 315. As to the effect of a railway of the corporation, making a contract corporation and a construction com- for over a million of dollars, do de- pany having mainly the same officers, nounce and repudiate that contract, see Davidson r. Mexican National R. The conduct of these directors is utterly Co., 58 Fed. Rep. 653. 198] FRAUDULENT ACTS OF OFFICERS. i-'->."> control of the corporation being Minvndm-d to the association, and because the latter looked to the ultimate acquisition of the road. These facts were held not to establish fraud. 1 It was also in.-i-tr, 1 in this case that the transaction was fraudulent because, at the time of its consummation, three of the tliirtivn directors of the railroad corporation were members of the association pur- chasing. The court held that this, if a fact, would not make the sale void. 8 The fact that shortly after the contract for purchase of bonds, etc., was proposed to the railroad corporation, and before its acceptance, several of the directors became members of the association was held to render the contract, when made, void- able only, and not absolutely void. 8 It was further held in this 1 Kitchen v. St. Louis, Kansas City 224; citing, as authority, Buell r. & Northern Ry. Co., (1878) 69 Mo. Buckingham, 16 Iowa, 284; Hartridge 224. The court said: "There is noth- v. Rockwell, R. M. Charlton's Rep. ing inconsistent with the utmost good 260; Twin-Lick Oil Co. r. Marbury, faith in either of these stipulations [as 01 U. 8. 587. to purchase of the road or securing con- * Kitchen v. St. Louis, Kansas City trol of it]. The last might well have & Northern Ry. Co., (1878) 69 Mo. been insisted on because the purchase 224. The court said, arguendo, lead- ofthe bonds, if made, involved and ing up to the conclusion stated in the would require millions of money, text: " Viewing the transaction as and the only security which could be one under which the Missouri liail- relinl upon to save harmless those who road Company wus to receive sufficient furnished it, would be a faithful and money to complete the road, as therein honest application of it to the comple- stipulated, and pay the interest on the tion and equipment of the road, first mortgage bonds and save the road Hence, there was a propriety in the from sale, we have the highest author- demand of these capitalists that they it y for saying that it was not void, as should have a controlling voice in the is contended by plaintiffs. In the case directory in order that the money (jir of the Twin-Lick Oil Co. r. Marbury, iiishnl miiilit be thus applied and re- 91 U. S. 588, which is a recently :nxl suit in giving thorn ample security for thoroughly considered ciise, the court, their investment in the bonds. So, in after recognizing to the fullest extent regard to the first stipulation, ' to buy that a director of a corporation occu- the road ultimately, if deemed profit- pying a fiduciary relation in his deal- able to do so,' it may be said that there ings with the subject-matter of his was nothing illegal or fraudulent in trust or agency, and with the bene that alone, as we cannot presume and flciary whose property is confided to infer from it, that if they should pur- his care, is viewed with jealousy, and chase they would purchase it in iiny that his acts may be set aside on other than a lawful manner and under slight grounds, declares ' that the gen- circumstances which would authorize eral doctrine in regard to contracts of them to buy." this class is not that they are absolutely * Kitchen v. St. Louis, Kansas City void, but that they are voidable on the & Northern Ry. Co., (1878) 69 Mo. election of the party whose interest 286 FRAUDULENT ACTS OF OFFICERS. [ 199 case that the stockholders in meeting, having had this proposi- tion made to them for the purchase of the bonds and obtaining control of the road, etc., submitted to them and making no objec- tions, it was too late, after the lapse of five years, for them to impeach the transaction. 1 The mere fact that the president of a railroad company, unknown to the other directors, is interested in a construction contract let by the company would not make the contract void if it be otherwise free from fraud. 2 199. Issue of worthless, or overissue of, stock. Directors issuing spurious, worthless stock would perpetrate a wrong upon the corporation and its stockholders, and a fraud upon every one who might take it as fully paid-up stock, relying upon the appear- ances and deceived thereby. 3 In case an attempted organization by failure to comply with the statute for organizing corporations of its kind does not become a corporation dejure, and cannot legally issue stock, the issue of stock by it will not alone make the directors liable for a fraudulent conspiracy to issue worthless stock. 4 Neither can an intent to deceive on the part of the directors be inferred from such issue of worthless stock, and the fact that the nominal is largely in excess of the actual capital. 5 One who had purchased shares of stock of a corporation, the managing officers of which, president, vice-president and director and treasurer, had made an overissue of stock for a large amount has been so represented by the party be given.' The same doctrine was, in, claiming under it. While it is true the strongest terms, announced iu that a director of a corporation is Judge RYLAND'S opinion in the case bound by all those rules of couscien- of The City & County of St. Louis v. tious fairness which courts of equity Alexander. 23 Mo. 528, and the HU- have imposed as guides for dealing in thorities cited, upon which the opinion such cases, it cannot be maintained is based." that any rule forbids one director ' Kitchen . St. Louis, Kansas City among several from loaning money to & Northern Ry. Co., (1878) 69 Mo. 224. the corporation when the money is 2 Augusta, Tallahassee & Gulf R. needed and the transaction is open and Co. . Kittel, (1892) 52 Fed. Rep. 63. otherwise free from blame. * * * s Barnes v. Brown, (1880) 80 N. Y. No adjudged case has gone so fa* as 527, 534; citing Mechanics' Bank 0. this. Such a doctrine, while it would New York & New Haven R. R. Co., afford but little protection to the cor- 18 N. Y. 599; Bruff . Mali, 36 N. Y. poration against actual fraud, would 200; Morgan v. Skiddy, 62 N. Y. 319; deprive it of the aid of those most Shotwell v. Mali, 38 Barb. 445. interested in giving aid and best quali- 4 Nelson v. Luling, (1875) 62 N. Y. ned to judge of the necessity of that 645. aid and the extent to which it might 6 Ibid. ..' 1 99 J FRAUDULENT ACTS OF OFFICERS. 287 and converted tin- proceeds to their own use, was held to have 1 a good cause of action in his complaint against those officers in alleging the ahov.c facts, and the further allegation that by the ovcri.->ue of stock the genuine stock, including that held by him- self, was rendered valueless and became unsalable. 1 Officers of a corporation issuing false certificates of stock authenticated by i hem as genuine and placed by them on the market with fraudu- lent intent, are liable to every holder into whose hands they may come by fair purchase. 2 In a Vermont case, where the treasurer of the corporation had fraudulently overissued stock of the cor- poration and sold the same for money, it was held that the cor- poration might recover in general a->unijit from him the money he had received for such stock, where the spurious stock had become so intermingled with the genuine as to be indistinguishable and the corporation had been compelled to and had treated it as genuine. 3 Further, that, although the stock, when issued, may have been absolutely void, and the issuing of it by the treasurer a crime, the treasurer could not allege the illegality of his act as a reason why he should not pay over the money. 4 Cazeaux r. Mali, (1857) 25 Barb. 4 Ibid. In Wright's Appeal, (1882) 578; H. c., as Mead r. Mali, 15 How. Pr. 99 Pa. St. 425, the president of a rail- 347. See, also, Wells r. Jewi-tt, 11 way corporation, it appeared, induced How. Pr. 242; Hell r. Mali, 11 How. a stockholder in the corporation to Pr. 254. surrender to him her shares of stock, * Bruff r. Mali, (1867) 36 N. Y. 200; together with blank powers of attor Seiser r. Mali, 6 Abb. Pr. 270, note; ney to transfer the same, by means of Shotwell . Mali, 38 Barb. 445. For false representations that they were a case illustrating under what circum- needed to aid the corporation. Ho stances the purchasers of stock eudau- gave to her his individual due bill, gered thereby would not have a transferred the stock and embezzled remedy in equity against the fraudu- the proceeds. Subsequently, by com- lently acting directors, see Morrison bination with other officers, he fraudu- e. Globe Panorama Co., 28 Fed. Rep. lently issued stock in excess of the 817. Fraudulent issue of stock: Clark charter limit, and of this overissue of t. American Coal Co., (Iowa, 1894) 53 stock he awarded to the use from N. W. Hrp. 291; Citizens' Nat. Bank whence he had secured the shares of Cincinnati r. Cincinnati, N. O. &T. which he transferred a number of R. Ry. Co., 29 Wkly. Law Bull. 15; shares equal to the number of her Brown r. Duluth, M. & N. Hy. Co., voted shares. In an equity proceed - 53 Fed. Hep. 889; Florida Land & ing by her to determine her rights and Imp. Co. r. Merrill, 52 Fed. Rep. 77; the corporation's growing out of this 8. c., 2 C. C. A. 629. trnnstiction, the Supreme Court of 1 Rutland Railroad Co. r. Haven. Pennsylvania held that site must bear (1889) 62 Vt. 89; s. c., 19 All. Hep. the loss resulting from the embezzle 769. ineut by the p resident of the funds re- 288 FRAUDULENT ACTS OF OFFICEES. [ 200 200. False representations of officers deceit The directors of a corporation are personally liable to persons who may sustain loss in consequence of false representations made by the directors to them or to the public at large, such representa- tions being fraudulently and designedly made, or ignorantly made, concerning facts susceptible of knowledge, and of which it is the official duty of the directors to obtain correct informa- tion. 1 A stockholder in this Texas case had been induced by the representations of these directors to deposit money with the com- pany, which was then insolvent, and these directors had accepted the deposits and applied them to the payment of a debt for which they were sureties. The court held that the directors were estopped in this action to charge them personally to set up as a defense their want of authority to receive the deposits. 2 It was further held that the fact that the plaintiff was a stock- holder and had access to the books of the concern, and the means of knowing its true condition would not, of itself, prevent a recovery against the directors. 3 Persons representing to the pub- lic that a corporation had been regularly organized, in circulars signed by them as regularly elected officers, and prematurely issuing stock certificates, one purchasing such certificates will be entitled to recover damages for his injury, the result of such pur- chase, irrespective of any intent on their part to defraud him in particular. 4 In an action against the directors of an insurance suiting from a sale of her valid shares, holder in a corporation has as much and that the shares he issued to her right to protection against the fraudu- in excess of the charter limit were lent acts of the trustees or directors as invalid and valueless. The ground any one else, if, ' indeed, he has not was that, under the facts of the case, more right, although on account of the president was acting as her agent his access to the books, he may be and not as agent for the corporation, held to greater care in his dealings For another case involving the fraudu- with the corporation." As to what lent issue of stock by this president of would be proper instructions to the this railroad corporation, see Mount jury in an action of deceit to charge a Holly Paper Co.'s Appeal, (1882) 12 president of a corporation with the W. N. C. (Pa.) 228. debt of the corporation by reason of 1 Kinkier v. Junica, (1892) 84 Tex. his representations to a creditor as to 116; s. c., 19 S. W. Rep. 359, adhering the solvency of the corporation, see to Scale T. Baker, 70 Tex. 286; s. c., 7 King v. Davis, (1891) 61 Hun, 627; s. S. W. Rep. 742. c., 16 N. Y. Supp. 427. 'Kinkier t>. Junica, (1892) 84 Tex. 4 Fenn v. Curtis, (1881) 23 Hun, 116; s. c., 19 S. W. Rep. 359. 384. s lbid. The court said: "A stock- 200] FRAUDULENT ACTS OF OFFICERS. corporation for damages incurred by one who had been induced by a statement made by its officers as to its assets, to insure his property, and had met with a loss, which, by reason of the utter insolvency of the corporation, he was unable to make good out of the corporation, based upon the misfeasance of the direct- ors in fraudulently permitting such statement to be made, one of tin- defendants denied his participation in the fraud, and all knowledge that certain bonds belonging to him were represented in the official published statement as property of the company. The Supreme Court of Connecticut held that evidence was admissible on the part of the plaintiff to show that the president and another director of the corporation had, shortly before the publication of the statement, solicited the director denying his liability to make some arrangement by which the bonds could be represented to be the property of the corporation ; also, that a receipt given by him to the corporation, acknowledging that the bonds were the property of the corporation, and were held by him subject to its order, was admissible ; further, that his acts after the plaintiff had taken his policy, not in themselves inde- pendent, but connected with and growing out of the previous fraudulent purpose, were admissible to show his knowledge of, and participation in, the fraud. 1 The United States Supreme Court affirmed the sustaining of a demurrer to a bill filed by bondholders against the president of a railroad corporation and others, to make him liable to them on allegations of fraudulent representations on his part as to the length of the road, a mort- gage on which was to be a part of the security for the payment of the bonds, and for fraudulently allowing a misapplication of the moneys realized upon the sale of the bonds to them, etc. They held that the allegation in the bill that the president received money from the sale of the bonds, but not averring that the bondholders had obtained judgment against the corporation upon their bonds, and that execution issued on the judgment against the corporation had been returned nulla boiia, showed nothing entitling the bondholders to relief in equity as a creditor of the corporation ; further, that the president of such a corpora- tion held no fiduciary relation to the bondholders of the corpora- tion which required him, as their trustee or agent, to see to the 1 Salmon r. Richardson, (1862) 30 Conn. 860. 37 290 FRAUDULENT ACTS OF OFFICERS. [ 200 proper application of the moneys received by the corporation from the sale of the bonds, or to account to the bondholders for any surplus from the proceeds of their bonds after constructing the works for which they were issued ; that his fiduciary relations and duties in these respects were to the corporation and its stock- holders, and not to the creditors of the corporation ; that the representations made in the circular issued under his name were the representations of the corporation, and in no respect his per- sonal representations. 1 The president of a manufacturing cor- poration writing to induce one to purchase, and pay in cash for it $10,000, value of its stock at par, offered a position for her son, and represented to her by letter that the corporation was in a flourishing condition, and that there had been paid a dividend of seven per cent upon the stock, as she reasonably understood the letter, nine months before, when in fact it was paid one year before that date. This was three months before the close of a fiscal year, and when that period of time was reached, she expected a dividend, but was informed that the condition of the corporation was such that the managers had deemed it best to withhold declaring a dividend. This president, it afterwards, in her action by bill in equity, developed, had sold certain recipes and good will, etc., for manufacturing the articles which they manufactured, which were utterly worthless, and for which he had been paid largely out of the money she paid in for stock purchased under the inducements he had held out to her, and upon his representations. Her bill was filed against the corpora- tion and the president for recovery, account, etc., to have the assets of the corporation, in so far as they would be available to her claim, for the amount of money she had, in the mode pro- posed to her, contributed to the corporation, and for general relief for the deficiency against the president on account of his fraudulent representations and wrongdoings in the management of the corporation's finances in his own interest by which she was damaged. It was contended, before the Supreme Court of the United States, that the court had no jurisdiction in equity, as against him. The court sustained its jurisdiction on the various grounds of equity as shown in the allegations of the bill, and the findings as to the facts, and affirmed the decree in her favor for the deficiency against the president of the corporation individu- 1 Van Wed r. Winston, (1885) 115 U. S. 228; s. c., 6 Sup. Ct. Rep. 22. 200] FRAUDULENT ACTS OP OFFICERS. 291 ally. 1 An officer of a corporation making false statements with reference to the financial status of the corporation, and thereby inducing an exchange of property by another, for such stock, would be liable to the latter in a personal action for the damages caused to him by the transaction. 2 This would be true even if the false statement be made by the officers in a statement as to the resources and liabilities of the corporation, required by stat- ute, if such statement is relied upon in purchasing the Stock. 8 Where several persons engage in business jointly, and, to facilitate such business, use a corporate name and issue stock, and, in the promotion of the scheme, false representations are made by those holding themselves out as promoters and managers of the busi- ness, as to the material facts of inducement and as to matters peculiarly within the knowledge of all the associates or their agents, all those engaged in the promotion of the business, as associates of those making the false representations, are liable to those who, relying upon such representations, purchase stock to their cost and injury. 4 1 Tyler t. Savage, (1892) 143 U. 8. Barb. 121. See, also, Bagshaw t>. Sey- 79; s. c., 12 Sup. Ct. Rep. 340. Mr. mour, 4 C. B. (N. 8.) 873. Justice BLATCIIFOIUJ, referring espe- 8 Morse v. Swits, 19 How. Pr. 275. daily to the statement as to the prior ' Hornblower c. Crundall, (1879) 7 declaration of a dividend, in his letter Mo. App. 220; affirmed in Horublower to complainant, said: " This supprcs- v. Crandall, (1883) 78 Mo. 581. It was sion of a material fact [the date when said in Hornblower r. Crandall, 7 Mo. the dividend was actually declared] App. 220, 232: "The doctrine by which Tyler [the president] was bound which the defendants are here made in good faith to disclose, was equiva- liable is a well-settled doctrine. Per- lent to a false representation. Stewart sons investing in stock, under circum- t. Wyoming Ranche Co., 128 U. 8. stances like the present, have a right 888, 888. The effect of the fraud com- to confide in those who hold themselves mittcd by Tyler inured directly to his out as the promoters and managers of personal advantage. Not only was he, a business which they are carrying on, as a large stockholder and salaried so far as concerns representations made officer, benefited by the plaintiff's pay- by such promoters, or under their au- ment into the treasury of the company thority, as to material facts of induce- of the $10,000, but, as already shown, ment peculiarly within the knowledge $6,200 of that sum went directly to of the associates or their agents." his benefit, and the remainder, he tes- Citing Cross r. Sackett, 2 Bosw. 617; tifies, went to the purchase of material Cazeaux P. Mali. 25 Barb. 583; Simons and ordinary expenses of the company, r. Vulcan, etc., Co., 61 Pa. St. 202; The latter amount enabled the com- Morgan r. Skiddy, 62 N. Y. 819; Mll- pany to continue paying to Tyler his ler t>. Barber, 66 N. Y. 558; Bradley salary for some time longer." r. Poole. 98 Mass. 169; New, etc., Co. Newbery . Garland, (1860) 81 t . Erlanger, 4 Cent. L. J. 510. 292 FRAUDULENT ACTS OF OFFICEHS. ' [ 201 201. A leading English decision on this subject. In a comparatively late English case, an action of deceit brought by a shareholder against the directors of a tramway company, based upon statements in a prospectus which they issued, which induced him to purchase his shares, it appeared that the company was incorporated with the right to move their carriages by animal power, and, with the consent of the board of trade of the city, by steam power. It was stated in the prospectus that the company had the right to use steam power instead of horses. On the faith of this statement the plaintiff purchased his shares. The board of trade afterwards refused their consent to the use of steam power and the company was wound up. The justice before whom the action was first tried gave a decision upon the case made before him in favor of the directors. This decision was reversed by the Court of Appeal. 1 Upon appeal to the House of Lords, the Court of Appeal's decision was reversed and the trial justice's decision restored. The decision of the House of Lords was that the direct- ors were not liable, inasmuch as their statement in the prospectus as* to the use of steam power was made by them in the honest belief that it was true. The main opinion in the case was by Lord HERSCHELL, whose discussion, treatment of and conclusions from all the leading English cases upon actions of deceit were accepted by the others in their opinions. These conclusions were thus summarized and stated by Lord HERSCHELL : u First. In order to sustain an action of deceit there must be proof of fraud and noth- ing short of that will suffice.- Secondly. Fraud is proved when it is shown that a false representation has been made knowingly or without belief in its truth, or recklessly careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such honest belief. Thirdly. If fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made. * * * In my opinion, mak- 1 See Peek c. Deny, 37 Ch. Div. 541. 202] FRAUDULENT ACTS OF OFFICERS. ing a false statement through want of care falls far short of, and is a very different thing from, fraud, and the same may be said of a false representation honestly believed, though on insufficient grounds. * * * 1 am unable to hold that anything less than fraud will render directors or any other persons liable in an action of deceit." l 202. The rule adhered to in England. In a later Eng- lish case it appeared that one who was the principal partner in a trading firm concurred in steps for turning the partnership into a company with limited liability. His name appeared on the prospectus as managing director of the new company, with a note that he would not join the board till after the transfer of the 1 Derry t. Peek, (1889), 14 App. Cas. 887. Lord HERSCHEL.L took occasion to say further: " At the same time I desire to say distinctly that when a false statement has been made the questions whether there were reason- able grounds for believing it, and what were the means of knowledge in the possession of the person making it, are most weighty matters for consid- eration. The ground upon which an alleged belief was founded is a most important test of its reality. I can conceive many cases where the fact that an alleged belief was destitute of all reasonable foundation would suf- fice of itself to convince the court that it was not really entertained, and that the representation was a fraudu- lent one. So, too, although means of knowledge are, as was pointed out by Lord BLACKBUKN in Brownlie v. Campbell, (o App. Cas. at page 952), a very different thing from knowl- edge, if I thought that a person making a false statement hod shut his eyes to the facts, or purposely ab- stained from inquiring into them, I should hold that honest belief was ab- sent, and that he was just as fraudu- lent as if he had knowingly stated that which was false. I have arrived with some reluctance at the conclu- sion to which I have felt myself com- pelled, for I think those who put before the public a prospectus to in- duce them to embark their money in a commercial enterprise ought to be vigilant to see that it contains such representations only as are in strict accordance with fact, and I should be very unwilling to give any counte- nance to the contrary idea. I think there is much to be said for the view that this moral duty ought to some extent to be converted into a legal obligation, and that the want of rea- sonable care to see that statements made under such circumstances are true should be made an actionable wrong. But this is not a matter for fit discussion on the present occasion. If it is to be done the legislature must intervene and expressly give a right of action in respect of such a depar- ture from duty. It ought not, I think, to be done by straining the law, and holding that to be fraudulent which the tribunal feels cannot prop- erly be so described. I think mischief is likely to result from blurring the distinction between carelessness and fraud and equally holding a man fraudulent whether his acts can or cannot be justly so designated." 294 FRAUDULENT ACTS OF OFFICERS. [ 203 business of the company had been completed. lie did not issue the prospectus, but furnished materials for it ; saw it in draft, though not in its final shape, and made alterations in it. It was held by the Court of Appeal that, under the circumstances, he was liable to the same extent as if he had been the person issuing the prospectus. The prospectus contained a statement that the business had paid seventeen per cent upon the capital employed in it. This statement, it appeared, might be true if "capital employed" did not include the business premises, or only included their value subject to mortgages upon them, but was grossly untrue if the whole value of the business premises was taken as part of the capital. This action was brought by one who had taken shares on the faith of the prospectus for damages for mis- representations. The Court of Appeal held that, in order to make a person liable for damages for misrepresentation, it was not enough that the statement should be untrue, and made without any reasonable ground for believing it to be true, but it must be made dishonestly ; that the onus of proving dishonesty lay on the plaintiff ; that if the party making the statement believed, how- ever unreasonably, that it was true, he was not liable. And as the plaintiff in this case had not shown that the statement was made dishonestly, the Court of Appeal reversed the judgment and dismissed the action. 1 203. Officers conspiring to wreck a corporation. The power given to a president of a corporation to borrow money will not embrace the power to buy stock in the corporation, or 1 Glasier v. Rolls, (1889) 42 Ch. Div. Russ. 297; Blain t. Agar, 1 Sim. 37; 436, following Deny v. Peek, 14 App. Gerhard v. Baley, 20 Eng. Law & Eq. Cas. 337. As to the liability of cor- Rep. 130; Colman v. Riches, 29 Eng. poration and officers making them for Law & Eq. Rep. 323: Hichens v. Con- damages resulting to individuals from greve, 4 Russ. 562; Walburn t>. In- false statements of such officers in gilby, 1 Mylne & K. 61; Foss v. Har- prospectuses or otherwise, see Moffat bottle, 2 Hare, 461; Pasley p. Free- v. Winslow, 7 Paige, 124; National man, 3 Term Rep. 51; Shrewsbury. Exchange Co. v. Drew, 32 Eng. Law Blount, 2 Scott's N. R. 588; Gallager & Eq. Rep. 1, 14; Pontife v. Bignold, r. Brunei, 6 Cowen, 346; Allen v. Ad- 3 Man. & Gr. 63; Bagshaw v. Sey- dington, 7 Wend. 9; Bailey r. Mayor, mour, 93 Eng. Com. Law Rep. 873; etc., 3 Hill. 531; City of Buffalo t>. Johnson v. Goslett, 3 C. B. (N. S.) llolloway, 3Seld. 493; Culver p. Avery, 569; Colt v. Woolaston, 2 P. Wms. 7 Wend. 384; Upton v. Vail, 6 Johns. 154; Green v. Barrett, 1 Sim. 45; 181; Barney v. Dewey, 13 Johns. 224; Jones v. Garcia Del Rio, 1 Tur. & Williams v. Wood, 14 Wend. 126. 2<>4] FRAUDULENT ACTS OF OFFICERS. other corporate stocks or such articles as the corporation may need in its business. Upon this construction of such a power given to a president of a corporation in an Illinois case where it appeared that the president of a private corporation, who held a controlling share of the stock, was given the power to l>orrow money, sold, as the agent of his wife, her Mock t<> the company, and gave her judgment notes payable on demand, for such stock, upon which notes judgment was confessed in favor of the wife, under which judgment all the corporate property was sold, and the proof showed that the president, in the transaction, was seek- ing to break down the corporation, and transfer its property fraudulently to his wife, and there being proof of a conspiracy on the part of the president and secretary to wreck the corpora- tion, the Supreme Court held that the sales of the corporate property under the judgments conferred were properly set aside on the bill of stockholders and creditors filed for that purpose. 1 204. President conspiring against corporation terms on which the corporation could rescind the contract made by him. A corporation sought to recover from defendant the money which had, as alleged, been paid out of its funds by its president, in carrying out a conspiracy between defendant, a holder of its stock, for such stock at par value when it was only worth seventy-live per cent of its par value, and the corporation itself was offering unsubscribed shares of its capital stock at eighty per cent of its par value, on the ground of fraud, etc., the corporation itself at the time being financially embarrassed and its then president acting under threats from the defendant of exposure of his having embezzled funds of the corporation. The Supreme Court of California held that the court below properly sustained a demurrer to the complaint of the corporation upon the ground that it did not state facts sufficient to constitute a cause of action. 3 1 J. W. Butler Paper Co. r. Jeffery, rescission of the contract of sale; and to (1804) 151 111. 588. effect this it was incumbent upon [the Bank of San Luis Oblspo r. corporation] to act with reasonable dili- Wickcrsham, (1898) 99 Cal. 055; 8. gem rniul ret urn or offer to return to de- c., 34 Pac. Rep. 444. The court said, fendants tin- stork received from them arguendo: "The [corporation] is not under tin- contract. It cannot be per - entitled to any relief because of tin- mined to retain the shares of stock alleged fraud practiced upon it in the thus received by it, and at the same sale of the stock without a complete time recover from defendants the 296 FRAUDULENT ACTS OF OFFICERS. [205 205. Promoters of corporations accountable for profits. The cases settle that it is incumbent upon a promoter of a cor- poration, if he wish to sell property of his own to it, to make full and fair disclosure of his interest and position with respect to the property, and to furnish the corporation with a board of directors capable of forming a competent and impartial judgment as to the wisdom of the purchase, and the price to be paid ; and, if he do not, he will not be allowed to retain any profit lie may money paid to them as the purchase price of such stock. This would be contrary to justice, ancl can receive no countenance in a court of equity. There is no averment in the complaint of any offer on the part of [the cor- poration] to return the stock pur- chased and [it] apparently rested satisfied with the contract for more than fifteen years. Counsel for [the corporation] do not dispute the gene- ral proposition that, to entitle one to rescind a contract, he must restore to the other party every thing of value received from him under such con- tract ; but it is claimed by them that the stock was extinguished by the sale, and, therefore, cannot be legally returned, and that all defendant Wickersham can justly claim is to re- ceive in the statement of the accounts demanded in the complaint a credit for the value of such stock at the time of the sale. We do not agree with counsel on this point. The shares of stock were not extinguished by the sale in such sense that they could not be reissued by [the corporation] to any one subsequently subscribing for shares of its capital stock. [The cor- poration's] purchase did not reduce the number of shares which [it] was authorized to issue by its articles of incorporation. The only effect of the transaction was to reduce the amount of the subscribed capital stock leaving the [corporation] free to again issue the same number of shares to any one desiring to subscribe for its capital stock. Cook Stock & S. 282, 314; 1 Moraw. Priv. Corp. 114; State v. Smith, 48 Vt. 266; Williams t>. Manufg. Co., 3 Md. Ch. 451; Railway Frog Co. v. Haven, 101 Mass. 398. The contract of sale was ultra tires, and resulted in an illegal withdrawal of [the corporation's] capital actually paid in, but the stock was not actually extinguished, and so long as there remained that number of shares of its capital stock unsold the [corporation] could at any time have issued a new certificate therefor, and tendered the same to the defendants which would in legal effect have been a tender of the same shares sold by them to [the corporation]." In Coal Co. v. Lots- peich, (Ky.) 20 S. W. Rep. 378, the president of the coal company entered into a contract with one of the stock- holders to deliver to him a quantity of coal, the pay therefor to be applied on the payment of the individual in- debtedness of the president to the stockholder. The stockholder brought an action to enforce the contract and asked to be permitted to apply the price of the coal on the debt. The Kentucky Court of Appeals, in pass- ing upon the question, said: "The pleadings do not present the question of fraud by way of defense, but, nevertheless, in construing a contract made between officers of a corpora- tion, by which a corporate liability is attempted to be created to the one officer or the other, that construction should be placed on terms most favor- 5] FRAUDULENT ACTS OF OFFICERS. 297 have made out of the corporation in such a sale. 1 It appeared in a case reserved from the Superior Court for the adjudica- tion by the Supreme Court of Errors for Connecticut, that the promoter of a corporation had secretly agreed with a patentee to form this corporation to buy his patent, the patentee to pay the promoter half of the price paid for the patents. The promoter induced subscriptions to the stock of the corporation by stating that he was subscribing on equal terms with the rest, and being elected a director, voted for the resolution to buy the patents. The Supreme Court held that the corporation might recover of him (the promoter) his secret profits, and that it was not obliged to rescind the purchase, and so destroy its own reason for being. The secret contract between the promoter and the owner of the patents was held by the court to be void as against public policy. 3 able to the corporation; and particu- fiduciary relation toward the company larly when the great weight of the or corporation whose organization they evidence, and in fact all of it, shows seek to promote is well settled by the that corporate property was being decisions of both [America and Eng held, by reason of this contract, to land]. Lord COTTON prefers to call pay an individual debt of one director them " trustees." Bagnall . Carlton, to the other." 6 Cb. Div. 385. Sir GEORGE JESSKI., 1 Plaquemines Tropical Fruit Co. r. M. R., in a case (Phosphate Co. r. Er- Buck, (N. .1. Eq. 1893) 27 Atl. Rep. langer, 5 Ch. Div.73) said: " Promoters 1094, in which the chancellor reviews stand in a fiduciary relation to that the cases and discusses the subject at company which is their creature." large. In Erlanger r. Phosphate Co., L. R., tf Yale Gas Stove Co. r. Wilcox, App. Cas. 1218, the lord chancellor said (1894) 64 Conn. 101; s. c., 29 Atl. Rep. of promoters: " They stand, in my 303. The court reviewed a number of opinion, undoubtedly in a fiduciary cases to which the defendant's counsel position. They have in their hands had cited it, and then discussed the the creation and molding of the corn- relations of promoters to the corpora- pany. They have the power of defin- tions which they helped to form, us ing how, and when, and in what shape, follows: "A 'promoter' has been de- and under what supervision, it shall fined to be a person who organizes a start into existence, and begin to act corporation. It is said to be not a as a trading corporation. If they are legal, but a business term, ' usefully doing all this in order that the com summed up in a single word, a num- pany may, as soon as it starts into life, tier of business operations familiar to become, through its managing direct- the commercial world by which a com- ors, the purchasers of the property of pany is generally brought into exist- themselves (the promoters) it is, in my ence.'" Bo WEN, J., in Printing Co. r. opinion, incumbent upon tho pro- Green. 28 Wkly. Rep. (Q. B. Div. 1880) moters to take care that, in forming 351, 352. That such persons occupy a the company, they provide it with an 38 298 FRAUDULENT ACTS OF OFFICERS. [ 206 206. Promoters obtaining stock of corporation for nothing. In a case in the federal court it appeared that two individuals, as promoters of a projected corporation, entered into an agreement with the owners of certain patents and this pro- posed corporation, by which a certain number of shares were to executive; that is to say, with a board of directors, who shall both be aware that the property which they are asked to buy is the property of the pro- moters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. I do not say that the owner of property may not promote and form a joint-stock company and then sell his property to it; but I do say that if he does, he is bound to take care that he sell it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the trans- action, and who are not left under the belief that the property belongs, not to the promoter, but to some other per- son." Continuing, "Lord O'HAGAN, referring to the same subject, ex- pressed a similar opinion in even more emphatic language, declaring that, while an original purchase might be legitimate, and not less so because the object of the purchaser was to sell it again, and to sell it by forming a com- pany which might afford them a profit on the transaction, yet ' the privilege given them for promoting such a com- pany for such an object involved ob- jections of a very serious kind. It required, in its exercise, the utmost good faith, the completest truthful- ness and a careful regard to the pro- tection of the future stockholders.'" The test, therefore, of the validity of such transactions is that it must, in all its parts, be open and fair, so that the promoters shall not, in fact, substan- tially act both as vendors and vendees, and in the latter capacity approve a transaction suggested by them in the former. Poss v. Harbottle, 2 Hare, 461, 468; McElhenny's Appeal, 61 Pa. St. 188; Simons . Vulcan Oil & Mining Co., 61 Pa. St. 202; Densmore Oil Co. t>. Densmore, 64 Pa. St. 43; Pittsburg Mining Co. v. Spooner, 74 Wis. 307; s. c., 42 N. W. Rep. 259; South Joplin Land Co. v. Case, 104 Mo. 572; s. c., 16 S. W. Rep. 390 ; In re British Seamless Paper Box Co., 17 Ch. Div. 467; Sewage Co. v. Hartmont, 5 Ch. Div. 394. In the last case the distinc- tive feature was that the vendors paid the commission to the trustees, who received the property on behalf of the company. They were compelled to pay it to the company. In Hichens v. Congreve, 1 Russ. & M. 150 (on ap- peal, 4 Russ. 562), three promoters induced their company to buy a mine for 25,000, of which they received from the vendor, and divided among themselves, 15,000. This they were compelled to account for to the company. Similar cases are Beck . Kantorowicz, 3 Kay & J. 230; Printing Co. v. Green, 28 Wkly. Rep. (Q. B. Div. 1880) 351; Mining Co. i\ Grant, 11 Ch. Div. 918; Bagnall v. Carlton, 6 Ch. Div. 385; Kent t>. Brickmaking Co., 17 Law T. (N. S.) 77; Water Co. v. Flash, 97 Cal. 610; B.C., 32 Pac. Rep. 600. See, also, Mallory v. Mallory-Wheeler Co., 61 Conn. 135; s. c., 23 Atl. Rep. 708, and the recent English case: In re North Australian Territory Co., Archer's Case, (1892) 1 Ch. 322. See, also, Ore Co. v. Bird, 33 Ch. Div. 85 ; Cover's Case, 1 Ch. Div. 182; Atwool c. Merryweather, 37 L. J. Ch. 35; Sewage Co. v. Hartmont, 5 Ch. Div. 395; Pitts- burg Mining Co. r. Spooner, 74 Wis. 206] FRAUDULENT ACTS OF OFFICERS. -tied to these owners for the patents. They then offered the public an option to take stock in the corporation, disclosing the purchase of the patents, and that a portion of the stock was to be issued to the former owners in part payment, but not that thry were to have stock on different terms or conditions. They were elected president and treasurer of the corporation as was further agreed between them and the owners of the patents. They succeeded in placing a large amount of the stock at seven dollars per share, obtaining their own stock for nothing. In this action against them it was held that they occupied a fiduciary rela- tion to the other shareholders, and were liable to account in one of several modes for the benefit of the shareholders. 1 As to the measure of damages, the court said : " I think the company had a right to elect, (1) whether they would have the shares trans- ferred back to them ; or (2) if the shares had been sold, that these defendants should turn over the entire profit made by the sale; or (3) that the company may say, 'Although you have derived no profit by selling the shares, yet you deprived us of placing them with other persons, and you must, therefore, pay us the sum we have lost by reason of our being deprived of the right of placing these shares with other persons.' " 8 807; s. c., 42 N. W. Rep. 259; 24 any fraudulent intent, or that the price Am, & Eng. Corp. Cas. 1 ; In re paid for the patents was fair and rea- Cape Breton Co., 26 Ch. Div. 221; sonablc, cannot retrieve these defend- 8. c., on appeal, 29 Ch. Div. 795; Lady- ants. The law forbids them, from well Mining Co. t>. Brookes, 34 Ch. Div. their position, to secretly derive any 898; s. c., on appeal, 35 Ch. Div. 400. benefit over other stockholders, and 1 Chandler, Receiver, r. Bacon, (1887) makes them accountable to the com- 80 Fed. Rep. 588; Browne v. National pany for any profit so derived." Citing Color Printing Co., ibid. COLT, J., Bagnall . Carltou, 6 Ch. Div. 371; said: " The defendants could not law- Whaley, etc., Co. v. Green, 5 Q. B. fully [take their shares of stock with- Div. 109; Sombrero Phosphate Co. . out consideration, while other stock- Erlanger, 5 Ch. Div. 73; Emma Sil holders paid seven dollars per share], ver Mining Co. t>. Grant, 11 Ch. Div. As promoters of the new company, 918; Densmore Oil Co. r. Deusmore, they occupied a fiduciary relation 64 Pa. St. 48; McElhenny's Appeal, 61 towards it similar to that of agent to Pa. St. 188; Simons r. Vulcan Oil. etc., a principal, and they had no right in Co., 61 Pa. St. 202; Emery c. Parrot t. these negotiations to derive any ad vant- 107 Mass. 95; Getty v. Devlin, 5-1 N. age over other stockholders without a V. 408. full and fair disclosure of tin- trans- * Chandler. Receiver, r. Bacon. (1887) actions, and any secret profits so made 80 Fed. Rep. 638; Browne r. National they must refund to the company. Color Printing Co., ibid.; citing Carl- That this may have been done without ing's Case, 1 Ch. Div. 115, 126. 1'J?: 300 FRAUDULENT ACTS OF OFFICERS. [ 207 207. Jurisdiction of equity courts as to breaches of trust, etc. The United States Supreme Court long since accepted as settled law, both in England and the United States, that courts of equity in both countries have a jurisdiction over corporations, at the instance of one or more of the stockholders, to apply pre- ventive remedies by injunction, to restrain those who administer them from doing acts which would amount to a violation of char- ters, or to prevent any misapplication of their capitals in profits, which might result in lessening the dividends of stockholders or the value of their shares, as either may be protected by the fran- chises of a corporation, if the acts intended to be done create whatever the law denominated a breach of trust. And the juris- diction extends to inquire into and to enjoin, as the case may require that to be done, any proceedings by individuals, in what- ever character they may profess to act, if franchise, or the denial of a right growing out of it, is involved, for which there is not an adequate remedy at law. 1 In a case where the directors recog- nized their duty to resist the collection of a state tax upon the corporation (a bank), their refusal to do so was held to be an act contrary to the obligation which the charter imposed upon them to protect what they conscientiously believed to be the franchise of the bank, and was a breach of trust ; that it amounted to an illegal application of the profits due to the stockholders of the bank, into which a court of equity will inquire to prevent its being made. 2 Officers and directors of a corporation, being trus- tees of the stockholders, in securing to themselves an advantage not common to all the stockholders, a,s, for instance, executing a mortgage to themselves, to secure indebtedness of the corporation to themselves, would be guilty of an unauthorized act, plainly a McKay's Case, 2 Ch. Div. 1; Flash, 97 Cal. 610; s. c., 32 Pac. Rep. De Ruvigne's Case, 5 Ch. Div. 306; 600. Nant-y-glo, etc., Co. v. Grave, 12 Ch. ' Dodge v. "Woolsey, (1855) 18 How. Div. 738. Contracts with promoters, 331; citing Cunliffe r. Manchester & see Bash v. Culver Gold Mining Co., 7 Bolton Canal Co., 2 Russ. & Mylne Wash. 122; 8. c. ( 34 Pac. Rep. 462; Ch. 480, n.; Ware v. Grand Junction Weatherford, M. W. & N. W. R. Co. Water Co., 2 Russ. & Mylne, 470- D. Granger, (Tex. Civ. App.) 23 S. W. Bagshaw v. Eastern Union Railway Rep. 425; Winters v. Hub Mining Co., Co., 7 Hare Ch. 114; Ang. & Ames on 57 Fed. Rep. 287; Burbank . Dennis, Corp. (4th ed.) 424. (Cal. 1894) 35 Pac. Rep. 444; Cornell v. 8 Dodge . Woolsey, (1855) 18 How. Corbin, 64 Cal. 197: s. c., 30 Pac. Rep. 331. 629; Ex-Mission Land & Water Co. v. 207] FBAUDCLENT ACTS OF OFFICERS. 80] breacli of trust, for which a stockholder would be entitled to a remedy in a court of chancery. 1 Contracts made by the direct- ors of a railroad corporation for the construction of the road, for running cars of another corporation upon its road, for mining its coal lands and purchasing the coal so mined, which allow exorbi- tant prices for work done and material furnished, that are advan- tageous to the other contracting parties and injurious to the railroad corporation, in which the directors, or a controlling majority of them, are interested adversely to the corporation, in short, contracts made with themselves, are frauds such as courts of equity will relieve against in a proper case. 2 For such acts the remedy would be as follows : Parties who make such con- tracts and receive the pecuniary benefit of them can at law be made responsible in damages, or held in equity to compensation for the loss suffered. In a proper suit such contracts may be adjudged void, and then an accounting ordered, on the basis of a fair com- pensation for what may have been done in the way of construc- tion, building, opening mines, furnishing coal, etc., and what had been received for such work and materials. But this can be done only in an action brought by bona fide stockholders who may have taken no part in and had no interest in the fraudulent con- tracts, in case the corporation be disabled to complain. 3 The directors of a joint-stock corporation, who willfully abuse their trust or misapply the funds of the company, by which a loss is sustained, are personally liable as trustees to make good that loss ; and they are also liable if they suffer the corporate funds to be lost or wasted by gross negligence and inattention to the duties of their trust. 4 And a court of equity has jurisdiction to enter- tain a suit to enforce the proper remedy in such a case. If the corporation, or the then present directors of the corporations and the parties who have made themselves answerable for the loss, refuse to bring such a suit, then an action will lie in the name of a stockholder in his own behalf or in behalf of all. 8 The chancellor 1 Koehler . Black River Falls Iron United States r. Union Pacific Rail- Co., (1862) 2 Black, 715; citing Ang. road Co., (1878) 98 U. S. 569, 609, 610. & Ames on Corp. (ed. 1861) 812; Ibid. Tin Charitable Corporation t>. Button, 4 Robinson r. Smith, (1882) 8 Paige, 2 Atk. 404; Robinson t>. Smith, 3 222, a case involving the loss of corpo- Paige, 220; Hodges r. New England rate funds by a speculation in stocks Screw Co., 1 R I. 812; York & North of other corporations by the directors. Midland Ry. Co. . Hudson, 19 Eng. Ibid. L. & E. 861. 302 FRAUDULENT ACTS OF OFFICERS. [ 207 held in this case that independent of the Revised Statutes of New York the Court of Chancery had jurisdiction, so far as the rights of the individual corporators were concerned, to call the directors to account, and to order them to make suits of action for losses aris- ing from a fraudulent breach of trust. 1 And in such suits the corporation is a necessary party. 2 Directors, like any other trustees, may be restrained from the performance- of unauthorized acts, or to rescind and cancel them when performed. And the stockholders, occupying the relation of cestuis que triist, may invoke the aid of equity to thus protect their interests. 8 Officers of a corporation may be compelled by a court of equity to account for any breach of trust, but the jurisdiction for this purpose is over the officers personally. 4 Where directors of a corpora- tion have so mismanaged its affairs as to be fraudulent, a bill may be maintained against them personally by a stockholder. The stockholder may, in such case, interpose for the protection of the corporation. 5 In a stockholder's action brought by himself on behalf of a corporation against its officers for misapplication and misappropriation of its funds and charging a violation of trust on their part, the right of action in the corporation must be alleged, just as if the action had been brought by the corporation. And he cannot join in the action causes of action accruing to 1 Ibid. See, also, Scott r. Depeyster, unfaithful trustee has been constantly 1 Edw. Ch. 513; Cumberland Coal Co. brought before it, and made both to v. Sherman, 30 Barb. 553; Cross v. discover the fund belonging to the Sackett, 16 How. Pr. 63. trust and to account for its manage- * Robinson v. Smith, (1832) 3 Paige, meut and misapplication. If fraud in 222; Cunningham v. Pell, (1836) 5 the management of the fund is charged Paige, 607. in the bill, by one interested in the 3 Chetlain v. Republic Life Ins. Co., trust estate, and who has been injured (1877) 86 111. 220. in consequence of such fraud, there is 4 Neall. Hill, 16 Cal. 145. no doubt of the jurisdiction of the 5 Watts' Appeal, (1875) 78 Pa. St. court. If, superadded to the matters 370. In Bank of St. Marys v. St. of trust and fraud, the bill, as in this John, Powers & Co., (1854) 25 Ala. case, seeksadiscoveryandaccount.it 566, 609, an action to enforce the lia- will embrace nearly every ground on bility of directors of a bank for un- which the original jurisdiction of the faithful management of its affairs, the Chancery Court is said to rest. In Supreme Court of Alabama, as to there such case it is immaterial whether a being no equity in the bill, speaking court of law can afford to the corn- through LIGON, J., said: " It may be plainant partial or full relief, in the remarked that strict trusts are admit- matter complained of; it cannot hinder ted to be open at all times to the ex- the aggrieved party from resorting to umination of a court of equity, and an a court of equity for redress." FKAUDULENT ACTS OF OFFICERS. himself personally with causes of action belonging to the corporation. 1 ?; 208. When a court of equity is not open to the com- plaints of stockholders. A company was organized upon property, and not cash, as its capital, bonds and stock being issued to the organizers and owners of the land, their respective hold- ings being in proportion to their rights in the pro|>erty. The stockholders, and the holders of the bonds as well, tiled a bill in equity complaining of the management of the company's affairs by its officers. The court held that stockholders, after voting for and approving of an appropriation of corporate funds to a purpose fairly within the scope of the corporate powers, will not, in the absence of fraud, be heard to complain thereof in a court of equity. Neither can they proceed in chancery to protect their equitable rights, unless the corporation has been dissolved, or has itself been prevented from proceeding by the misconduct of its officers. 2 GOFF, Circuit Judge, in his opinion, states the com- plaints of these stockholders and declares as to the rights of stock- holders as follows : " As stockholders the complainants are inter- ested in the proper management of the company ; in the pay- ment of all its liabilities ; in the sale of its real estate, and the distribution of its assets. They charge that the funds of the company have been wasted, and its assets misappropriated and diverted to purposes wholly foreign to those for which it was organized, to their loss and injury. I do not find that these charges are sustained. The appropriations, donations and sub- > 806 209. Remedy in equity. A .*t< irk holder may bring a suit in equity where a president of a corporation which has been steadily earning profits has received the same and not accounted for them, and the directors are under his influence and control ami mere instruments to do his bidding, and have surrendered the entire control of the affairs of the corporation to him, for such relief business matters of a corporation can only be controlled, or its charter privileges taken from it, by the proper and usual proceedings in such cases provided in the courts of law. Chancellor KENT," said the court, "in .-i leading case on this subject, said : ' I admit that the persons who from time to time exercise the cor- porate powers may, in their character of trustees, be accountable to this court for a fraudulent breach of trust, and to this plain and ordinary head of equity the jurisdiction of this court over corporations ought to be con- fined.' Attorney -General r. Utica Ins. Co., 2 Johns. Ch. 871. ' It cannot be concealed,' said the chancellor in Bay- less v. Orne. 1 Freem. Ch. (Miss.) 173, ' that to decree the prayer of complain- ant's bill would be to decree a dissolu- tion of the corporation. In this respect it differs materially from bills which h.ive frequently been entertained by courts of equity at the instance of stockholders against the directors of a corporate company to compel them to account for the improper use of funds, or to restrain them from violating their trust. That a court of equity, as such, has not jurisdiction or power over cor- porate bodies for the purpose of re- straining their operations, or winding up their concerns, is. I think, well settled by various authorities'" See on this subject Verplanck r. Insurance Co., 1 Edw. Ch. 84; Attorney -General v. Bank of Niagara, 1 Hopk. Ch. 354; Neall v. Hill, 16 Cal. 145. In Tread- well r. Salisbury Manufg. Co., 7 Gray, 893, it is said : "Indeed, it is too well settled to admit of question that a 39 court of chancery has no peculiar jurisdiction over corporations to re- strain them in the exercise of their powers, or control their action, or pre- vent them from violating their charter in cases where there is no fraud or breach of trust alleged as the founda- tion of the claim for equitable relief. Their rights and duties arc regulated and governed by the common law, which, in most cases, furnishes ample remedies for any excess or abuse of cor- porate powers and privileges, which may injuriously affect either public or private rights. It is only when there is no plain and adequate remedy at law, and a case is presented which entitles a party to equitable relief, under some general head of chancery jurisdiction, that a bill in equity can be maintained against a corporation. And this rule is applicable to stockhold- ers as well as to other persons." See Ang. & A. Corp. 812; Grant on Corp. 71, 271; Mozley r. Alston, 1 Phil. Ch. 790; Hodges r. Screw Co., 1 R. I. 350; Baker r. Railroad Co., 84 La. Ann. 754. The circuit judge resumed: " The rule is also well established that a corporation claiming redress for wrongs must proceed through its regularly appointed agents. It is only when the company has been dis- solved, or is prevented from proceed- ing by the misconduct of its officers, that the stockholders may themselves proceed in chancery for the protection of their equitable rights. If tin- directors refuse to act, or arc thorn selves guilty of a wrong that the ma- jority of the stockholders refuse to correct, equity will interfere at the 306 FRAUDULENT ACTS OF OFFICERS. [ as he may be entitled to. 1 And in addition to these facts, should it appear that a number of the directors, especially if includ- ing a relative of the president, are not honafide stockholders, but made such merely by a voluntary transfer of stock to them by him to qualify them as directors, it may not be alleged that the directors have been requested to bring suit and refused. 2 One having a claim for a loss against a mutual insurance corporation is entitled to bring his bill in equity against the directors of such a corporation who, having funds belonging to it in their hands to pay the claim, have neglected and refused to pay it, and fraudu- lently applied the funds to other purposes. 3 The managers of a saving fund are liable in equity as trustees for the proper man- agement of the fund. 4 The proper remedy for the defrauded depositors of a saving fund is a bill in equity against the directors of such an institution ; and these directors, although ignorant of the fact of a fraud in its organization, will be liable to the deposit- ors for the proper care and management of the deposits intrusted to its safe-keeping. 5 The directors of a saving fund will be held liable to the depositors for maladministration of their office, and suits may be brought by the depositors. 6 But directors who did suit of a stockholder. Moraw. Priv. Hotchkiss, 25 Conn. 171; Wright r. Corp. 239, 381, 386; Moore v. Oroville Gold, Silver & Copper Min- Schoppert, 22 W. Va. 282, 291; Hawes ing Co., 40 Cal. 20; Allen r. Curtis, 26 v. Oakland, 104 U. S. 450, 460; Foss c. Conn. 456. Harbottle, 2 Hare, 493. In this case 3 Lyman v. Bonney, (1869) 101 Mass. the complainants allege that they con- 562. trol a majority of the shares of stock 4 Leffman c. Flanigan, (1863) 5 Phil. of the defendant. If that is so they 155. will have no trouble in calling a stock s Ibid. holders' meeting of the company and 6 Maisch v. Saving Fund, (1862), 5 therein so voting their stock as to cor- Phil. 30. SHARSWOOD, P. J., in his rect the wrongs of which they now opinion, said: "We are by no means complain, and fully protect their in- announcing any new doctrine when terests in the future." we say that the directors of corpora- 1 Rogers r. La Fayette Agricultural tious are responsible for gross negli- Works, (1875) 52 Ind. 296. gence, as well as fraud, in the man- 2 Ibid. ; citing March v. Eastern R. R. agement of the interest intrusted to Co., 40 N. H. 548; Robinson r. Smith, them. It has received the indorse- 3 Paige, 222; Dodge p. Woolsey, 18 inent of courts of the highest character How. 331; Brewer t. Boston Theatre, for learning. Robinson v. Smith. 3 104 Mass. 378; Hodges n. New Eng- Paige, 222; Scott v. Depeyster, 1 land Screw Co., 1 R. 1.312; Goodinr. Edw. Ch. 513; Allen r. Curtis, 2 Cincinnati, etc., Co., 18 Ohio St. 169; Conn. 456. No one doubts the per- Peabody c. Flint, 6 Allen, 52; Sears r. sonal liability of the president, treas- 209] FRAl'DULENT ACTS OF OFFICERS. 307 not participate, and never took their seats in the board, and against whom there he no allegation of knowledge of the fraud, nr-cl not In- held liable. 1 A president of a corporation may be called upon hy bill in equity to account for and make restitution of any part of the property of the corporation confided to his care where he has improperly applied it to his own use. 8 Where by a contract with its president a corporation may deliver to him, its unissued stock, with power of sale, as security for money loaned the corporation by him, the contract will be enforced if shown to ' have been made for the benefit of the corporation, and to be just and fair. 8 An action by a stockholder to set urer and other officers who are paid for their services. Why should there exist any doubt as to directors who are ulso officers? The difference is only in the measure and degree of their respective responsibility. It would be monstrous if a director could look on and see a cashier or treasurer embezzling the funds of a corporation and not be responsible if he gave no information, and took no ine.-i-.ures to prevent it. Equally mon- strous would it be to say that the directors of a saving fund, insurance office or bank should allow their names to go forth to the public in connection with representations of the nature and value of the assets which, if the ordi- nary means of examination and super- vision hiid been resorted to, they would have easily discovered to be false. If they have such unbounded faith in the faithfulness and integrity of their officers as to trust the whole affairs of the corporation to their management, without any attention on their part, they must accept the alternative of responsibility for their conduct. It is important that the community at large should know this, and that gentlemen of wealth and respectability should be careful how they suffer their names to be held forth as the trustees or man- agers of institutions to which they have not the time or inclination to give their personal attention." 'Maisch t>. Saving Fund, (1862), 5 Phil. 30. In Flagler Engraving Ma- chine Co. P. Flagler, (1884) 19 Fed. Rep. 468, it appeared that the organ- izers of the joint stock company put in as a part of the capital stock cer- tain patent rights and by fraudulent puffing induced others to purchase the stock at fictitious prices. It was held that whether the purchasers could set aside the sales or not, they were not entitled to gain control of the com- pany and pursue their remedy against the fraudulent directors in the name of the company. 'Combination Trust Co. t>. Weed, 3 Fed. Rep. 24. Ibid. In Pneumatic Gas Co. v. Berry, (1885) 113 U. 8. 822; 8. c., 5 Sup. Ct. Rep. 525, where the objec- tion was made to a contract entered into with a director of the corporation seven years after its execution and had been repeatedly ratified, the Supreme Court of the United States said: "A court of equity does not listen with much satisfaction to the complaints of a company that transactions were ille- gal which had its approval, which were essential to its protection, and other benefits of which it has fully received. Complaints that its own directors ex- ceeded their authority come with ill grace when the acts complained of alone preserved its existence." In Jesup r. Illinois Central R Co., (1890) 308 FRAUDULENT ACTS OF OFFICERS. [ 209 aside a resolution of a board of trustees of a corporation fix- ing the salaries and compensation to be received by them respectively as secretary, treasurer and vice-president of the cor- poration, and to compel the restoration of the money paid them, although it is not binding upon the corporation and may at the election of the corporation be set aside, cannot be maintained unless he shows that the corporation ought to exercise its rights to avoid the resolution or contract made by its trustees in which they were personally interested. 1 The presumption does not arise in such an action that the trustees acted dishonestly, which must be overcome on their part by affirmative evidence, as it would in case the corporation had sought to set aside the contract. 2 A stockholder has a right of action for losses sustained by him by 43 Fed. Rep. 483, it was held that sea- covery against them personally, see sonable resistance could not be predi- Stebbins v. Cowles, (1835) 10 Conn. 399. cated of a case of a merely voidable ! MacNaughton . Osgood, (1886) 41 contract, where the party complaining Hun, 109. had not simply been silent for twenty 2 Ibid. As to the rule which would years, but with knowledge of the facts, govern in case the corporation itself or with free opportunity to ascertain sought to set aside such a resolution, them, has enjoyed the fruits of the it was said by the court: "Thecorpo- contracts, and treated it as valid. Mr. ration may avoid such a contract with Justice HARLAN said generally: "The its trustees, but cannot do so except rule is a wholesome one that requires upon equitable terms, and must re- the court, in cases of merely voidable store to him what is received from contracts, to withhold relief from those him. Duncomb . N. Y., H. & N. who, with knowledge of the facts, or R. R. Co.-, 84 N. Y. 190. Hence the with full opportunity to ascertain the corporation, upon rescinding, ought to facts, unreasonably postpone applica- pay the reasonable value of the serv- tion for relief. A contract not wholly ices of these officers, rendered in a de- invalid when executed, nor prohibited partment of labor beneficial to it, and by law, as relating to some illegal outside of the duty of direction which transaction, and which is, therefore, the office of director implies. See voidable only, may become, by the acts Metropolitan Elevated Railway Co. of the parties or by long acquiescence, . Manhattan Railway Co., 14 Abb. binding upon them, especially where N. C. at pages 258, 259, where the the nature of the property which is case of Jackson v. New York Central the subject of the contract is such that Railroad Co., 2 Sup. Ct. (T. & C.) its value may be affected by its'rela- 653; affirmed, 58 N. Y. 623, is cona- tions to other property of like kind, mented upon, and other cases are cited and by the changing business of the in which the right of a director to re- country." As to the right of one cover for such services is shown to wishing to fix liability upon directors rest solely upon quantum meruit, and of a corporation on account of fraudu- such, we have no doubt, is the law." lent transactions by which he had That it must be a clear case demand- been endangered to file a bill for dis- ing its interference before a court will 209] FRAUDULENT ACTS OF OFFICERS. 309 reason of the fraudulent acts and a misapplication or waste of the corporate funds and property by an officer of the corporation. 1 But before bringing, in his own name, an action against an officer of a corporation to recover damages for a fraudulent misappro- priation and conversion by such officer of the corporate earnings and funds, lie must first apply to the corporation to bring the action and the latter refuse to bring it. In case the corporation do refuse to bring the action, then the stockholder may bring it in behalf of himself and other stockholders, making the corpora- tion a party defendant, alleging its refusal in his complaint and proving it. 2 And an action in his own name, without making the corporation a party defendant, to recover the difference between the actual loss and depreciation will not be authorized by the fact that the wrongful acts of the officer have depreciated the market value of the capital stock held by the stockholder to an extent greater than its share of the actual loss sustained. 8 Where the officers and trustees of a corporation alien and trans- fer the whole property of a corporation to one to enable him to appropriate it to his own use and to render valueless the stock of the corporation to effect a dissolution of the corporation without due process of law, and also to oust one who has been chosen to have the " management of the affairs of " the corporation for u stated time and for .the purpose of defrauding its creditors, an action will lie to set aside such alienation as fraudulent. 4 And such manager would be a proper party to bring such an action under the New York Code of Civil Procedure, sections 1781, 1782, which provide that such an action may be brought by a creditor of the corporation, or by a trustee, director, manager, or interfere with the management of a Pr. 293; Mead v. Mali, 15 How. Pr. corporation, see Barnes r. Brown, 80 847; Crook v. Jewett, 12 How. Pr. 19; N. Y. 527; Chautauqua County Bank Cazcaux v. Mali, 25 Barb. 578; Abbot Risley, 19 N. Y. 881; Hawes v. Oak- r. Am. H. R. Co., 38 Barb. 578; Howe land, 104 U. 8. 460. t>. Deuel, 48 Barb. 505; Gardiner v. 1 Greaves v. Gouge, (1877) 69 N. Pollard, 10 Bosw. 675; Gray t>. New Y. 154. As to a stockholder's having York & Virginia St. Ship Co.. 5 T. & a remedy for losses produced by the C. 224. fraud, culpable neglect of duty or a ' Greaves r. Gouge, (1877) 69 N. Y. violation of law, on the part of an 154. officer of the corporation, see Bissell t>. * Ibid. Michigan Southern & N. I. R. R. Co., Beecher r. Schieffelin, (Spl. Term 22 N. Y. 275; Butts *. Wood, 87 N. Sup. ft. 1883) 4 N. Y. Civ. Pro. Rep. Y. 817; Cross . Sackett, 6 Abb. Pr. 280. 247, 265; House v. Cooper, 10 iiow. 310 FRAUDULENT ACTS OF OFFICERS. [ 209 other officer of the corporation having a general superintendency of its affairs. 1 A treasurer of a corporation failing to pay over to it money which he has collected whereby the corporation is compelled to borrow money and to pay a rate of interest greater than six per cent in an action against him for the recovery of that money, would not be liable in equity to pay on the sums he had withheld more than six per cent interest should the bill not seek to recover any profits he had made. 2 Where stock of a cor- poration has been fraudulently issued by one of its officers and transferred to a third person as collateral security for a debt, it is in the power of a court of equity, upon a bill tiled for the pur- pose by a stockholder, to order the certificates of such stock returned and canceled. 8 And in such a bill the corporation is not a necessary party. 4 A treasurer of a corporation who has sold for its benefit a bond issued by it, in case he is unable or refuses to disclose the exact amount for which he sold it, will be chargeable in equity for at least the full market value of the bond at the time of the sale. 5 In this case the treasurer of the corporation had purchased on his own account a quantity of coal, when it was not his duty as treasurer to purchase it, and with no intention of selling it to the corporation. He afterwards sold it to the corporation at its then fair market value, which was more than it cost him. It was held that he was not chargeable in equity for the difference in price between what he paid for it and sold it for to the corporation. 6 The Supreme Court of New York, in a case where two of the directors of a corporation acquired title to patents for use in the business in their own name, and transferred them to another corporation, which in turn assigned them to one of these directors as trustee, held that a decree that this director should assign all the interest which he held individually and as trustee in the patents to the receiver appointed in the action, and that both of these directors should account for all the profits they had made in the transactions was proper. 7 An action at law can- J Ibid. As to the rules governing 'Campbell f. Morgan, (1879) 4 the bringing of suits to compel the Bradw. (111.) 100. ministerial officers of a private cor- 4 Ibid. poration to account for a breach of 6 Parker t. Nickerson. (1884) 137 official duty or misapplication of cor- Mass. 487. porate funds, see Hyde Park Gas Co. * Ibid. v. Kerber (1879) 5 Bradw. (111.) 132. ' Averill v. Barber, (1889) 53 Hun, * Parker P. Nickerson, (1884) 137 636; s. c., 6 N. Y. Supp. 255. Mass. 487. 209] FRAUDULENT ACTS OF OFFICERS. not be maintained by a stockholder of a corporation against the officers mid directors of the corporation to recover damages for willful wasto of the assets, by reason of which the value of his shares of stock may have been decreased, and he may have become liable to an assessment upon his shares. 11 i> mm-dy lies in a court of equity.' It should appear very clearly that the loss of a stockholder in a diminution of the value of his stock was occasioned by the gross negligence or willful misconduct of directors to charge the officers of a corporation with such loss whicfh he may allege had been caused by their mismanagement* While accountable in equity as trustees, in case the officers of a 1 Hirsh v. Jones, (1893)56 Fed. Rep. " The general rule of law Is, that an 187. McCoRMifK, Circuit Judge, said: action at law must be brought by the ' The authorities are uniform in sup- person having the title or right to the port of the proposition that where the damages which are sought to be re cause of action affects all the interests covered for the injury. Hence the of the corporation, as such, the cor- }\' ,/n/ ltl their air<-ncy is owed to the stock, the case being referred to the bank, which, under the charter, is the Supremo Court of Connecticut on a sole representative of the stockholders demurrer, the court su-tained the de- and the legal protector and defender murrer, and in their opinion said: of their property. Nor is any other 312 FRAUDULENT ACTS OF OFFICERS. [ 210 corporation have gone out of office, the remedy against them for an appropriation of corporate funds to their own use is at law and not in equity unless discovery is sought. 1 210. Malfeasance of the president of a corporation a stockholder's remedy. In a federal court a stockholder's bill in equity charged that the president of the corporation had taken possession and control of the moneys of the corporation, deposit- ing them in bank in his own name, in defiance of the express provision of the by-laws, and drawing them out on his own check, in his own discretion, for his own purposes ; that espe- cially he had in his own hands the sum of $25,660, money of the corporation, which he had converted to his own use, and for which he failed and refused to account ; that by this action, and the further misuse of the corporation's funds by lending them in his own name, this stockholder had failed to receive his proper share of the funds of the company in the shape of a dividend on his stock ; that all his efforts to ascertain the truth about this mis- use of funds by the president, on examination of the books, or in calling the president to an account therefor, had been baffled and defeated by the direct and active effort of the president himself, aided by the other officers, going so far as to receive and put a motion for investigation made at a stockholders' meeting, and that there was a definite purpose so to use the affairs of the com- pany as to depress the stock so as to compel this stockholder to sell out at a loss. There was a general demurrer to the bill. The United States Circuit Court overruled the demurrer and sus- tained the bill. 2 protector or defender necessary until ' Bay City Bridge Co. v. Van Etten, the bank shall neglect its duty in re- 36 Mich. 210. fusing to call the directors to account; * Ranger t. Champion Cotton-Press in which event, upon a case properly Co., (1892) 52 Fed. Rep. 611. SIMON- stated and with proper parties before TON, J., said, referring to the demurrer the court, a court of equity may grant and its admissions: "Here we have relief according to the existing ex- the admission that a complaining igency." Citing Smith v. Kurd, 12 stockholder in a trading corporation Met. 371; Bishop r. Houghton, 1 E. has been defrauded and deprived of D. Smith, 566; Aug. & Ames on Corp. his share of its property applicable to 312; Hodsdon v. Copeland, 16 Me. dividends, by the action of the presi- 314; Hersey r. Veazie, 24 Me. 9. See, dent in misusing for his own purposes also, Ruby r. Abyssinian Society, 15 the moneys of the company. That Me. 306. every effort made by him to ascertain 11] FRAUDULENT ACTS OF OFFICEBS. 313 211. When a demand upon directors to bring suit is not required. Certain stockholders of an Indiana corporation brought an action against the corporation and the officers of the same eharirin^ a conspiracy between the hitter, they controlling a majority of the .-tock, by which in electing and continuing cer- the facts connected with this charge power, or mi inti rfcrence. with vested have lu-cn thwarted liy tin- positive ri-htv An<>'. lin < l a >.s of cases U where :iml distinct refusal, at flu- htinds of the rights and interests of a corpora- the president, made at an annual lion as a whole arc threatened by the meeting of the stockholders, to give action of a third party, an outsider, any information or explanation what- and the corporate* authorities, through ever. This admission is made. It is inadvertence, negligence or willful- denied that a court of equity can give ness, will not move in their defense." any relief. Strong, indeed, must be In such cases, following Dodtat-d a cause of action against the defendants. One of the main contentions of the defendants was that there should have been a demand ujxjn them to bring the action and an allegation in the complaint that it had been made. The court held this was particularly a case in which such a demand upon the directors was not required. 1 the name of the corporation, a suit against [the president] involving the grave charges of this suit. Ta/ewell Co. /. Fanners' L. & T. Co., 12 I-Yd. Rep. 752; Heath r. Kailway Co., 8 Blatchf. 847." 1 Wayne Pike Company v. Ham- mons, (1891) 129 Ind. 368. Arguendo, it was said: "Conceding that the cases are numerous in which such demand is necessary, we do not think this case belongs to that class. In this case something more than a mere account- ing is sought, namely, the appointment of a receiver to take charge of the cor- porate property. The parties out of whose hands it is proposed to take the management of the affairs of the cor- poration, and who are called upon to account for a misappropriation and conversion of the corporation assets, constitute a majority of the directors. It would not be reasonable to require those who are charged with a conver- sion of the assets to bring suit in the name of the corporation against them- selves, and to furnish the proof to sustain the charge, and at the same time ask the court to take the prop- erty from their charge on account of their misconduct. Such a suit would be a farce, and it would be beyond reason to refuse the a p pel Ires relief because they did not demand that such a proceeding be had before they com- menced their suit. Cook on Stocks & Stockholders, section 741, in treating this subject, says: 'There an* occa- sions when the allegation that the stockholder has requested tin- directors to bring suit, and they have refused. may be omitted bince the request itM-l! is not required. This occurs when the corporate management is under the control of the guilty parties. No re- que-t need then be made or alleged, since the guilty parties would not com- ply with the request; and even if they did the court would not alldw them to conduet the suit against themselves.' The author cites many authorities which fully support the text. Mr. Waterman, in his work on Corpora- tions, vol. 1. page 467, says: 'The corporation may call its officers to account if they willfully abuse their trust or misapply the funds of the company; and if it refuses to sue, or is still under the control of those who must be made defendants in the suit, the stockholders who are the real par- ties in interest may file a bill in their own names, making the corporation a party defendant, or part of them may file a bill in behalf of themselves and all others standing in the same rela- tion. Where a majority of the stock of a corporation is held by one family, who vote away the corporation profits for salaries, a court of equity will remedy the fraud. Cook Stock & Stockholders, section 567. In the case of Carter r. Ford, etc., Co., 85 Ind. 180, it was held that where the corpo- ration was in the hands of its enemies the stockholders might maintain an action, which, if successful, would inure to the benefit of the corporation. 1 See. also, Rogers r. La Fayette, etc.. Works. .V.' Ind. '.".Mi. 'The olllcera of a corporation are its agents, and they are governed oy the rules of law ap- plicable to other agents, as l>t\vi. n themselves and their principal, in so 316 FRAUDULENT ACTS OF OFFICERS. [ '2 1 '1 212. When a stockholder may bring an action. It appearing in a case that a stockholder had written to the presi- dent of a corporation to take action against certain directors for breaches of their trust, and he replied that he had resigned the presidency two years before this time, and further that the direct- ors complained of were the active managers of the business, and there being no evidence that any successor to the president had been elected in the meantime, the Supreme Court of New York held that the stockholder could properly bring an action in his own name against these directors. 1 An action for an accounting and an injunction in the name of a corporation may be authorized and maintained by the president of a corporation who is also a trustee, without the authority of the board of trustees, or against far as such rules relate to honesty and 646; Dannmeyer v. Coleman, 11 Fed. fair dealing in the management of the Rep. 97; City of Detroit t. Dean, 106 affairs of their principal. They can U. S. 537; s. c., 1 Sup. Ct. Rep. 560; no more use the business of their prin- Rathbone v. Parkersburg Gas Co., 31 cipal for their own private gain than W. Va. 798; s. c., 8 S. E. Rep. 570; any other agent, and should they do Alexander v. Searcy, 81 Ga. 536; s. c., so they should be held to the same 8 S. E. Rep. 630; City of Chicago . strict rule of accountability as the Cameron, 120 111. 447; s. c., UN. E. agent of a private person. Port v. Rep. 899; Dunphy v. Traveller News- Russell, 36 Ind. 60; Aberdeen Railway paper Association, 146 Mass. 495; s. Co. . Blakie, 1 Macq. 461; Michoud c., 16 N. E. Rep. 426; Allen v. Wilson, T). Girod, 4 How. 502 ; Cumberland, 28 Fed. Rep. 677; Slattery v. St. Louis etc., Co. v. Sherman, 30 Barb. 553. & N. O. Transportation Co., 91 Mo. If the appellants conspired together 217; s. c., 48. W. Rep. 79; Taylor r. for the purposes alleged in the com- Holmes, 127 U. S. 489; s. c., 8 Sup. plaint, each became liable for any act Ct. Rep. 1192; Dimpfel v. Ohio & M. done by any of the three in furtherance Railway Co., 110 U. S. 209; s. c., 3 of the common design. By the act of Sup. Ct. Rep. 573; McHenry . Rail- conspiring together the conspirators road Co., 22 Fed. Rep. .130; Footer, assumed to themselves the attribute of Mining Co., 17 Fed. Rep. 46; Bill v. individuality so far as regards the Telegraph Co., 16 Fed. Rep. 14; City proscution of the common design, thus of Quincy v. Steel, 120 U. S. 241 ; s. rendering what was said or done by c., 7 Sup. Ct. Rep. 520; Byers v. any one in furtherance of the design, Rollins, 13 Colo. 22; 8. c., 21 Pac. the act of all. [Citing authorities.] ' " Rep. 894; Poole v. Association, 30 Fed. 'Averill . Barber, (1889) 53 Hun, Rep. 513; Wilcox v. Bickel, 11 Neb. 636; s. c., 6 N. Y. Supp. 255. As to 154; s. c., 8 N. W. Rep. 436; Davis v. the general rule in such cases, see Gemmell, 70 Md. 356; s. c., 17 At!. Doud T. Wisconsin P. & S. Railway Rep. 259; Hazeltine v. Belfast & M. Co., 65 Wis. 108; s. c., 25 N. W. Rep. L. Railroad Co., 79 Me. 411; s. c., 10 533; Boyd v. Sims, 3 Pickle (Tenn.), Atl. Rep. 328; Oliphant v. Woodburn 771; s. c., 11 S. W. Rep. 948; Bacon C. & Mining Co., 63 Iowa, 332; s. c., v. Irvine, 70 Cal. 221; 11 Pac. Rep. 19 N. W. Rep. 212. 212] FRAUDULENT ACTS OF OFFICEB8. 31T its express direction where a majority of the trustees may have wrongfully converted corporate funds and threaten to convert other of the funds, especially where the neglect of the board of trustees to sue, and its resolution to discontinue a suit already commenced, are simply acts in furtherance of the unlawful design of the majority of the trustees. 1 Where the assignee in 1 Recamier Manufg. Co. . Seymour, (Com. PI. New York City, 1889) 5 N. Y. Supp. 648. In Merchants & Planters' Line t>. Waganer, (1882> 71 Ala. 581, a stockholder's action agafnst the corporation and certain directors based upon alleged mismanagement, etc., STONE, J., asks : " Have the com- plainants averred sufficient facts to authorize them, representing, as they do, a minority of the stock, to come into equity for the redress of the wrongs they complain of while the corporate powers are still in exercise ? " and answers as follows : " Very true, the present bill charges that three, a majority of the directors, have com- bined and formed a ring for their own private profit, at the expense of the other stockholders and many acts of wrongdoing are charged against those three directors. No act is charged that is ultra vires, and there is no averment that the corporation effects are imperiled by the insolvency of the parties. Neither is there averment in the bill that any request has been made known, soliciting the use of the corporate name in bringing suit against the alleged offenders. Nor is it shown that any attempt has been made to obtain a meeting of the stock- holders. In Tuscaloosa Manufactur- ing Co. v. Cox, 68 Ala. 71. the ques- tions presented arose on bill filed by a minority of stockholders. True, the abuses charged in that case were less flagrant than those complained of in this; but the difference is in degree, not in kind. In that case we ruled that complainants had shown no ground for equitable relief. We said : ' In the government of corpora, tions much must be left to the judg- ment and discretion of the directory, and much must be credited to the fallibility of human judgment. If it be supposed an unwise course is being pursued, or that the interests of the corporation are suffering, or likely to suffer though the inefficiency or faith- lessness of an official an appeal should first be made to the directory or governing body, to redress the griev- ance. Failing there, in ordinary cases, the next redress will be found in tht: power of the ballot, which usually comes into exercise at short intervals.' We quoted approvingly the case of Greaves t>. Gouge, 69 N. Y. 154, and Brewer v. Boston Theatre, 104 Mass. 878. In Hawes c. Oakland, 104 U. S. 450, Justice MILLER, in delivering the opinion of the court, stated that a stockholder could appeal to the courts for relief, ' when the board of direct- ors or a majority of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of the other share- holders.' Tbat is precisely what is averred in this case. 'But,' Ju.stk-c MILLER adds, 'in addition to the existence of grievances which call for this kind of relief, it is equally im- portant that before the shurrholdrr is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, ho should show to the satisfaction of the court that he has exhausted all the means within his rrnrh, to obtain, within the corporation itself, the redress of his grievances, or action in conformity to 318 FRAUDULENT ACTS OF OFFICERS. [ 212 insolvency of a corporation refuses to sue, a stockholder may sue to enforce a claim of the corporation against its managing officer for diversion of funds. At the same time it has been held that a stockholder, seeking to enforce rights of the corporation against its managing officer for diversion of funds arising from an unau- thorized "swapping" of checks, who, alleging that, being a director, he protested in writing against such acts when first apprised of them, but that they were nevertheless continued for two years, showed facts convicting himself of laches, by failing to aver that he was ignorant of such continuance. 1 A stock- holder of a construction company which had constructed a rail- road which became connected with and was controlled by another corporation, a railroad company, the latter assuming by contract the liabilities of the company absorbed by it to the construction company, brought his action as a stockholder of the latter against the construction company and the railroad company which had his wishes. He must make an earnest, breaches of trust and misappropria- not a simulated, effort with the manag- tion of funds, see Hyde Park Gas Co. v. ing body of the corporation, to induce Kerber, 5 Bradw. (111.) 132. As to what remedial action on their part, and this is required and what not required of must be made apparent to the court, stockholders before they can institute If time permits, or has permitted, he suits for mismanagement, etc., on the must show, if he fails with the direct- part of directors and officers, for the ors, that he has made an honest effort redress of grievances, see Bell n. Mont- to obtain action by the stockholders gomery Light Co., (Ala.) 15 So. as a body, in the matter of which he Rep. 569; McCrory v. Chambers, 48 complains ; and he must show a case, 111. App. 445; George v . Central R. R. if this is not done, where it could & Bkg. Co. of Georgia, (Ala.) 14 So. not be done, or it was not reasonable Rep. 752; Earle v. Seattle, L. S. & E. to require it.' The principles com- Ry. Co., 56 Fed. Rep. 909; Sage v. mend themselves to our approval by Culver, 71 Hun, 42; 8. c., 24 N. Y. the strongest of considerations. A Supp. 514; Putnam v. Ruch, 54 Fed. corporation, to attain the highest sue- Rep. 216; Putnam v. Ruch, 56 Fed. cess, should, like a family, dwell to- Rep. 416; Atchison, T. & S. F. R. gether in unity. And when disputes Co. v. Comrs., 51 Kans. 617; Eaton arise between members of this body v. Robinson, (R. I.) 27 Atl. Rep. 595; politic, or law-created household, they Pondir v. New York, L. E. & W. R. should, if possible, be adjusted among Co.; 72 Hun, 384; s. c., 25 N. Y. Supp. themselves. It should be a strong 560; 31 Abb. N. C. 29; Whitney v. case to justify a resort to personal Fairbanks, 54 Fed. Rep. 985; Fitz- litigation, which almost invariably gerald v. Fitzgerald & Mallory Con- leads to personal alienation if not struction Co. et al., (1894) 41 Neb. 374; open hostility. Pratt t>. Jewett, 9 s. c., 59 N. W. Rep. 839. Gray, 34." As to actions against Streight t>. Junk, (1893) 59 Fed. ministerial officers of a corporation for Rep. 321. ' 1 2 j FRAUDULENT ACTS OF OFFICERS. 319 also, by purcha.-e of tin- stock of tin- construction company, and electing so great a number of its directors, obtained full control of its management, charging great wrongs perpetrated on the part of tin- railroad company acting through its directors and management so as to create liabilities to the construction company growing out of their wrongdoing for which this action was brought to secure such equitable decree against the railroad company in favor of the construction company, its co-defendant, as would inure to the benefit of the complainant and others holding judg- ments and claims against the construction company. The Nebraska Supreme Court held that the action was maintainable. 1 Two receivers of this construction company had been appointed, it appeared in the petition in this ca.se, one in a court of general jurisdiction in two different states. It was insisted upon the part of defendants that as this appeared the receivers were indispen- sable parties to the suit. I3ut the court held to the contrary. 2 There was also a contention in this case, it being found by the court that this stockholder and one other representing one-tifth interest in the whole of the shares of the corporation, having acquiesced in these particular acts of the directors of the railroad corporation, the corporation itself was estopped from recovery. The court below found in accordance with this contention. The Supreme Court of Nebraska, however, held this finding of the court below to be erroneous. The position of the latter as to the law involved upon this point is thus stated in the syllabus by the court: The acquiescence of a stockholder will not preclude a recovery in an action brought by him in a proper case for the benefit of such corporation in respect of wrongs committed by the managing officers of said corporation against it for the benefit of another corporation in which they were also officers. In such case, while the stockholder is nominally the plaintiff, he is only nominally so; the action is in reality between the corporations joined as defend- ants the one as the party wronged, the other as the party which profited by the wrong. 8 The corporation, a railroad company, 1 Fitzgerald r. Fitzgerald & Mallory in the wrong found by the court, Construction Co. et al., (1894) 41 Neb. whereby its ability to pay its debts 974; 8. c., 59 N. VV. Rep. 889. \MIS greatly impaired, should preclude * Ibid. the right of the construction company ' Ibid. Argutndo, it was said by to relief as against such wrong. The the court: " It is difficult to conceive trial court found that, aside from the why the acquiescence of stockholders acquiescence of [the two stockholders], 320 FRAUDULENT ACTS OF OFFICERS. [212 one of the defendants in this case, was held liable civilly for the damages occasioned by the torts of its officers, its directors, to the construction company, its co-defendant, those torts being the result of the acts of those directors of the railroad company while acting in its interest in the management of the financial settlements based upon the contracts between the two on behalf of the construction company, which management the railroad company dominated. 1 there had been the active commission of the wrong by the other four-fifths of the construction company's stock. Of what greater avail should be the mere acquiescence of the other fifth? In Quincy v. Steel, 120 U. 8. 244; s. c., 7 Sup. Ct. Rep. 520, it was said that a suit brought by a stockholder for the benefit of the corporation was in fact a suit for the corporation itself. That the acquiescence of stockholders merely as such could be held to imply more than by an affirmative act such stockholder, as such, could perform, can scarcely be seriously argued. In the brief of the defendants is found the following quotation from the lan- guage of FIELD, J., in Humphreys v. McKissock, 140 U. S. 311, 312; s. c., 11 Sup. Ct. Rep. 779: ' The property of a corporation is not subject to the control of individual members, whether acting separately or jointly. They can neither incumber nor trans- fer that property, nor authorize others to do so. The corporation, the artifi- cial being created, holds the property, and alone can mortgage or transfer it, and the corporation acts only through its officers, subject to the conditions prescribed by law.' In this brief it is also stated that Justice FIELD, in the case cited, approved the language of Chief Justice SHAW in Smith v. Hurd, 12 Met. (Mass.) 385, where he says: ' The individual members of a corpo- ration, whether they should all join or each act severally, have no right or power to intermeddle with the prop- erty or concerns of the bank, or call any officer, agent or servant to ac- count, or discharge them from any liability. Should all the stockholders join in a power of attorney to any one, he could not take possession of any real or personal estate, any se- curity or choice in action, could not collect a debt or discharge a claim or release damages arising from any de- fault, simply because they are not the legal owners of the property, and damage done to such property is not any injury to them. Their rights and their powers are limited and well de- fined.' If all the stockholders, by joining in a power of attorney for that purpose, could not release damage arising from any default, upon what principle could such release be inferred from the mere acquiescence in such release by one-fifth in amount of the stockholders? Most manifestly such an anomaly cannot be tolerated, much less enforced, by judicial tribunals. In argument it is tenaciously contended, however, that the long acquiescence of the construction company effected the same result. There was no find- ing of such acquiescence by the court. Indeed, there could not be, consist- ently with the finding that the con- struction company was dominated in all things by the officers of the Mis- souri Pacific Railway Company [its co defendant.]" 1 Fitzgerald . Fitzgerald & Mallory Construction Co. et al., (1894) 41 Neb. 374; s. c., 59 N. W. Rep. 839. It was 213] FRAUDULENT ACTS OF OFFICERS. 213. Dissolution of a corporation by a scheme of a majority of stockholders and a sale of the property to themselves. In a bill filed by a minority of stockholders of a corporation against the representatives of a majority of stock- holders for an accounting as to the disposal of the property of the corporation to a new corporation formed by this majority of stockholders, the case disclosed therein was thus stated by WAL- LACE, J., of the United States Circuit Court : " A majority of the stockholders of a corporation resolve to avail themselves of their power as a quorum to sacrifice the interests of the minority insisted that the acts of these directors H. Co.. 23 N. J. Law. 369, it was were not imputablc to the railroad well said that, if the corporation has company itself. This contention was itself no hands with which to strike, disposed of by the Supreme Court of it may employ the hands of others, and Nebraska in the following words: it is now perfectly well settled, con- "The following apt language is em- trary to the ancient authorities, that a ployed by HARLAN, J., in the opinion corporation is liable citiliter for all of the Supreme Court of the United torts committed by its servants or States in Railway Co. r. Harris, 122 agents by authority of the corporu- U. 8. on page 607; 7 Sup. Ct. Rep. tion, express or implied. The result 1286: ' In Railroad Co. r>. Quiglcy, 21 of the modern cases is that a corpora- How. 202, this court held that a rail- tion is liable rinliter for torts corn- road corporation was responsible for mitted by its agents or servants prc- t lie publication by them of a libel in cisely as a natural person, and that it which the capacity and skill of a is liable ns a natural person for the mechanic and builder of depots, acts of agents done by its authority, bridges, station houses and other struc- express or implied, though there be turcs for railroad companies were neither a written appointment under falsely and maliciously disparaged and seal nor a vote of the corporation con- undervalued. The publication in that stituting the agency or authorizing the case consisted in the preservation in act. See, also, Salt Lake City v. Hoi- permanent form of a book for distribu- lister, 118 U. S. 256, 260; s. c., 6 Sup. tion among the persons belonging to Ct. Rep. 1055; Steamboat Co. . the corporation, of a report made by Brockett, 121 U. S. 637; 8. c.. 7 Sup. a committee of the company's board Ct. Rep. 1089; Bank r. Graham, 100 of directors in relation to the adminis- U. S. 699-702.' In Booth r. Bank, 50 tration and dealings of the plaintiff as N. Y. on page 400 et seq., is found the a superintendent of the road. The following language: 'When an officer court, under a full review of the au- does an act which is within the gen- thorities, held it to be the result of the cral scope of his powers, although cases that for acts done by the agents of circumstances may exist which render a corporation, either in contractu or in the particular act a violation of his tldicto, in the course of its business duty, the corporation is nevertheless and of their employment, the corpora- bound by his acts as to persons deal tion is responsible as an individual is ing in ignorance of those circum responsible under similar circum- stances, and is responsible to innocent stances. In State r. Morris & Essex third parties who have sustained dam 41 322 FRAUDULENT ACTS OF OFFICERS. [ 213 stockholders for their own profit, by destroying the corporation and selling its property and franchises to themselves at half their real value. This scheme they have carried out, and now retain its fruits. They have thrust out the complainants, the minority, from their position as stockholders, terminating their relations with the corporation as such, and have deprived them from realizing what would belong to them upon a fair disposition and division of the corporate property." The court then discusses those acts and the powers of the majority and the rights of the minority of the stockholders, as follows : " It is to be observed that the ages occasioned by such acts. And the liability of a corporation for the con- sequences of acts of its officers come within the scope of their general powers, and is not affected by the fact that the act which the officers have as- sumed to do is one which the corpora- tion itself could not rightfully do. A corporation may do wrong through its agent as well as a private individual. Railroad Co. v. Schuyler, 34 N. Y. 30; Farmers & Mechanics' Bank v. Butch- ers & Drovers' Bank, 16 N. Y. 125; Bissell . Railroad Co., 22 N. Y. 258; Bank of Genesee v. Patchin Bank, 13 N. Y. 309.' In Hussey v. King, (N. C.) 3 S. E. Rep. on page 926, DAVIS, J., delivering the opinion of the court, said: 'It was long thought that, as a corporation has no mouth with which to utter slander, or hand with which to write libels or commit batteries, or mind to suggest malicious prosecu- tions or other wrongs as it was an artificial person and could speak and act only through the agency of others it was not, therefore, liable for any torts except such as resulted from some act of commission or omission of its agents or servants while acting within the scope of granted powers, or wrongfully omitting and neglect- ing some duty imposed by its charter or by law; and, consequently, it was necessary to allege that the act committed was done while acting within the scope and power of the company, or that the act omitted was required to be performed. Whether it was wise to depart from this rule, that excepted corporations from liability for the acts of its agents in cases where the character of the act depended upon motives or intent, seems no longer an open question. The old idea, that because a corporation had no soul, it could not commit torts, or be the subject of punishment for tor- tious acts, may now be regarded as ob- solete. The rights, the powers and the duties of corporate bodies have been so enlarged in modern times, and these artificial persons have become so numerous, and enter so largely into the every -day transactions of life, that it lias become the policy of the law to subject them, so far as practi- cable, to the same civil liability for wrongful acts as attach to rational persons, and its liability is not re- stricted to acts committed within the scope of granted powers, but the cor- poration may be liable for an action for false imprisonment, malicious prose- cution and libel. Pierce on Railroads, 21 3. ' In Miller T. Railroad Co. , 8 Neb. 219, it was said that a corporation is liable the same as a natural person for the tortious acts of its servants and agents in the course of their employ- ment, but to make a corporation liable for such acts they must be connected with the transaction of the business for which the company was incorpo- -13] 1 J : A 1 I > 1 ' 1 . 1 . N T ACTS OF OFFICERS. 323 proceedings of the defendants were not outside of the charter or articles of association of the corporation, but, on the contrary, were carefully pursued according to the form of the organic law. They had a right to dissolve the corporation and dispose of its property and distribute the proceeds. The minority cannot be ln-anl t> complain of this, because the laws of Oregon permitted it and because it is an implied condition of the association of stockholders in a corporation that the majority shall have power to bind the whole body as to all transactions within the scope of the corporate powers. 1 Nor does it matter, in legal contemplation, that the majority were actuated by dishonorable or even corrupt motives, so long as their acts were legitimate. In equity, as at law, a fraudulent intent is not the subject of judicial cognizance unless accompanied by a wrongful act. 2 In other words, if the majority had the right to wind up the corporation at their election, and they availed themselves of it in the mode which was permitted by the organic law of the corporation, neither a court of law or equity can entertain an inquiry as to the motives which influenced them. The power to do this was undoubted." " But," the court said, " the right of the majority to sell the property to themselves at their own valuation is a very different matter; it cannot be implied from the contract of association, and will not be tolerated by a court of equity. As is said by MELLISH, L. J., in 3 [case cited below] : 'Although it may be quite true that the shareholders of a company may vote as they please and for the purpose of their own inter- ests, yet the majority cannot sell tha assets of the company and keep the consideration, but must allow the minority to have their share of any consideration which may come to them.' If the majority sell the assets to themselves they must account for their fair value. They cannot bind the minority by fixing their own price upon the assets. A majority have no right to exercise the control over the corporate management which legitimately rated, for the officers themselves are the one who has created the power the mere agents of the corporation, and selected the persons to enforce it and their powers are necessarily must sustain the loss." limited within the scope of the pur- ' Citing Durfee r. Old Colony & F. poses of the corporation. The stock- R. Co., 87 Mass. (5 Allen) 250; Bill t>. holders, however, by electing officers, Western Union Tel. Co., 16 Fed. Rep. assume the risk of the faithful or uu- 10. faithful management of the corpora- * Citing Clarke t>. White, 12 Pet. 178. tion, and cases may arise where, if one * Menier t>. Hooper's Telegraph of two innocent persons has to suffer, Works, L. R., 9 Ch. A pp. Cas. 850, 354, 324 FRAUDULENT ACTS OF OFFICERS. [ 214: belongs to them for the purpose of appropriating the corporate property or its avails to themselves, or to any of the shareholders, to the exclusion or prejudice of the others. 1 In 2 [case cited below], the property of a company was transferred to two shareholders in lieu of their shares, and the company was thereby practically put an end to, and the debts were thrown on the remaining share- holders. This was sanctioned by a majority of the shareholders at a general meeting, but it was held that the majority could not bind the minority in such a transaction, and it was set aside." 3 214. The rights of the minority in such a case. The same judge, in the same court, in the same case, upon its second hearing, thus states the position and insistment of the defendants : " They have adjusted their own interests on the basis of a con- solidation of the two corporations and a continuance of their business as a joint venture ; but they now insist that the interests of the minority stockholders, who have not been permitted to par- ticipate with them, shall be adjusted on the basis of a dissolution and a cessation of the business which they originally associated together to conduct. More than this, the defendants insist that the value of the assets, for the purpose of determining the interests of the minority, is fixed by the appraisal of persons selected by the defendants themselves, in whose selection the minority had no voice ; and they have assumed to deny all recog- nition to those of the minority who will not consent to surrender their stock and accept a final dividend upon the basis of this appraisal." He then continues the discussion : " Plainly, the defendants have assumed to exercise a power belonging to the majority in order to secure personal profit for themselves with- out regard to the interests of the minority. They repudiate the suggestion of fraud, and plant themselves upon their rights as a majority to control the corporate interests according to their dis- cretion. They err if they suppose that a court of equity will tol- erate a discretion which does not consult the interests of the minority. It cannot be denied that minority stockholders are 'Citing Brewer v. Boston Theatre, * Gregory v. Patchett, 33 Beav. 104 Mass. 378, 395; Preston v. Grand 595. Collier Dock Co., 11 Sim. 327; Hodg- 3 Ervin v. Oregon Ry. & Nav. Co., kinson v. National Live Stock Ins. Co., (1884) 20 Fed. Rep. 577, 580. 26 Beav. 473; Atwool v. Merry weather, L. R., 5 Eq. 464, note. 214] FRAUDULENT ACTS OF OFFICERS. 325 bound hand and foot to the majority in all matters of legitimate administration of the corporate affairs; and the courts are power- less to redress many forms of oppression practiced upon the minority under the guise of legal sanction which fall short of actual fraud. This is a consequence of the implied contract of association by which it is agreed in advance that a majority shall bind the whole body as to all transactions within the scope of the corporate powers. But it is also of the essence of the contract that the corporate powers shall only be exercised to accomplish the objects for which they were called into existence, and that the majority shall not control those powers to pervert or destroy the original purposes of the corporations. 1 It is for this reason that the majority cannot consolidate the corporation with another corporation and impose responsibilities and hazards upon the minority not contemplated by the original enterprise, unless express statutory authority for this purpose is conferred upon the majority. It is no more repugnant to the purposes of the associ- ation to permit the majority to merge and consolidate the corpo- ration with another corporation than it is to permit them to dis- solve it or abandon the enterprise for which it is created, where no reasons of expediency require this to be done. A dissolution under such circumstances is an abuse of the powers delegated to the majority. It is no less a wrong because accomplished by the agency of legal forms. In the language of BLACKBURN, J., in 2 [case cited below] : ' As the shareholders are, in substance, partners in a trading corporation, the management of which is intrusted to the body corporate, a trust is, by implication, created in favor of the shareholders that the corporation will manage the corporate affairs, and apply the corporate funds for the purpose of carrying out the original speculation.' When a number of stockholders combine to constitute themselves a majority in order to control the corporation as they see n't, they become, for all practical purposes, the corpora- tion itself, and assume the trust relation occupied by the corpora- tion towards its stockholders. Although stockholders are not part- ners, nor strictly tenants in common, they are the beneficial joint owners of the corporate property, having an interest and power of 1 Citing Livingston r. Lynch, 4 t>. Clay. 88 Me. 182 ; Clinch t>. Finun- Johns. Ch. 578; Hutton v. Scurt>orough cial Corporation, 4 Ch. App. 117 ; Cliff Co., 2 Drew. & 8. 514 ; Brewer r. Clearwater r. Meredith, 1 Wall. 25. Boston Theatre, 104 Mass. 878; Kean * Taylor t>. Chichestcr Ry. Co., L. r. Johnson, 9 N. J. Eq. 401 ; Rollins R, 2 Exch. 879. 326 FRAUDULENT ACTS OF OFFICEES. [ 215 legal control in exact proportion to their respective amounts of stock. The corporation itself holds its property as a trust fund for the stockholders who have a joint interest in all its property and effects, and the relation between it and its several members is, for all practical purposes, that of trustee and cestui que tnwt. 1 When several persons have a common interest in property, equity will not allow one to appropriate it exclusively to himself or to impair its value to the others. Community of interest involves mutual obligation. Persons occupying this relation towards each other are under no obligation to make the property or fund pro- ductive of the most that can be obtained from it for all who are interested in it ; and those who seek to make a profit out of it, at the expense of those whose rights in it are the same as their own, are unfaithful to the relation they have assumed, and are guilty at least of constructive fraud." 2 215. Principles applied to this particular case. Apply- ing the principles as to the acts of fiduciaries with reference to the property intrusted to them, established in such cases as [those cited below] 3 to the case in hand, WALLACE, J., said : * * * Although the minority of stockholders cannot complain merely because the majority have dissolved the corporation and sold its property, they may justly complain because the majority, while occupying a fiduciary relation towards the minority, have exercised their powers in a way to buy the property for themselves, and exclude the minority from a fair participation in the fruits of the sale. In the lan- guage of MELLISH, L. J., in Menier v. Hooper's Telegraph Works, 9 Ch. App. Cas. 350, 354 : ' The majority cannot sell the assets of the company and keep the consideration, but must allow the minority to have their share of any consideration which may come to them.' The minority stockholders are, therefore, entitled to demand their fair share in the transaction, and to be placed upon terms of equality with the majority. It may be that 1 Peabody r. Flint, 6 Allen, 52, 56; 3 Greenlaw v. King, 3 Beav. 49, 63; Hardy v. Metropolitan Land Co., L. Gibson v. Jeyes, 6 Ves. 278; Torrey v. R., 7 Ch. 427; Stevens v. Rutland R. Bank of Orleans, 9 Paige, 663; Mi- Co., 29 Vt. 550. choud v. Girod, 4 How. 555; Gardner 4 Ervin . Oregon Ry. & Nav. Co., v. Ogden, 22 N. Y. 327; and Hoyle v. (1886) 27 Fed. Rep. 625 ; citing Jack- Pittsburgh & M. R. Co., 54 N. Y. 315. son . Ludeling, 21 Wall. 616, 622; Story Eq. 323. 216] FRAUDULENT ACTS OF OFFICERS. the property of the old company wa* not worth more than the sum fixed by the appraisers, otimatini: its value with a view of the winding up of the corporation ; but for several months the property had l>een used by the defendants in a joint venture with the other property of the new corporation, and its value, at the time of the sale, should he estimated at what the property was worth as then situated. This results from the rule of equity which entitles those whose property has Ixxm misapplied by an agent or fiduciary to follow it into any form in which it has been converted, and impress it with a trust whenever its identity can be traced, or, at their election, to recover the value of the prop- erty in any form into which it has been transmuted. Story Eq. 1261, 1262. If it was worth much more as a constituent of the new corporation than it would have been worth otherwise, the minority stockholders are entitled to the benefit of the increase. The majority of the stockholders are not to be permitted to segregate it from the conditions in which they have placed it, for the purpose of fixing its value to the minority. For this reason the estimate made by the appraisers is not controlling, even if it is of any value in determining the price for which the defendants should account. This is so, not only because the appraisers were the agents of those who were at the same time negotiating as the purchasers and the sellers of the property, but also because they adopted a basis of valuation which will not be sanctioned by a court of equity." * 216. When a fraudulent assignment of a mortgage by the treasurer of a corporation will bind it. In a case where it appeared that the treasurer of a savings bank, clothed with authority to do so, executed an assignment of a mortgage in the name of the bank in ilue form, and indorsed the note secured by it to a bona fide purchaser, it was held in the United States Cir- cuit Court for the district of Massachusetts that the title passed, notwithstanding the treasurer perpetrated a fraud ujxni tin- hank. and converted to his own use the purchase money. It was further held that the corporation was estopped to prove, as against bonafide purchasers, either irregularity or fraud upon the part of its officers when acting within tlu-ir authority. 2 'Ervin r. Oregon Ry. & Nnv. Co.. 'Whiting r. Wellington. (1882) 10 (1886) 27 Fed. Rep. 62.5. A rehearing Fed. Rep. sio l.mvK.i.i., Circuit of this case was denied in 28 Fed. Rep. Judge, referring t<> :i certificate of the s:t:: treasurer given to the purchaser, that 828 FRAUDULENT ACTS OF OFFICERS. [217 217- When a corporation may recover money fraudu- lently paid out by its treasurer. Two manufacturing corpora- tions of Massachusetts had a common treasurer. Money was loaned by one to the other when needed, and the loans were effected by the check of one payable to the order of the other drawn by the common treasurer. This treasurer had by a series of a certain note was found upon the records of the corporation, said: "The estoppel arises from the certificate. * * * In a recent case in England a statute declared that, unless certain things were done, no shares of a joint- stock company should be issued except for cash, and all which should be is- sued otherwise should be subject to assessment. Shares were issued as ' paid up,' and were bought by a bona fide purchaser. The company and its liquidator were held estopped to prove that the statute had not been followed. In re British, etc., Co., 7 Ch. D. 533; s. c. nom. Burkinshaw t. Nicolls, 3 App. Cas. 1004. In that case (page 1026) a very able j udge says that the doctrine of estoppel in pais is a most equitable doctrine, and one without which the law of the country could not be satisfactorily administered. ' When a person makes to another the repre- sentation, 'I take upon myself to say such and such things do exist, and you may act upon the basis that they do exist,' and the other man does really act upon that basis, it seems to me it is the very essence of justice that, be- tween those two parties, their rights should be regulated, not by the real state of the facts, but by that conven- tional state of facts which the two par- ties agree to make the basis of their action; and that is, I apprehend, what is meant by estoppel in pais or homo- logation.' This doctrine has been af- firmed by the Supreme Court in a large class of cases where the facts are much more open to public observation than are the notes of a private corpo- ration, in which counties and towns having power to issue bonds upon cer- tain terms and conditions are held es- topped to prove, as against bona fde purchasers, either irregularity or fraud on the part of their own officers in is- suing the bonds, especially if they con- tain upon their face a certificate that the terms of the law have been com- plied with. These decisions do not depend upon the negotiable character of the bonds, excepting when there is a question of notice. Comre. v. As- pinwall, 21 How. 539; Moran v. Comrs. of Miami, 2 Black, 722; Rogers v. Bur- lington, 3 Wall. 654; Grand Chute t>. Winegar, 15 Wall. 355; Comrs. 0. January, 94 U. S. 202; San Antonio v. Mehaffy, 96 U. S. 312; County of Warren v. Marcy, 97 U. S. 96. So. if a cashier has authority to certify a check, the bank is estopped to say that his authority is false in fact. Mer- chants' Bank v. State Bank, 10 Wall. 604. If a company has issued a certifi- cate of shares, it is estopped to prove against one who has bought the shares in good faith, or even one who has paid one call or assessment to a third person on the strength of the certifi- cate, that it was issued improvidently. In re Bahia, etc., Co., L. R., 3 Q. B. 584; Hartfl. Frontino, etc., Co., L. R., 5 Exch. 111. Where the president, who was also transfer agent of a rail- road company, issued an immense amount of false and fraudulent certifi- cates of shares, beyond the whole capital, the company, after ' a decade of litigation,' was held bound to in- demnify the honest purchasers. New York & New Haven R. R. Co. . Schuyler, 34 N. Y. 30." 17] FRAUDULENT ACTS OF OFFICERS. 329 embezzlements from the corporations created a deficit in their funds. He had concealed this deficit by at certain times draw- ing checks in the name of one corporation, payable to the order of the other, and placing it with the funds of the latter. When his eml>e/./.lenients were discovered these fraudulently drawn checks were about equally divided between the corporations. There was an action for accounting brought by one against the other claiming a large balance in the mutual account. The defendant corporation pleaded as a set-off the amount of its funds received by the plaintiff through these fraudulent checks, and the plaintiff contended that the transfers of checks from one com- pany to the other were, in fact and law, payments by the treasurer to an innocent creditor without notice, and, therefore, could not be reclaimed ; that the losses must be borne as they stood at the time of the discovery of the frauds. The Supreme Court of Judicature held that the corporation using the money was affected with the knowledge of its treasurer and the transac- tion did not amount to a payment of the deficit, and that the other corporation was not guilty of such negligence as to pre- clude it from recovering back the money.' 1 Atlantic Cotton Mills r. Indian case for two reasons: In the first place. Orchard Mills, (1888) 147 Mass. 268. under the circumstances disclosed in C. ALLEN, J., speaking for the court the auditor's report, the plaintiff can- aaid: "The ground on which the not be considered as an innocent cred- phintilT asserts a right to retain the itor, that is, a creditor without notice, money is, that [its treasurer] had and, moreover, the transaction did not mix x.zlcd its funds, as well as the amount to payment. It is true that funds of the defendant, to a large no officer of the plaintiff besides [its amount, and that it is entitled to apply treasurer] knew of the fraudulent the money thus received from him to origin of these checks; but in the very reduce his indebtedness for such em- transaction of receiving them, the hc/./lcmenta, and treat the same as a plaintiff was represented by [him] and payment pro tanto ; that from the by him alone, and is bound by his nature of the transaction the law knowledge. It is the same as if tho stamps it as a payment, and that thus plaintiff's directors had received tho the plaintiff is a holder of the funds checks, knowing what he knew. For for a valuable consideration. There the purpose of accepting the checks, is no doubt that a thief may use stolen [he] stood in the place of the plaintiff, money or stolen negotiable securities and was the plaintiff. It is quite im before their maturity, to pay his debts, material, in reference to this question, and in such case an innocent creditor in what manner or by what officer of may retain the payment. But this the corporation the funds were rr- doctrine is inapplicable to the present ccivcil. Thr important consideration 42 330 FRAUDULENT ACTS OF OFFICERS. [218 218. When a corporation must respond for damages resulting from a fraudulent issue of its stock. One who was the secretary, treasurer and transfer agent of a domestic cor- poration, a street railroad company of the city of New York, and, as such secretary, kept and had in his custody the books of the corporation relating to the issue and transfer of stock, filled out a blank certificate taken from the company's certificate book, forged the name of its president thereto, signed his own name as treasurer, then countersigned it and impressed thereon the cor- porate seal. The by-laws of the corporation required that " all is how the plaintiff became possessed of the money, and it is apparent that it was through the act of no other person than of [the treasurer] himself. It is not as if he had stolen the money, and then called the directors of the plaintiff corporation together and in- formed them of his indebtedness and of his desire to make a payment on account, and had then paid over to them the money as money coming from himself, and they had received it without knowledge or suspicion that it had been stolen, and given him credit for it as part payment. There was no transaction, whatever, between [the treasurer] and the plaintiff, in re- spect to the transfer of this money, in which the plaintiff was represented either in whole or in part by any other person than by [him], and, therefore, even though the transfer to the plain- tiff had been made in bank bills or in gold coin (which it was not), the plain- tiff must be deemed to have had knowledge of the true ownership, be- cause in receiving the funds it acted solely through [his] agency. It must be deemed to have known what he knew, and it cannot retain the benefits of his acts, without accepting the con- sequences of his knowledge. The plaintiff cannot obtain greater rights from his act than if it did the thing itself, knowing what he knew. Such is the doctrine either expressly de- clared or necessarily involved in nu- merous adjudged cases. The leading case in this commonwealth is Atlantic Bank v. Merchants' Bank, 10 Gray, 532, where there was the semblance of an accounting between the guilty agent and other officers of the bank which received the money, but it was held that there was no real accounting and the general principle was held to be applicable. That case was followed by Skinner v. Merchants' Bank, 4 Allen, 290, where the facts were simi- lar." After reviewing and citing many cases, it is further on in the opinion said: "We have preferred to put the decision of this point upon the broad ground that, if the treasurer of a cor- poration is a defaulter, and his defalca- tion is as yet unknown and unsus- pected, and he steals money from a third person and places it with the funds of the corporation in order to conceal and make good his defalcation, and the corporation uses the money as its own, no other officer knowing any of the facts, the corporation does not thereby acquire a good title to the money, as against the true owner, but the latter may maintain an action against the corporation to recover back the same. But it is also apparent that in the present case the decision might rest upon a narrower ground. The fraudulent transfers were made by checks of the defendant, payable to the order of the plaintiff, and these checks before being available must 218] FRAL'DUI.KXT A oK <>KI ICKKS. 881 certificates shall be issued and signed \ty the president and treasurer and countersigned by the transfer agent/ ' The certificate upon its face was perfect and regular in every respect, and showed a partner of the secretary and treasurer to be the owner of the shares of stock stated therein. The in testinwnium clause recited that the corporation had caused the certificate to be signed by its president and countersigned by its treasurer and transfer agent, and sealed with its corporate seal. The partner of this officer of the corporation procured of a bank a loan upon his note secured by a pledge of the certificate. Before acting upon the applica- nccessarily have been indorsed by the plaintiff, acting by some officer au- thorized to indorse checks payable to its order. If these checks, therefore, were taken by the plaintiff in payment of indebtedness of [the treasurer] they carried notice upon their face that they were checks of the defendant, not payable to [his] order but to the order of the plaintiff. Now, assuming that [his] transaction had been con- ducted with some other officers of the plaintiff, who represented that corpo- ration, it is impossible to suppose that they could have accepted these checks in extinguishment of a known in- debtedness of [the treasurer] without being put upon inquiry as to how he came by the defendant's checks to so large an amount, made payable to the plaintiff, which he could apply upon his private account. National Bank of North America v. Bangs, 106 Mass. 441. 445." After commenting upon various cases cited by the plaint ill's counsel the discussion of this point closes with thi>: "Thus far the discus- sion has proceeded upon the assump- tion that even if the transfer of the defendant's property to the plaintiff were intended as a payment on account of [the treasurer's] indebtedness to the plaintiff, yet the plaintiff would not be entitled to hold the same on the ground that it would be chargeable with [his] knowledge of the source from which the money came. But it is equally clear that the transfer cannot be con- sidered as a payment by [him] to the plaintiff, because it was not so under- stood. Nobody on the part of the plaintiff called [the treasurer] to any account, or knew that he was account- ing or that he was indebted to the plaintiff, or that these funds had come into the plaintiff's possession or that they had come from [the treasurer]. Nobody but [he] could possibly have intended that the transaction should amount to a payment, and his inten- tion, if entertained, was ineffectual because of his fraud. It is not neces- sary to deny or doubt that [he] might secretly transfer to the treasury of t In- corporation money or property of his own, and thus, if the same should be kept, extinguish an indebtedness aris- ing from a former embezzlement. There would be nothing fraudulent in the act of such a transfer; and the cor- poration, being lawfully in possession of the money or property, might prop- erly keep it. But whore he undertook in this manner to make a payment by secretly transferring the property of a third person the act cannot take effect as a payment, because it was not re ccived as such by any person noting in behalf of the plaintiff. There was not even the semblance of an accounting. And under tln->e circumstances if the plaintiff would adopt the intention to make it a payment it must also adopt the fraud. It cannot adopt so much 332 FRAUDULENT ACTS OF OFFICERS. [ 218 tion for a loan the bank sent a clerk with the certificate to the office of the corporation, who showed it to the secretary, who was in charge of the office, who, in response to inquiries, stated that the certificate was genuine and all right, and that the applicant for the loan was a stockholder, and, relying thereon, the bank dis- counted the note. The bank afterwards was compelled to sell the certificate held as collateral to a bonafide purchaser, and when he presented it to the proper officers of the corporation for a trans- fer the corporation refused to recognize the certificate as valid evidence of title to the shares of stock stated therein. The bank upon this being brought to its knowledge, refunded the purchase money, and had the purchaser reassign the certificate to the bank, and brought its action against the corporation for damages incur- red by its refusal to recognize the certificate, its right of recovery being based upon the corporation's liability on account of the fraud of its officer. The New York Court of Appeals declared these general rules, that where a certificate of stock contained apparently all the essentials of genuineness a bona fide holder thereof was entitled to recognition as a stockholder, if a new certificate could be issued to him, or to indemnity, if this could not be done ; that the fact that an official signature to the certificate had been forged did not extinguish this right where the forgery had been done by, or at the instance of, an officer of the corporation intrusted with the custody of its stock books, and held out by the company as the source of information on that subject ; that while certificates of stock in railroad and other business corporations do not possess in full the qualities of commercial paper, when the transfer indorsed thereon is signed in blank by the stockholder named therein, they become in effect, so far as the public is concerned, the same as if they had been issued to bearer. 1 It appeared in a of [the treasurer's] act as was benefi- 231; s. c., 33 N. E. Rep. 378, afflrm- cial and reject the rest. As Lord ing judgment in favor of the bank. KENTON said in Smith v. Hodson, 4 Referring to the ruling of the court T. R. 211, it cannot blow hot and cold, that the corporation, in this case, This ground also is fully covered by was liable on account of the acts of the decisions in Atlantic Bank v. Mer- its officer, the court, speaking through chants' Bank, 10 Gray, 532, 547-553, MAYNARD, J., said: "This result fol- and in Skinner v. Merchants' Bank, 4 lows from the application of the f unda- Allen, 290." mental rules which determine the 1 Fifth Avenue Bank of New York obligations of a principal for the acts v. Forty -second Street & Grand Street of its agent. They are embraced in Ferry R. R. Co., (1893) 137 N. Y. the comprehensive statement of Story 218] FRAUDULENT ACTS OF OFFICERS. "N<-\v York case that the by-laws of the corporation required cer- tificates of stock to be i.-.-neil under the corporate seal and signed by the president and treasurer. The treasurer, upon the faith and pledge as collateral of spurious certificates of its stock, drawn up and executed in the form and manner prescribed by the by-laws (the signature of the president having Keen negligently affixed), purporting on their face to be of stock owned by the treasurer, in his work on Agency (9th ed. | 452), depended. It was a certificate ap- that the principal is to be ' held liable patently made in the course of his to third persons in a civil suit for the employment, as the agent of the corn- frauds, deceits, concealments, misrcp- pany, and within the scope of the resentations, torts, negligences and general authority conferred upon him, other malfeasances, or misfeasances and the [corporation] is under an im- and omissions of duty of his agent in plied obligation to make indemnity to the course of his employment, although the plaintiff for the loss sustained by the principal did not authorize, or the negligent or wrongful exercise by justify, or participate in, or, indeed, its officers of the general powers con know of such misconduct, or even if ferred upon them Griswold t. Haven, he forbade the acts or disapproved of 25 N. Y. 599; New York & New Hav. -n them. In all such cases the rule applies R. R. Co. c. Schuyler, 34 N. Y. 30; respondent superior, and is founded Titus v. G. W. Turnpike Co., 61 N. Y. upon public policy and convenience, 287; Bank of Butavia v. New York, for in no other way could there be any L. E. & W. R. R. Co., 106 N. Y. 199." safety to third persons in their dealings, It was said further in this opinion: either directly with the principal, or " The learned counsel for the defend- indirectly with him through the instru- ant seeks to distinguish this case from mentality of agents. In every such the authorities cited, because the signa- caj the principal holds out his agent ture of the president to the certificate as com peteqt and fit to be trusted, and was not genuine; but we cannot see thereby, in effect, he warrants his how the forgery of the name of the fidelity and good conduct in all mat- president can relieve the defendant ters within the scope of his agency.' from liability for the fraudulent acts It is true that the secretary and trans- of its secretary, treasurer and transfer fer agent had no authority to issue a agent. They were officers to whom it certificate of sto^k except upon the had intrusted the authority to make surrender and cancellation of a previ- the final declaration as' to the validity ously existing valid certificate, and the of the shares of stock it might issue, signature of the president and treasurer and where their acts, in the apparent first obtained to the certificate to be exerciseof this power, are accompanied issued; but these were facts necessarily with all the indicia of genuineness, it and peculiarity within the knowledge is essential to the public welfan -that of the secretary, and the issue of the the principal should be responsible to certificate in due form was a rcpre- all persons who receive the certificates sentation by the secretary and transfer in good faith and for a valuable con- agent that these conditions had been sidcration and in the ordinary course complied with, and that the facts ex- of business whether the indicia are isted upon which his rights to act true or not. 2 Beach on Pr. ( orp. 334 FRAUDULENT ACTS OF OFFICERS. [ 219 obtained a loan of one acting in good faith and in ignorance of the fraud. The Court of Appeals held that there was nothing upon the face of the certificate to notify the lender of any defect in the title of the treasurer to these shares, and that the corpora- tion was liable to him for the damages. 1 219. The same subject Massachusetts decisions. Several cases have been adjudicated by the Supreme Court of Judicature of Massachusetts, growing out of the fraudulent transactions of a treasurer of a railroad corporation of that state - The facts were that he was supplied by the president with blank certificates of its stock, signed by the president. The treasurer was also a stockbroker. In this latter capacity he told a customer on one occasion, that he had purchased snares of this stock for her as ordered, and she paid him for it. On another occasion he ordered certain brokers to sell shares of the stock for him, and they did so, and received payment for it. lie owned no stock, and held none as agent or otherwise, and the whole amount of the capital stock had already been issued. In each case he fraud- ulently made a fictitious transfer of stock on the books of the corporation, in one case from himself as agent to his customer, and in the other from himself as agent to the brokers, and by means of a blank power of attorney furnished by the brokers and delivered to him. made a further transfer as their attorney to their customers. He then filled out blank certificates of the shares in the usual form under the corporate seal, and delivered 790; North River Bank v. Aymar, 3 has a claim to recognition as a stock- Hill, 262; Jarvis v. Manhattan Beach holder, if such stock can be legally is- Co., 53 Hun, 362; Tome*. Parkers- sued, or to indemnity if this cannot be burg Branch, 39 Md. 36; Baltimore, done. The fact of forgery does not etc., R. R. Co. v. Wilkens, 44 Md. 11, 28; extinguish his right when it has been Western M. R. Co. v. Franklin Bank, perpetrated by or at the instance of an 60 Md. 36; Com. v. Bank, 137 Mass, officer placed in authority by the cor- 431; Holden v. Phelps, 141 Mass. 456; poration and intrusted with the cus- Manhattan Beach Co. v. Harned, tody of its stock books and held out 27 Fed. Rep. 486; Shaw v. Port by the company as the source of in- Philip & Colonial Gold Mining Co, formation upon the subject.'" 13 Q. B. Div. 103. The rule is, J Titus v. President, etc., Great we think, correctly stated in Beach on Western Turnpike Road, (1876) 61 N. Private Corporations (Vol. 2, 488, p. Y. 237. Claflin v. Farmers & Citizens' 791): 'When certificates of stock con- Bank, 25 N. Y. 293, was distinguished tain apparently all the essentials of by the Court of Appeals, genuineness, a bona fide holder thereof : 810] FRAUDUI.KXT ACTS OF OFFICERS. 885 tin-in to the purchasers, each of whom received dividends regu- larly until the fraud was discovered, after which the corporation refused to recognize the certificates as valid, or to allow a trans- fer of the stock. Tne purchasers ;m valid. 1 1 Allen r. South Boston Hailrond Co., (1889) 150 Mass. 200; Craft r. South Bos- ton Railroad Co., (1889) 150 Mass. 200. " The agreed facts in both cases," said FiKi.n, J. ( speaking for the court, "show gross carelessness on the part of the president in signing certificates in blank, and negligence on the part of the directors in not examining the books and discovering the fictitious trans- fers of stock made by the treasurer." Then, as to the admissions on the part of the defendant, it is said: "The counsel for the defendant does not deny that if these certificates of stock had been sold and duly assigned by tin' plaintiffs for value to one who hud no knowledge that they had been fraudulently issued, the defendant would be liable in damages to the pur- chaser. He admits the general rule that a corporation is estopped to deny the validity of certificates issued in proper form under its seal, and duly signed by the officers authorized to issue certificates, if they are held by persons who took them for value with- out knowledge or notice that they had been fraudulently issued." Moores r. Citizens' National Bank, 111 U. 8. 156; Boston & Albany Railroad r. Richard son, 135 Mass. 473 ; Machinists' Na tional Bank v. Field, 120 Mass. 845; Pratt v. Taunton Copper Manuf. Co., 123 Mass. 110; New York .V Xew Haven Railroad r. Schuyler, 84 N. Y. 30, 64; Titus v. Great Western Turnpike Road, 61 N. Y. 237, 245 ; Holbrook v. New Jersey Zinc Co., 57 N. Y. 616; Shaw r. Port Philip Mining Co., 13 Q. B. I). 103. Of the contention on behalf of the corporation, it is said: "But he contends that the plaintiffs were negli- gent in accepting the new certificates without taking pains to ascertain whether old certificates of a corre- sponding number of shares had been surrendered, and a transfer made upon the books of the company. Each certificate of stock in the defendant's company, as the plaintiff knew, de- clared that the shares are 'transfer- able by an assignment in the books of said company upon a surrender of this certificate. When a transfer shall be made in the books of the company, and this certificate surrendered, a new one will be issued.' See Pub. 8ts. Hum chap. 113, 13. The contention is, that one object of this provision \v.-i* the protection of the corporation against the frauds of its officers in issuing false certificates, and that if the plaintiffs in these cases had re- 336 FRAUDULENT ACTS OF OFFICERS. [220 220. The same subject a Pennsylvania decision. A president of a corporation having fraudulently issued false certificates of stock of the corporation, properly signed and sealed, in excess of the amount authorized by law, a Court of quired that a certificate of shares be delivered to them with an assignment of it, or a power of attorney to assign it. [the treasurer] could not have com- mitted these frauds." The court said to this: *'We do not see why [the treasurer], having been intrusted with blank certificates signed by the presi- dent, might not have issued certifi- cates to himself, and then assigned them when the stock was sold, and on the surrender of the old certificates have issued new certificates. Perhaps the chances of detection would have been slightly greater if he had pro- ceeded in this way. But certainly this provision regulating the transfer of stock, if intended as a protection to the corporation against the frauds of its officers, is insufficient. The primary purpose of it undoubtedly was to prescribe the manner in which such intangible property as shares of stock should be transferred from one person to another, and it required the transfer to be made on the books of the company that the company might know who its stockholders were, and it required the surrender of the old certificate before the new one was is- sued, that there might not be two or more certificates outstanding for the same shares of stock. The ground on which a corporation is held liable to a bona fide purchaser for value of false certificates of its stock issued under its seal, signed by the proper officers, and apparently genuine, is that the certifi- cates are statements by the corpora- tion of facts which it is its duty to know, and which cannot well be known to the purchaser. It is the duty of the proper officer of the corpora- tion to ascertain that its stock has been transferred in accordance with its by- laws and in accordance with law, be fore they issue a new certificate. The transfer, which must be made on the books of the company, must be made by the owner of the old certificate, or by his attorney for him. The sur- render of the old certificate must be made by him or his attorney. There is no provision that it shall be made by the purchaser, as the assignee of the attorney of the seller. If the sel- ler undertakes with the purchaser to make the surrender and the transfer on the books of the company, the only thing left for the purchaser to do is to call upon the corporation for the new certificate. We see no good reason for holding that there is a duty on the part of the purchaser towards the cor- poration, to see to it that the seller of stock surrenders his certificate and transfers it on the books of the cor- poration. That is the duty of the cor- poration towards both the seller and the purchaser before it issues a new certifi- cate. If the purchaser exhibits to the corporation a forged assignment of stock or a forged power of attorney to assign it, and thus obtains a new certifi- cate, which he sells, he is liable to the corporation, not because it is his duty to attend to the transfer of stock, but because he has impliedly represented ,the forged signature to be the genuine signature of a stockholder, whereby he has deceived the corporation. Boston & Albany Railroad v. Richardson, 135 Mass. 473. Before the passage of the statute of 1884, chapter 229, if not since, the transfer of stock was usually attended to by brokers, if the stock was bought and sold through brokers. Many shares 220] ACTS OF OFFICERS. 337 Common Pleas of Pennsylvania held that Ixniajide purchasers of such stock were entitled to relief against the corporation which rotiM imt gainsay its own certiticates. They held further that the measure of damages in such a case would IK: tin- market value the fact that [the treasurer], who committed tin- fraud upon tin- tlcfcnd ant, was, also, her agent in the trans- action. If he be regarded as acting in two capacities, and as having com- mitted the fraud iti his capacity as treasurer, he 3- el, as her agent, knew of and participated in it. Is this knowledge to be imputed to her in de- termining her rights against the defendant? The general rule is that notice to an agent, while acting for his principal, of facts affecting the character of the transaction, is con- structive notice to the principal. Suit . Woodhall, 113 Mass. 891; National Security Bank t. Cushman, 121 Mass. 490; Sartwcll r. North, 144 Mass. 188; The Distilled Spirits, 11 Wall. 856. There is an exception to this rule, when the agent is engaged in committing an independent fraudulent act on his own account, and the facts to be imputed relate to this fraudulent act. It is sometimes said that it can- not be presumed that an agent will communicate to his principal acts of fraud which he has committed on his own account in transacting the busi- ness of his principal, and that the doc- trine of imputed knowledge rests upon a presumption that an agent will com- municate to his principal whatever he knows concerning the business he is engaged in transacting as agent. It may be doubted whether the rule and the exception rest on any such reasons. It has been suggested that the true reason for the exception is that an in- dependent fraud committed by an agent on his own account is beyond the scope of his employment, and, therefore, knowledge of it, as matter of law, cannot be imputed to the prin- of stock represented by a single cer- tificate were often sold in parcels to many different persons, and the seller made but one surrender, with powers of attorney to transfer the parcels to the different purchasers. A purchaser of stock violated no duty to the corpo- ration when he trusted to the sellsr to make tin assignment and the surrender of the old certificate. The utmost that can reasonably be contended is that the fact that a certificate was not ex- hibited and delivered with a power of attorney to the purchaser, was a cir- cumstance to be considered upon the question whether the purchaser acted in good faith and with, due care. " The court then, in detail, states the facts attending the purchase and transfer of shares through the brokers, and said: " On these facts, we think it dear that [this plaintiff] exercised due care in obtaining a transfer of the stock, and that [the treasurer] in mak- ing the transfer was not his agent, but the agent of [the broker selling it], or the undisclosed principal. In issuing the M'-W certificate he was the agent of the defendant, and as the plaintiff cannot now be put in ttntu quo, the defendant must bear the loss." Of the second case, it was said: "The plaintiff received from [the treasurer], as broker, a certificate, in her name, of the stock which he said he bad bought for her, and there is nothing to show that this was not the usual way in which brokers transacted such business. Apparently [she] acted as a purchaser, though a broker usually acted, and we see no want of due care on her part." They then re- fer to a question in her case: "An- other question arises in her case from 43 338 FRAUDULENT ACTS OF OFFICERS. [ 220 of the stock at the date of a demand by the holders for a trans- fer, or, if no demand were made, at the date of filing the bills ; and, where specific performance was impossible, a pecuniary equivalent might be awarded. 1 cipal, and the principal cannot be held responsible for it. On this view, such a fraud bears some analogy to a tort willfully committed by a servant for his own purposes, and not as a means of performing the business intrusted to him by his master. Whatever the reason may be, the exception is well established. Kennedy v. Green, 3 Myl. & K. 699; Espin v. Pemberton, 3 De G. & J. 547; Holland v. Hart, L. R, 6 Ch. 678; In re European Bank, L. R, 5 Ch. 358; Cave v. Cave, 15 Ch. D. 639; Kettlewell v. Watson, 21 Ch. D. 685, 707; Innerarity D. Merchants' National Bank, 139 Mass. 332; Dilla- way D. Butler, 135 Mass. 479; Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268; Howe v. Newmarch, 12 Allen, 49. The case [of Craft ?. South Boston R. R. Co.] seems to me to fall within this exception. Al- though the fraudulent act of [the treasurer] may not have been com- mitted with the intention of cheating .the plaintiff, yet that was its legal effect, and it was a fraudulent act committed by him for his own benefit, the actual effect of which would have been wholly to avoid the transaction if the plaintiff had known of it. The present cases we think fall within the principle that where one of two inno- cent persons must suffer a loss from the fraud of a third, the loss must be borne by him whose negligence en- abled the third person to commit fraud." 1 Willis r. Philadelphia & Darby R. R. Co., (Pa. 1878) 6 W. K C. 461. The court said : " It is well settled that one who, as a purchaser or lender, gives value on the faith of a certificate of stock, authenticated by the seal of the corporation and the signatures of the proper officers, acquires an equitable title, and may require the corporation to transfer the stock to him or respond in damages for the default. It is not a sufficient answer to such a demand that the certificate was fraudulently is- sued, because corporations are, not less than natural persons, answerable for the conductof their agents in the busi- ness intrusted to their care. Nor is it necessarily conclusive against such a purchaser that the party from whom he bought was cognizant of, or par- ticipated in, the fraud. If a certificate of stock is not a negotiable instrument, it is a written declaration that the holder has a definite share in the capital or profits of the concern, which, though delivered to him, is intended for circulation and virtually addressed to all the world, and third persons who are misled by such an instrument may justly require that the loss shall fall on the corporation and not on them. New York & New Haven R. R. Co. r. Schuyler, 34 N. Y. 30, 52, 80; Bank of Kentucky V. Schuylkill Bank, 1 Parsons' Eq. 180; In re Bahia & San Francisco R. R. Co., L. R., 3 Q. B. 595. * * * " The defendants an- swered that, however sound the argu- ment might be under other circum- stances, it was inapplicable here, be- cause the railway company was limited by its charter to ten thousand shares. When that number was reached the power was exhausted, and any subse- quent proceedings under it merely void. The barrier thus set was in- superable, and could not have been surmounted by a vote of the directors or stockholders, or by both conjoined. To hold that the president and treas- 281] FUAUDULEXT ACTS OF OFFICERS. 339 221. When a corporation may not respond for damages for fraudulent issue of stock. The officer of a corporation in a New York case obtained certain certificates of stock of a corponition, which had been signed by a former president of the corporation in blank, and left with the other then officers UIXT could, by a fraudulent and un- authorized overissue, bind the com- pany to that which the company was powerless to perform, was to hold that an agent might acquire a power through fraud which the principal did iiot possess and could not have con- ferred. The court said : " This argu- ment might be unanswerable if the power to give certificates was identical with the power to create stock, or if a certificate could not legitimately be issued to any one who claimed under a derivative title, because it would then be incumbent on third persons to take notice of the limited nature of the power and ascertain whether it had been strictly pursued. It is. however, plain that the legislature did not in- tend to impose a rule contrary to the ordinary course of business, and which would have enhanced the market value of the stock. Although the company could not issue a larger number of shares than that prescribed by its charter, it might well give a new certificate to a purchaser in lieu of that surrendered by the vendor, and repeat the act as often as the occa- son required. This was virtually conceded during the argument, but it was at the same time strenuously urged that, to render such a substitu- tion valid, the pre-existing certificate must be given up as other stock duly transferred on the corporate books. If this method was observed the public and stockholders would be safe, and a departure from it involved an excess of power which rendered the trans- action void, not only between the original parties, but as it regarded purchasers claiming under them. The cogency of this reasoning should not render us unmindful of a considera tion by which it is controlled. That which a corporation is not authorized to do under any circumstances, or which is absolutely forbidden by its chart cr. isso entirely void that nothing short of an act of assembly can render it s ali'i, but that which it may do for certain purposes and not for others, or on the happening of a particular event, is not necessarily within this rule, and may take effect although the pre- requisites were not fulfilled. N. Y. & N. H. R. R. Co. r. Schuyler, 34 N. Y. 80, 68. The case in hand apparently belongs to the latter category. We have seen that although the railway company could not create new stock, it might properly give a certificate to a purchaser as evidence that he had acquired a title regularly deduced on the books, and the legal, as well as the natural, presumption in every such case is that the power has been ex- ercised for a legitimate end, and not in a way to render it invalid. N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30, 63. ' Acts of corporations,' says Judge KINO in Bank of Kentucky v. Schuylkill Bank, 1 Pars. 252, ' which presuppose the existence of other acts to make them legally oper- ative, are presumptive proof of the latter. In short, the acts of artificial persons afford the same presumptions as the acts of natural persons. Each afford presumptions, from acts done, of what preceded. A vote of a cor- poration may be presumed from other acts, though there is no proof of such vote on the corporate records. * * * The source from which these prin- 340 FRAUDULENT ACTS OF OFFICERS. [ 221 to be used in case a stockholder desired to transfer his stock in the president's absence. He filled out the blanks in one of these certificates, inserting his own name as stockholder, forging the name of one who was the treasurer of the corporation when the president signed them, and si ned his own name as transfer agent, which position he occupied at that date, and dating the transaction to make it conform to the date when the president's signature was affixed. When he did this he was president of the company. He used the false certificate of stock by pledging it as a collateral security for a loan made to him personally. In an action by the holder of this certificate against the corporation for damages, by reason of his fraud, the New York Court of Appeals held that there could be no recovery. 1 ciples have been drawn is the judg- the corporation shall transfer the ment of Justice STORY in The Bank v. stock, or, if unable to do so in conse- Dandridge, 12 Wheat. 64.' This cita- quenceof an obstacle which cannot be tion would seem to be a conclusive removed, give an equivalent for that answer to the argument that the pro- which is withheld. N. Y. & N. H. duction of a certificate of stock is not R. R. Co. v. Schuyler, 34 N. Y. 30, prima facie evidence of a title, and 80, 83." that a purchaser must examine the ' Manhattan Life Insurance Co. v. records of the corporation and ascer- Forty -second Street & Grand Street tain from them whether the vendor Ferry R. R. Co., (1893) 139 N. Y. 146; has the right which the certificate 8. c., 34 N. E. Rep. 776. This opinion avers. Such an investigation is abso- was rendered by MAYNARD, J. , lutely superfluous where the officers who said : "The rule which imposes of the corporation have done their a liability upon the principal for the duty, and will generally be unavailing unauthorized acts of his agent, is when they are engaged in the per- 'founded upon public policy, and is petration of a fraud. N. Y. & N. H. well defined. It is limited to cases R. R. Co. v. Schuyler, 34 N. Y. 30, where there was an apparent au- 71. It is no doubt true, as the counsel thority to do the act in question ; and for the defense contend, that the it appeared to have been done in the formal mode of deducing title to stock course of his employment as agent is by a transfer regularly made in some and was within the scope of his gen- book kept for the purpose by the cor- eral powers. None of these grounds poration or its duly constituted of liability have been shown here, agents. But although a certificate of The agency did not exist in 1888, stock is not the title, it is au authorita- which was necessary in order to de- tive declaration that such a title exists, prive the principal of the right to dis- which may operate as an equitable claim responsibility for the unauthor- estoppel in favor of third persons who ized act. With respect to the creation part with value in the belief that it is of certificates bearing date in 1881, he true. The legal title does not pass to was as destitute of authority as if he the purchaser, but he acquires an had been a stranger to the corporation, equitable right, and may insist that He not only could not issue them, but 222]- FRAUDULENT ACTS OF OFFICERS. 222. Massachusetts decisions on this subject. In a case in Massachusetts it appeared that the treasurer of a railroad cor- poration had for a private debt placed fraudulently issued stock with his creditor as security in the creditor's name and the cred- itor had afterwards used it as a collateral himself for a loan, but upon payment of his loan it was reassigned to him. The court held to this effect: That if an officer of a corporation having the he could take no part in their issue, or do any act required by law, or by the by-laws, essential to give them validity. When he issued such a cer- tificate in his own nnme, he WHS not apparently acting within the scope of any general authority conferred upon him by the corporation. The defend- ant cannot justly be held liable for the misuse of a power which it never created. This case has no feature in common with the Fifth Avenue Bank against the same de- fendant, 137 N. Y. 231. There [this officer], at a time when he was treasurer and transfer agent, and in- vested with authority in both capaci- ties to sign, countersign and seal valid certificates of stock, forged the name of the president to a certificate and issued it to a confederate, who negotiated a loan upon it at the bank, which, before receiving it, caused inquiry to be made at the office of the defendant, and was informed that the certificate was genuine. [He] was there acting within the scope of his apparent authority, and whether the rertiticate had been actually signed by the president and was issued in the regular course of the administra- tion of the affairs of the company, were facts peculiarly within his knowledge, and the countersigning and issue of the certificate in due form was a representation by him that these conditions had been complied with, and that the facts existed, upon which his right to act depended. Here there was a total lack of dele- gated power to [him] to do a single lawful act in the issue of the certifl- cntc in the form in which it was pre- sented to the plaintiff. There was no negligent or wrongful use by him of nny authority derived from the [cor- poration]. It was a willful and criminal net, perpetrated for private gain and not connected with the exercise of any official authority or semblance of authority which he possessed as the [corporation's] agent. The plaintiff insists that there is another ground upon which a re- covery is permissible. When [this officer] made the loan and pledged the forged certificate, he represented to the plaintiff that it was a genuine certificate of the stock of the corpora- tion ; and as he was then its president and chief administrative officer, the claim is made that the [corporation] fs bound by his representations. * * * [This officer], when he negotiated the loan, was not engaged in the transaction of the [corporation's] business, or in the discharge of any duty imposed upon him by the [cor- poration]. The declarations of an agent are only admissible against his principal when made as a part of a transaction undertaken in behalf of his principal, or in the performance of the duties of his agency. First Nat. Bk. of Lyons c. Ocean Nat. Bk., 60 N. Y. 278. Or, as is sometimes -i.it. .!. the representations of the agent, when not expressly authorized l>v the principal, must, in order to bind him, be within the scope of his 342 FRAUDULENT ACTS OF OFFICERS. [222 power, either alone or with others, to issue certificates of stock, fraudulently issues as security for his private debt a certificate to his creditor in the latter's name, such creditor cannot rely upon the certificate and recover damages from the corporation upon its refusal to recognize it as valid, although he has no knowledge of the fraud ; but if upon taking it he fails to investigate the title to the stock he is affected with notice of what- ever he might have discovered upon making proper inquiry. 1 agency, which is but another form of ciple from Moores v. Citizens' National expressing the same proposition. N. Bank, 111 U. S. 156. In that case Mr. Y. Life Ins. Co. v. Beebe, 7 N. Y. 364. Justice BRADLEY dissented, and the But, without determining what are decision has been the subject of some the duties of the officers of a corpora- criticism. Lowell Transfer of Stock, tion, when called upon to respond to 112, note 2. The ground of that de- the inquiries of intending purchasers of cisiou as stated in the opinion is as fol- the stock, there is a sufficient reason lows: The. plaintiff ' having distinct why the plaintiff cannot avail himself notice that the surrender and transfer of the representations of [this officer] of a former certificate were prereq- in regard to the genuineness of this uisites to the lawful issue of a new certificate. They ware made in a one, and having accepted a certificate private and personal transaction, that she owned stock without taking undertaken for his individual benefit any steps to assure herself that the and so understood by the plaintiff, legal prerequisites to the validity of The plaintiff knew that [this officer], her certificate which were to be ful- in the negotiation of the loan, was not filled by the former owner and not by acting as the officer or agent of the the bank had been complied with, she [corporation], or in its behalf, and that does not, as against the bank, stand in his personal interest in the transaction the position of one who receives a cer- might lead him to betray his prin- tificate of stock from the proper offl- cipal. It is an old doctrine, from cers without notice of any facts im- which there has never been any de- pairing its validity.' Upon a review parture, that an agent cannot bind his of the authorities in the opinion it is principal even in matters touching his said: ' This review of the cases shows agency, where he is known to be act- that there is no precedent for holding ing for himself, or to have an adverse that the plaintiff, having dealt with interest." See, also, Stone v. Hayes, 3 the cashier individually and lent money Denio, 575; Bentley v. Columbia Ins. to him for his private use, and received Co., 17 N. Y. 423; Claflin r. Farmers from him a certificate in her own & Citizens' Bank, 25 N. Y. 293; Wil- name, which stated that shares were son n. M. E. R. Co., 120 N. Y. 145; transferable only on the books of the Moores c. Citizens' Nat. Bank, 111 U. bank and on surrendered former cer- S. 156; Farrington t. South Boston R. tificates, and no certificate having been R. Co., 150 Mass. 406. surrendered by him or by her, and 1 Farrington v. South Boston Rail- there being no evidence of the bank road Company, (1890) 150 Mass. 406. having ratified or received any benefit Arguendo, it was said: "The present from the transaction, can recover from case cannot be distinguished in prin- the bank the value of the certificate 222] FRAUDULENT ACTS OF OFFICERS. These facts appear in another Massachusetts case. Tlu- by-law* of a corporation provided that "each stockholder shall be entitled to a certificate of his stock uudrr the seal of the corporation and signed by its president and treasurer.'* The pivsidmt bad no authority to issue certificates of stock. He had access to the stock book and issued to certain parties certificates of shares of the cor- poration, signed by himself, and forged the signature' >f tin-- delivered to her by its cashier.' In that case the president of the bank had left blank certificates of stock signed by him with the cashier, as in the present case the president of the rail- road company had left similar blank certificates with the treasurer. At the trial of that case in tin- I'nited States Circuit Court a verdict was directed for the defendant on the ground that the plaintiff having had knowledge of the fact that Moores, upon whom she relied to have the stock transferred to her, was acting for himself as well as in his capacity of cashier that is, acting for the bank upon one side and for himself on the other in reference to the matter of issuing this certificate she is not, in the judgment of this court, an innocent holder of the stock. Moores o. Citizens' National Bank, 15 Fed. Rep. 141." The Massachusetts Supreme Court resumed: " We have decided in Allen r. South Boston Rail- road Co., 150 Mass. 200, 204, that a purchaser of stock owes no positive- duty to the corporation to see to it that the seller surrenders the old cer- tificate and makes an assignment of the stock on the books of the company . but that it is the duty of the corpora- tion which requires these things to be done to see that they are done before a new certificate is issued to the pur chaser. The plaintiff, in the rase ai bar, knew that he was dealing with the treasurer of the defendant in his personal capacity as a borrower of money. If the by-laws of the com- pany had provided that certificates of stock should be signed only by the treasurer, and if he were charged with the duty of attending to tin- transfer of stock and the issuing of certificates, any person lending money to him for his private use and taking in his own name a certificate of the company's stock as collateral security, could reasonably be required to investigate the title of the treasurer to the certifi- cate delivered, because in issuing such a certificate the. t reasurer would have a personal interest adverse to tliatof the corporation. An agent cannot prop- erly act for his principal and himself when their interests are adverse, and any person dealing with an agent in a matter affecting his principal and knowing that the interests of the agent are adverse to those of his principal, ought to be held to the duty of ascer- taining that the acts of the agent are authorized by his principal. The difficulty in the present erase is that these considerations are only partially applicable to it. It is on account of the danger that one officer may abuse his power to issue stock certificates that the by-laws of corporations usually re- quire the certificates to be signed by at least two officers of the corporation. If one of these neglects his duty or delegates the performance of it to the other, the safeguard intended by this requirement of the by law In-come* ineffectual, ami it" one of these officers in issuing a Mock certificate has a per- sonal iiitcre-t :td \er-e to that, of the corporation, a person dealing with him and knowing this uiay well be required 344 FRAUDULENT ACTS OF OFFICERS. [222 treasurer to the same. The holders of these certificates sought by action to hold the corporation responsible for these spurious certificates of stock, contending that the corporation was bound to make the certificates good, or was responsible for their being bad, on the ground that, in view of his previous known misconduct, the corporation was negligent in permitting its president to remain in that official position, and to have control of its certificate book and seal, and that the cases fall within the principle that, where one of two innocent persons must suffer a loss for the fraud of a third, the loss must be borne by the one whose negligence enabled the third person to commit the fraud. The Supreme Court of Judicature of that state held that the corporation was not liable for the acts of its president in issuing these certificates. 1 to take notice that the rights of the corporation are not protected in the transaction to the full extent intended by the by-laws." >Hill v. C. F. Jewett Publishing Co., (1891) 154 Mass. 172; s. c., 28 N. E. Rep. 142. ALLEN, J., said: "In the absence of any previous miscon- duct on [the president's part], it could hardly be maintained that there was any negligence on the part of the cor- poration in keeping its seal and book of certificates of shares where the president could have access to them, so as to be able to remove blank cer- tificates from the end of the book and impress the corporate seal upon them. We are not aware that it is customary for corporations in this country to keep their seals or books of certificates in such a way that access can only be had to them when two or more officers are present. The chief safeguard in respect to the certificates is the necessity of two signatures. And, accordingly, when one who has had confidence reposed in him has availed himself of his oppor- tunity to commit a fraud upon others by means of forgery, it has usually been held in England that the loss was not a natural or probable result of the confidence thus imposed, even though it showed carelessness, and that it was too remote to be properly chargeable upon those who were thus careless in reposing the confidence.' Bank of Ireland r. Evans' Charities, 5 H. L. Cas. 389; Mayor etc., of Staple of England v. Governor etc., of Bank of England, 21 Q. B. D. 160, 176; Swan r. North British Australasian Co., 2 H. & C. 175, 189. See, also, Vagliano r. Bank of England, 22 Q. B. D. 103, 117; s. c., on appeal, 23 Q. B. D. 243, 255, 263. The plaintiffs rely much on Shaw r. Port Philip & Colo- nial Gold Mining Co., 13 Q. B. D. 103, which in many of its general features much resembles the present case, but with certain differences. In that case the secretary of the defendant com- pany issued a certificate of shares, with the name of a director forged by himself. The person to whom it was issued bought shares on the market, through a broker, who received a transfer signed by the secretary, ac- companied by what purported and in all respects appeared to be a regularly issued certificate of those shares. These were deposited at the com- pany's office, with the request for the issue of a new certificate, in the usual way. The new certificate was issued in the usual form by the secretary, but the signature of a director, which FRAUDULENT ACTS OF OFFICERS. was required, was forged. It was a part of the regular and authorized duty of the secretary to receive and examine transfers and certificates of shares, to have transfers registered, to procure the preparation, execution and signature of certificates with all requisite and prescribed penalties, and thereupon to issue them to the persons entitled to receive them. Moreover, the company, after the issue of the certificate, paid a dividend thereon, by check signed by the secretary and two directors. The decision of the case, which was not heard before the Court of Appeal, was placed on the ground that the company had made it the duty of the secretary to procure the preparation, execution and signature of certificates with the prescribed pen- alties, and thereupon to issue them to the person entitled to receive them. The principal facts upon which the decision turned are wanting in the case before us. The president of the defendant corporation was not the proper officer to issue certificates, and the certificates which the plaintiff re- ceived did not come from the office of the defendant in the regular course of business, but they were received by the plaintiffs under private and per- sonal transactions between themselves and Jewett, the president." CHAPTER VI. PERSONAL LIABILITY OF OFFICERS. 3 223. Directors' liability general rules. 224. Liability of other officers general rules. 225. Rules as to liability of officers for diversion of property of corporation. 226. Liability of officers arising from manner of execution of com- mercial paper. 227. Liability of officers arising from indorsement of commercial paper. 228. Liability of officers of savings banks. 229. Liability of a treasurer of a corporation for payment of orders on forged indorse- ments. 230. Liability on contract made before complete organiza- tion of the corporation. 231. Rule as to recovery in such a case. 232. County treasurer liable upon his receipts to collector for money. 233. County treasurer liable as bailee of county funds. 234. County treasurer paying court orders on forged instruments. 235. Arbitration as to liability of a treasurer of a township. 236. Liability under special provis- ions of charter or statute. 237. Liability under provisions of charter Pennsylvania. 238. Statutory liability California statutes. 239. Statutory liability Colorado statutes. 240. Statutory liability -- Iowa statutes. 241. Statutory liability Massachu- setts statutes. 242. Statutory liability Minnesota statutes. 243. Statutory liability Missouri statutes. 244. Statute of New York liability for failure to file annual report. 245. Actions to enforce this liability. 246. What are, and what are not, "debts" for which liability under this statute may arise. 247. A United States Supreme Court decision on this subject. 248. Statute of New York liabili ty for creation of debts in excess of capital stock. 249. Liability for incurring indebt- edness in excess of capital stock Illinois statute. 250. United States Supreme Court- decision on a similar stat- ute the proper action in such a case. 251. New York statute liability for false statement in certifi- cate, etc., filed. 252. Illustrations. 253. Statutory liability Rhode Is- land statutes. 254. Statutory liability various states. 255. Liability of directors or officers under an English statute. 223. Directors' liability general rules. Whether direct- ors of a corporation are to be regarded as its agents or its ele- ments, impartial justice and public policy require that as all nat- 223] PERSONAL LIABILITY OF OFFICERS. '->l , ural persons are, so they should be held responsible to third persons for the malfeasance by them in fact committed or commanded. 1 Directors or officers of a corporation acting beyond their power, whereby loss inures to the corporation, or disposing of its property, or paying away its money without authority, will be required to make good the loss out of their private estates. 8 But they are not liable, in the absence of fraud or intentional breach of trust, for negligence, mistakes of judgment and bail management in making investments on doubtful or insufficient security. Where they have not profited personally by bad man- agement or appropriated any of the property of the corporation to their own use, courts of equity treat them with indulgence. 8 The directors of a corporation, as trustees of its shareholders, are liable for all losses caused by their willful failure to exercise the care and attention to the affairs of the corporation which would prevent a misappropriation of the trust or corporate 'funds. 4 But directors and officers of a company will not be held personally liable to its creditors on the ground that they have mismanaged its business and contracted an indebtedness in excess of the limit prescribed in its charter, unless they are made liable by the pro- visions of the charter or some general statute regulating such cor- porations. And it would make no difference that the credit be extended in reliance upon the business character and financial responsibility of the directors and officers. 5 If directors of a cor- Rule declared in Salmon v. Rich- Spering's Appeal. 71 Pa. St. 11; Citi- ardson, (1802) 30 Conn. SCO, 874, in zens' B. L. & 8. Association r. Coriell, which case the directors of an insur- 34 N. J. Eq. 383, 392; Swent/el r. ance company who had fraudulently Penn. Bank, (1891) 147 Pa. St. 140; permitted false statements to be offl- s. c., 23 Atl. Hep. 413; In re Forest of daily made by the president and Dean Coal Mining Co., L. R, 10 Ch. secretary of the company, as to its Div. 450; Ackerman r. Halsey, 37 N. assets and condition, which induced a J. Eq. 363; Hun r. Cary, 82 N. Y. 65; person to insure in the company when In re Denham & Co., L. R., 2*> Cii. the company was utterly insolvent, Div. 752; Watts' Appeal, 78 Pa. St. and after his loss he could recover 391. Liability of directors for acts nothing from the company, were held ultra nrt# discussed, and decisions not to be saved from personal liability showing the current of authority in for the injury by reason of the fact England on the subject reviewed, 34 that they were acting officially. Solic. J. 503. * Joint-Stock Discount Co. r. Brown, * I,rwis r. St. Albaus Iron & Steel L. R, 8Eq. 881; Flitcroft's Case, L. Works, 50 Vt. 477. R., 21 Ch. Div. r19; Franklin Ins. Co. * Frost Manufacturing Co. r. 1 v. Jenkins. :{ Wend. 130. (1880) 76 Iowa, 585; a c., 41 N. W. Briggs r. Spauldiug, 141 U. >. !::; Kr|>. '-'l^. That din-dors arc not ru- 348 PERSONAL LIABILITY OF OFFICERS. [ 223 poration are guilty of gross negligence and inattention to the duties of their trust, they will be personally liable if they suffer the corporate funds or property to be wasted or lost by reason of such negligence and inattention. 1 The care and diligence required of directors in the discharge of their duties as such, must be determined in each case in view of all the circumstances. 2 The directors of a corporation in whom its constitution reposes an enlarged discretion in the management of its business, are respon- sible to its stockholders only for good faith and reasonable dili- gence ; a mere error of judgment on their part in compromising a debt due to the corporation, would not entitle a stockholder to relief Against the directors in equity. 3 The directors of a manu- facturing corporation have no authority to divert the corporate property by issuing accommodation paper, or otherwise loaning its money or credit without consideration. 4 And where officers of such a corporation accept accommodation paper in the name of the corporation, they will be held personally responsible to it for payments made or liabilities incurred in consequence of such acceptance on their part in its behalf. 5 A board of directors, in carrying out the vote of the required majority of the board, direct- ing a total cessation of the business of the corporation and a liquidation of its affairs, would be acting within the sphere of its lawful authority and would not be held liable for any loss occur- ring to the minority from the step they had taken in carrying out lieved from liability by the fact that * Horn Silver Mining Co. v. Ryan, they act gratuitously in that capacity, (1889)42 Minn. 196; 8. c., 44 N. W. see Donaldson v. Haldane, 7 Cl. & Rep. 56. Fin. 771; Thome. Deas, 4 Johns. 84, 3 Smith v. Prattville Manufg. Co., 96, 97; Charitable Corporation v. Sut- (1857) 29 Ala. 503; citing Angell & ton, 2 Atk. 405; Litchfield v. White, 3 Ames on Corp. 312-314; Robinson Sandf. 551; Spering's Appeal, 71 Pa. . Smith, 3 Paige, 222; Forbes rs. Whit- St. 11, 21; Giblin v. McMullen, L. R., 2 lock, 3Edw. Ch. 446; Bushwick, etc., Privy Council Cas. 318, 337; First Turnpike Co. v. Ebbetts, 3 Edw. Ch. Nat. Bank v. Ocean Bank, 60 N. Y. 353; Van Cortlandt v. Underbill, 17 295; Grill v. 8. C. Co., L. R., 1 C. P. Johns. 405; Dodge v. Woolsey, 18 612; Beal v. R. R. Co., 3 Hurlst. & How. 331; Godbold v. Branch Bank Colt. 341; Nolton v. R. R. Co., 15 N. at Mobile, 11 Ala. 191; Mozley v. Als- Y. 444; Wilson v. Brett, 11 Mees. & W. ton. 1 Phil. Ch. 790; Ware t. Grand 113, 115. Junction Water Works Co., 2 Russ. & 1 Horn Silver Mining Co. v. Ryan, Myl. 470. (1889) 42 Minn. 196; s. c., 44 N. W. 4 Hutchinson v. Sutton Manufactur- Rep. 56. See, also, Briakerhoff v. Bost- ing Co., (1893) 57 Fed. Rep. 998. wick, 88 N. Y. 52. > Ibid. 223] PERSONAL LIABILITY OF OFFICERS. 349 the vote of the majority. 1 An action against directors of a cor- poration for misfeasance or culpable negligence in the discharge of their official duty, may be in form legal or equitable according to the circumstances of the particular case. The proper plaintiff in such a case is the corporation. 8 The complaint in such a case need not negative knowledge of, or acquiescence on the part of the stockholders in the negligence or misconduct of the direct- ors. 8 Where directors waste or misappropriate the funds, or convert assets of the corporation in violation of their trust, or lose them in speculations, a recovery at law may be had against the defaulting directors, while a suit in equity might also be main- tained for an accounting, at the election of the corporation. 4 The directors of a corporation which has purchased the fran- chises and property of another corporation under an agreement that its debts would be paid, misapplying the assets of the latter, and leaving its debts unpaid, will be held individually responsible to the creditors of that corporation to the extent of the assets received and misapplied. 5 Directors of a life insurance company who had transferred its entire stock and assets to another in which its policyholders reinsured their risks, which transaction resulted in great loss to policyholders and creditors of the company, have been held liable to the receiver of the company to the full extent of the damage caused by such misapplication and waste of the company's funds. And the fact that these directors carried out 1 Trisconl v. Winship, (1890) 48 La. 8 Ibid. See Rolseth t>. Smith. 88 Ann. 45; 8. C., So. Rep. 29. In Minn. 14; 8. c., 35 N. W. Rep. 565. Baily, Receiver, . Burgess, (1891) 48 * Franklin Fire Ins. Co. v. Jenkins, N. J. Eq. 411; 8. c., 22 Atl. Rep. 733, 3 Wend. 130; Robinson v. Smith, 8 a director of a corporation who was Puige, 222. appointed as agent to secure a plant ' National Bank of Jefferson r. of another corporation for its use, and Texas Investment Co. (Lim.), (1889) 74 to remove incumbrances from it. and Tex. 421; s. c., 12 S. W. Rep. 101. In furnished a sum of money for the pur- Holt v. Bennett, (1888) 146 Mass. 437; pose, was held to account to the re- 8. c., 16 N. E. R<>p. 5, it was hold that ceiver of the corporation for the payments made by a corporation in- amount not expended by him as well tending in good faith to go on and as interest on various sums of money develop valuable patents owned by it, which he could have applied to the re- to its directors of money borrowed moval of incumbrances upon the prop- from them in the ordinary course of erty, but negligently delayed doing so business, were not recoverable from wi tli the funds in his hands. Buch directors by a creditor of the 1 Horn Silver Alining Co. t. Ryan, corporation whose debt at the time (1889) 42 Minn. 196; a. c., 44 N. W. was not due and payable. Rep. 56 350 PERSONAL LIABILITY OF OFFICERS. [ 224 the transactions under the advice of able and experienced counsel was held not to relieve them from their liability ; nor did the action of the policyholders in reinsuring their risks in the other company to which the assets were transferred, and receiving, by order of court, dividends upon their policies from the assets of this company, amount to a ratification of the illegal transactions of the directors so as to preclude them or a receiver of the com- pany from maintaining an action against the directors for their misconduct in the matter. 1 224. Liability of other officers general rules. The officers of a corporation are not liable personally, at common law, on a promissory note of the corporation, made by them as such officers, in which the promise to pay is made by the corporation, and not by the officers personally. 2 If any personal liability exists against officers of a corporation who have executed a note binding the corporation by its terms, and not themselves person- ally, and the contract is made without authority, and the corpo- ration cannot be holden responsible on the contract, the liability results from the wrong done by the officers in undertaking to act without authority. 3 When a corporation has in fact no authority to contract debts, a contract of a debt upon its supposed credit by its officers would impose a personal liability upon them. 4 One, a director, vice-president and general foreman of a corporation, who signed the name of the corporation to an agreement to contribute to the expenses of a suit at law, without informing the other par- ties of his want of authority to do so, thus giving them to under- stand that the corporation was interested, was held by the Michi- gan Supreme Court liable to contribute the share of the expenses otherwise chargeable to the corporation. 5 The president of a cor- 1 Pierson v. Cronk, (Sup. Ct. N. Y. cent v. Chapman, 10 G. & J. (Md.) 282, Spl. Term, 1890) 26 Abb. N. C. 25; the Maryland Court of Appeals held s. c., 13 N. Y. Supp. 845. that there could be imposed no per- * Hall v. Crandall, (1866) 29Cal. 567. sonal responsibility upon the members See, also, Blanchard v. Kaull, (1872) of the vestry of a church by proceed- 44 Cal. 440; Lander v. Castro, 43 Cal. ings as'vestrymen pledging the corpo- 497. rate funds to persons who might per- 3 Hall v. Crandall, (1866) 29 Cal. 567. form work for it, which the vestry 4 Drake . Flewellen, 33 Ala. 106; then thought adequate, if the funds Harwood v. Humes, 9 Ala. 659. should prove to be merely nominal and 5 Solomon v. Penoyar, (1891) 89 Mich, inadequate; further, that their subse- 11; s. c., 50 N. W. Rep. 644. In Vin- quently manifesting an impression that PERSONAL LIABILITY OF OFFICERS. 351 imiy be held individually liable on an implied war- ranty of his authority where he executes a written guaranty in the name of the corporation without authority. 1 The presi- dent of a corporation would not make himself personally liable to stockholder by a promise upon his transferring the stock he owned to him, that when the corporation was wound up the stock- holder should receive the proportion of the proceeds to which he would be entitled. 2 An officer of a corporation, in an action against him to recover moneys wrongfully retained by him belong- ing to the corporation, cannot defend on the ground that the receipt of such moneys by the corporation was for work or busi- ness illegal or ultra vires the powers of the corporation, or that its charter was fraudulently obtained and the election of its offi- cers illegal. 8 The president of a bank has been held chargeable with constructive notice of the management of its affairs by the cashier and other subordinate officers ; and where the bank was doing business without legal organization he could not escape the responsibility resulting from such notice by showing that he sup- posed himself the president of a legally constituted bank, if he had contributed the influence of his reputation to give undeserved credit to a spurious corporation. 4 The liability of an ostensible president of a spurious bank, in a depositor's suit for damages, is direct and original, and he will be held responsible in damages to the same extent as the bank, if legally constituted, would have been liable. 5 In a Wisconsin case, seeking to charge certain offi- cers of a corporation individually for negligence in the conduct of its affairs, it appeared that these officers, president, secretary and treasurer, who had been intrusted with the management by the directors, who held no meetings and gave no attention to their duties, had conducted the affairs of the corporation in good faith, though negligently and in the exercise of powers belonging solely to the board of directors. The Supreme Court held that these officers could not be charged as ex officio members of the board they had assumed a personal responsi- * Thompson c. Stanley, (1893) 20 N. bility, without an act to fix the lia- V. Supp. 317. bility, could not vary the interprets * Haarkr r. Knights of Liberty tion of the instrument nor entitle the Social & Literary Club, (1893), 76 Md. pledgers to a recovery upon a claim 439; H. c., 25 Atl. Rep. 422. not otherwise well founded. 4 Ilauser . Tate. (1881) 85 N. C. 81. 1 Nelligan t. Campbell. (1893) 65 Ibid. Hun. 622; R. c., 20 N. Y. Supp. 284. 352 PERSONAL LIABILITY OF OFFICERS. [ 224 of directors, and that neither of them was liable for the negli- gence or unauthorized acts of the others in which he did not par- ticipate. 1 The court also ruled upon some questions of evidence in such a case as follows : That mere proof of failure to collect certain moneys due to the corporation was not proof that such moneys were lost ; also, that in respect to losses alleged to have been sustained because of insufficient payments to the corporation on certain accounts, a report of the secretary was not competent evidence against the president and treasurer to charge them with such losses or to show that no more was paid to him than he reported. 2 A corporation obligating itself to aid another in its enterprise, and placing funds in the hands of its treasurer for the purpose of meeting the obligation, cannot hold him liable for the funds where he has expended them in the interest of the other corporation and this expenditure has been assented to by resolu- tion of the corporation's board of directors entered in the records 1 North Hudson Mutual Building croft's Case, L. R., 21 Ch. Div. 519; & Loan Association v. Childs, (1892) Franklin Ins. Co. v. Jenkins, 3 Wend. 82 Wis. 460; s. c., 52 N. W. Rep. 600. 130. * * * This is the rule where The Wisconsin Supreme Court de- the disposition made of money or clared the rules as to liability of property of the corporation is one officers in these words: " The liability either not within the lawful power of of officers to the corporation for dam- the corporation, or, if within the power ages caused by neglect or unauthor- of the corporation, is not within the ized acts rests upon the common-law power or authority of the particular rule, which renders every agent liable officer or officers. Where the ground of who violates his authority, or neglects liability is for nonfeasance, negligence his duty to the damage of his princi- or mis judgment in respect to matters pal. It seems to be now universally within the scope of the proper powers agreed that, no matter whether the act of the officer, he will be held responsi- is prohibited by the charter or by-laws, ble only for a failure to bring to the dis- the liability is on the ground of viola- charge of his duties such degree of tion of authority or neglect of duty, attention, care, skill and judgment as Thomp. Liab. Off. Corp. 357; Briggs are ordinarily used and practiced in v. Spaulding, 141 U. S. 146. There the discharge of such duties or em- can be no doubt that if the directors ployments; the degree of care, skill or officers of a company do acts clearly and judgment depending upon the beyond their power, whereby loss subject to which it is to be applied, ensues to the company, or dispose of the particular circumstances of the its property or pay away its money case and the usages of business." without authority, they will be re- 8 North Hudson Mutual Building quired to make good the loss out of & Loan Association v. Childs, (1892) their private estates. Thomp. Liab. 82 Wis. 460; 8. c., 52 N. W. Rep. Off. Corp. 375; Joint-Stock Discount 600. Co. v. Brown, L. R., 8 Eq. 381; Flit- 224] PERSONAL LIABILITY OF OFFICERS. of the corporation. 1 The treasurer of a railroad corporation gave a bond to the corporation, conditioned that he should " faithfully discharge the duties of the office, and well and correctly behave therein." The Supreme Court of North Carolina held; in an action against him and his sureties on this bond, that the bond did not bind him to keep the money of the corporation safely against all hazards ; that it only bound him to an honest, diligent and competently skillful effort to keep the money. The treas- urer having deposited the money of the corporation to his credit as treasurer in a banking house, at the time in good standing and credit, and considered by the community a safe place of deposit for money, the treasurer and his sureties were held not to be lia- ble for its loss by the sudden and unexpected failure of the bank- ing house. 2 An action of contract by the corporation against a person to whom the treasurer of the corporation has, without authority, loaned to that person, thus misappropriating its funds, will not be held such a ratification of the treasurer's act as will relieve him from liability to the corporation. 8 It appeared also in this case that in the action brought against the borrower of its funds from its treasurer the corporation attached personal prop- erty of the borrower, a manufacturing corporation, of an uncer- tain value ; that a mortgagee duly notified the officer that he claimed the attached property under a mortgage ; that a receiver of the corporation appointed in New Jersey, where it was incor- porated, offered to pay the plaintiff, in settlement of the suit, almost fifty per cent of its claim ; that the plaintiff notified its treasurer and the sureties on the treasurer's bond of this offer, and offered to permit him, upon paying the amount due the plaintiff, to assume the control of the suit, and to assign to him its cause of action. The treasurer declined this proposition and the plain- tiff made a compromise with the borrower of its funds through 1 Bay View Homestead Assn. t. * Goodyear Dental Vulcanite Co. . Williams, (1875) 50 Cal. 353. Caduc, (1887) 144 Mass. 85; s. c. f 10 Atlantic & North Carolina R. R. N. E. Rep. 483. The court said: "T Co. c. Cowles, (1878) 69 N. C. 59. That hold that bringing a suit under such the rule does not apply to public offl- circumstances not only ratifies the cers or officers of public corporations, loan, so far as the borrower is con- the same court has held in Comrs., etc., cerned, but condones the offense of v. Clarke, 73 N. C. 255; Havens c. the agent and relieves him from all lia- Lathene, 75 N. C. 505. bility, would be carrying the doctrine 45 354 PERSONAL LIABILITY OF OFFICERS. [ the receiver, and gave a release reserving to itself its rights against the treasurer. The court held that this compromise, under the facts stated, did not release the treasurer from his liability to the corporation for misappropriation of its funds. 1 225. Rules as to liability of officers for diversion of property of corporation. The New Jersey Court of Errors and Appeals has declared the following rules as to the liability of directors who have diverted the property of the corporation, and the principles upon which they are founded. Referring first to the change of legislation in that state repealing the " act to pre- vent frauds by incorporated companies," MAGIE, J., said : " But in my judgment the change in legislation has not deprived cred- itors of incorporated companies of all rights in respect to the property out of which their debts must be paid, if at all. As between creditors and stockholders, the corporate property has always been held to be a fund for the payment of debts, to which creditors have a right in preference to stockholders. 2 Story's Eq. Juris. 1252. So the assets of a corporation cannot be divided among its stockholders, nor diverted to uses not contem- plated by its charter, for the benefit of stockholders to the detri- ment of creditors. Nat. Trust Co. v. Miller, 6 Stew. Eq. 155 ; Guild v. Parker, 14 Yr. 430. Nor can directors, by fictitious credits, or by accepting overvalued property in payment for stock subscriptions, deprive creditors of the fund out of which their debts should be paid. Wetherbee v. Baker, 8 Stew. Eq. 501. These doctrines do not at all depend, as I conceive, on the existence of a corporation bankrupt law, or other like legislation, nor on the prohibitions of the statutes respecting transactions in fraud of creditors, but rather on principles inherent in the nature of corporations as to artificial persons whose creditors can only enforce their debts by a resort to the property the corporation has acquired. So, upon like principles, I apprehend that the property of an incorporated company is devoted to the payment of implied ratification to an unrea- where the corporation has not qualified sonable and unjust extent." itself to do business in that state upon 1 Goodyear Dental Vulcanite Co. v. contracts made on behalf of that cor- Caduc, (1887) 144 Mass. 85; s. c., 10 poration, see Lasher T. Stimson. N. E. Rep. 483. As to the personal (1892) 145 Pa. St. 30; s. c., 23 All. liability of an agent representing a Rep. 552; 29 W. N. C. (Pa.) 404. foreign corporation in Pennsylvania, I'liy] PERSONAL LIABILITY OF OFFICERS. 355 of the creditors thereof, at least to this extent, that it may not bo diverted to other purposes. The corporation and its officers owe to their creditors this duty, not to divert the corporate property from tin; general purpose of paying the creditors. While they may dispose of the corporate property, and even prefer one cred- itor to another, they may neither give away the corporate prop- erty by a direct gift, nor by sale at less than its full and fair value, to the detriment of creditors. A violation of this duty will entitle the creditors who suffer thereby to relief. If the diversion of the corporate property from the payment of debts is effected by a mere gift, it is not necessary to discuss what relief could be afforded to creditors. If the diversion is effected under the guise of a sale, and the sale is not objectionable, as being made with intent to defraud creditors, then it is plain that relief cannot be afforded to creditors by setting aside the sale, for that, as we have seen, is not now prohibited. But, in such a case, it is equally plain that the directors who have effected such a diversion of corporate property from the payment of debts, have violated a duty, and will be personally liable to make up to creditors what Las, by their acts, been thus diverted. "When such diversion is charged to have been produced by a sale of corporate property to a stranger, the complaining creditors could obtain relief only by clear proof that by the fault of the directors, and in violation of their duty, the sale was made for less than the full and fair value of the property. But when directors make sale of corpo- rate property to one of their number, who takes part in the trans- action, as both buyer and seller, and creditors are thereby deprived of the opportunity to enforce their debts, then it results from the relation ai>ove mentioned as existing between them and the cred- itors ; that it devolves on the directors to show that the transac- tion was made in good faith, and that the sale produced the full value of the property. If they fail to show these facts, creditors are entitled to compel them to account for the full value of the property. The fact that by reason of the sale it has been ren- dered difficult to determine the real value of the property sold, will not alter the measure of the directors' liability. If there is a conflict of evidence respecting value, the fact that by the act of one of the parties, the determination of the question has been ren- dered difficult or impossible, may be considered, but it cannot enlarge the liability of the directors, which is only for so much 356 PERSONAL LIABILITY OF OFFICERS. [ 225 as has been lost to the creditors by their misconduct. 1 In an action by a receiver of an insolvent Illinois corporation against its directors to recover misappropriated moneys* of the corporation, the Supreme Court of that state has held that if the directors of an incorporated company apply the funds of the corporation to the discharge of their own indebtedness, or wrongfully pay an out- going president a salary for past services not agreed to be paid until after their performance, they will be liable to the creditors of the company for the amount of the funds thus misapplied. It was also held that where a president of an incorporated company performs services as such, without any by-law or resolution pro- viding compensation for his services, and afterwards accepts a salary voted to him for past services, he will be liable to refund the same in favor of creditors of the company. 2 The court fur- ther held, in this case, that the Statute of Limitations was no bar to a recovery, by the receiver of the insolvent corporation, from the directors, of the sums of money misappropriated by them. 8 1 Wilkinson v. Bauerle, (1886) 41 N. ington & Mississippi Ry. Co., tfl 111. J. Eq. 635, 645, 646, in which the 106; Gridley v. La Fayette, Blooming- principles of the text were applied to ton & Mississippi Ry. Co., 71 111. 200; the case before the court. See, also, Illinois Linen Co. t. Hough, 91 111. 63. on this subject, Dodd v. Wilkinson, The rule is analogous to that govern- (1886) 41 N. J. Eq. 566. ing trustees generally, who, at com- * Ellis. Ward, (1890) 137 111. 509. mon law, were not entitled to compen- The court said, upon this last point: sation. except as there was warrant "The doctrine is well settled in this therefor in the contract or statute un- court that the law will not imply a der which they acted. " promise, on the part of a private cor- 3 Ellis v. Ward, (1890) 137 111. 509. poration, to pay its officers for the In this connection, it was said: " It is performance of their usual duties, a principle of general application, and In order that such officers may legally recognized by this court, that the demand and recover for such services, assets of a corporation are, in equity, or the corporation legally make all a trust fund (St. Louis & Sandoval awards and payment therefor, it Coal & Mining Co. v. Sandoval Coal & must appear that a by-law or resolu- Mining Co., 116 111. 170), and that the tion has been adopted, authorizing and directors of a corporation are trustees, fixing such allowance before the serv- and have no power or right to use or ices were rendered. American Cen- appropriate the funds of the corpora- tral Ry. Co. v. Miles, 52 111. 174; Mer- tion, their cestui que trust, to them- rick v. Peru Coal. Co., 61 111. 472; selves, or to waste, destroy, give Rockford, Rock Island & St. Louis away, or misapply them. Holder v. Railroad Co. v. Sage, 65 111. 328; La Fayette, Bloomington & Mississippi Cheeney v. La Fayette, Bloomington Ry. Co., 71 111. 106; Cheeney r. La & Mississippi Ry . Co., 68 111. 570; 87 Fayette, Bloomington & Mississippi m. 446; Holder v. La Fayette, Bloom- Ry. Co., 68 111. 570; 1 Morawetz oa ri KSONAI. LIAIJILITY OF OFFICERS. 357 226. Liability of officers arising from manner of execution of commercial paper. In a case befon: the Appellate Court of Illinois the notCKUfM wussuliscriluMl by the defendants with the affix t-> "la- -ignature " Pres.," to the other " Sec.," and below the Mgnziturfs k ' Suit-in Coal and Mining Co." They specially pleaded that the note was the note of the coal and mining company. It was held by the court that the fact that the note was signed by defendants as officers of a corporation, and the name of the cor- poration attached, . Dills, relations established by law, and 62 111. 482; Bickford r. First Nat. Bank regulated by settled legal rules and of Chicago, 42 111. 238; Trustees of principles, where all the elements of Schools r. Ilautcnbcrg, 88 111. 219; an express trust exist, and to which Powers r. Briggs, 79 111. 493; Scaulan the same legal principles arc appli- r. Keith, 102 111. 634. 358 PERSONAL LIABILITY OF OFFICERS. [226 president, and for its debt, and that this was well known and understood by the payee of the notes, to sustain the defense he should have gone further, and shown that not only the debt was one which the corporation had the power to incur, but that the corporation authorized it to be incurred. 1 8 Brunswick- Balke Collcuder Co. v. Boutell, (Ib90) 45 Minn. 21; s. c., 47 N. W. Rep. 261. The court said: " It is well settled in this court tlmt when such a word as 'agent' or 'trustee,' which may be descriptive of the per- son, or may be descriptive of the char- acter in which the signer contracts, is affixed to the name of the party enter- ing into a contract, it is prima facie descriptive only, and that it may be shown by extrinsic evidence that the attached word was understood by all interested as determining the character in which the person using it contracted. Pratt . Beaupre, 13 Minn. 187, 189; Bingham v. Stewart, 14 Minn. 153, 214; Deeringfl. Thorn, 29 Minn. 120; s. c., 12 N. W. Rep. 350; Peterson v. Ho- mau, 44 Minn. 166; s. c., 46 N. ,W. Rep. 303. In the earlier of these cases, where the words ' Agents Steamer Flora,' had been affixed to the defend- ants' signatures to a shipping contract, it was also settled that where a party seeks to change the prima facie char- acter of the contract on the ground of agency, it is incumbent upon him to prove the fact of the agency. To es- tablish that he acted in a representa- tive capacity he must first show the existence of the capacity. If he as- sumes to act as an agent he must prove his authority to do so, or his liability upon the contract is necessarily of a personal character." In Fraukland K. Johnson, (1893) 147 111. 520, an action was brought upon a note which was in these words : " On or before, etc., the Western Seamen's Friend Society agrees to pay or order the sum of * * * with interest, etc., [signed] [defendant's name] general superiu- Where in a negotiable tendent," against the signer individ- ually. The Supreme Court of Illinois said of this writing : " [It] is not dis- tinctly the note of [defendant]. A per- sonal note by him, in proper form, would have used the personal pronoun ' I ' instead of the name of the corpo- ration, and would have been signed without the description ' Gen. Supt.' Neither is it by its terms the note of a corporation. As such it should have been signed with the name of the cor- poration by its president, secretary or other officers authorized to execute it, or, as in Scaulan v. Keith, 102 111. 634, by the proper officers designating themselves officers of the corporation for which they assumed to act, or, as in Newmarket Savings Bank v. Gillet, 100 111. 254, using the corporate name both in the body of the note and in the signatures to it. But if it be conceded that, prima facie, a general superin- tendent of a corporation has authority to make promissory notes in its name, and this instrument be held to appear on its face to be the obligation of the society, rather than of [defendant], certainly it could not even then be con- tended that it was conclusively so. It is well understood that if the agent, either of a corporation or an individ- ual, makes a contract which he has no authority to make, he binds himself personally according to the terms of the contract. Angell & Ames on Corp. 303. It was said by SUTHER- LAND, J., in Mott v. Hicks, 1 Cow. 513. s. c., 13 Am. Dec. 556 : ' It is perfectly well settled that if a person undertake to contract, as agent, for an individual or corporation, and contracts in a man- ner which is not legally binding upon 226] PERSONAL LIABILITY OF OFFI< I I:-. promissory note, given for the debt of a corporation, the language of the promise does not disclose the corporate obligation, and tin: signatures to it arc in the names of individuals who wen- in fact officers of the corporation, a ///,/,,/ #//, holder, without notice of the circumstances of its making, is entitled to hold it as the per- sonal undertaking of its Miners, although they have atlixed to their names the titles of their respective offices, as this will be regarded as descriptive of the persons and not of the character of the liability. 1 his principal, he is persourlly respon- sible (citing authorities). And the agent, when sued upon such a con- tract, can exonerate himself from per- sonal liability only by showing his authority to bind those for whom he has undertaken to act. It is not for the plaintilT to show that he hud not authority. The defendant must show atlirmativcly that he had.' This rule is quoted with approval in Wheeler v. Reed, 36 111. 91." They then consider- ing it a question of fact which had been properly referred to the jury, and the latter, upon what the court deemed the strength of the testimony, having determined adversely to the defend- ant, held their conclusion not subject to review. As to such notes being priinti facie the personal notes of the signers, sec McNeil r. Shober & Carqueville Lithographing Co., (1893) 144 III. 238; Sturdivant r. Hull, 59 Me. 172; Tucker Manuf. Co. r. Fairbanks, 98 Mass. 101; Savage e. Kix, 9 N. H. 263; Bank r. Hooper, 5 Gray, 567; Trustees r. Rautcnberg, 88 111. 219; Powers t>. Briggs, 79 111. 493; Stobie r. Dills, 62 111 }:; FSske r. Eldridge. 12 Gray, 474; Seaver r. Coburn, 10 Cush. 324. As to the admissibility of parol evi- dence in such cases to show whose note it was, sec La Salle National Bank r. Tnlu Uock&RyeCo.,14 111. App. 141; Mechanics' Bunk r. Bank of Columbia, 5 Wheat. 326; Baldwin r. Bank of New- bury. 1 Wall. 234; Brockway r. Allen. 17 Wend. 40; Kt-au r. Davis, 21 N. J. L. 688; Haile r. Peirce, :fc> M<1. :527; Rich- mond R. Co. . Snead, 19 Gratt. 354; La/ariis r Shearer, 2 Ala. 718; Owing* r. Grubbs' Adinr., 6.1. J. .Marsh. 81; McClellan r. Reynolds, 49 Mo. 312; Hardy r. Pilchcr, :>? .Mi>s. lis ; Hager r. Rice, 4 Col. 90; Magill r. Uinsdale, 6 Conn. 464; Mann /. Chandler, 9 Mass. 335; Neill r. Spencer. 5 111. App. -IT:!; Western Union r. Smith, To 111. 496; Bowles r. Lambert, 54 111. 2:57; Stookey T. Hughes, 18 111. 55; Scanlan r. Keith, 102 111. 634. 1 Casco National Bank of Portland r. Clark, (1893) 139 N. Y. 307; . c., 34 N. E. Rep. 908. In this case the note sued on, given for the debt of the corpora- tion, was written on a blank having printed on its margin the name of the corporation. No reference to the corpo- ration was made in the body of the note, which read : ' ' We promise to pay. " It was signed by the president of the cor- poration in his individual name, with " Prest." written after, and in the same manner by its treasurer, with "Treas." added to his signature. The note was discounted by the bank for the payee before maturity. The New York Court of Appeals held that an action against the signers individually was maintainable; that the appearance in print upon the margin of the name of the corporation was not a fact carry- ing any presumption that the note was, or was intended to be. the note of the company; that it was competent for the officers to obligate themselves per- 380 PERSONAL LIABILITY OF OFFICERS. [227 227. Liability of officers arising from indorsement of commercial paper. A promissory note executed by a corpora- tion, the name of which was subscribed to the note and those of the president and secretary attached, and the names of its direct- ors indorsed upon the back of it, designating themselves as sonally, and apparently they did so by the language of the note. The court said: "This must be regarded as the long and well-settled rule. Byles on Bills, 36, 37, 71; Pentz v. Stanton, 10 Wend. 271; Taft . Brewster, 9 Johns. 334; Hills v. Bannister, 8 Cow. 31; Moss v. Livingston, 4 N. Y. 308; De "Witt v. Walton, 9 N. Y. 571; Bot- tomley . Fisher, 1 Hurlst. & Colt. 211. It is founded on the general principle that in a contract every material thing must be definitely expressed, and not left to conjecture. Unless the lan- guage creates, or fairly implies, the undertaking of the corporation, if its purpose is equivocal, the obligation is that of its apparent makers. It was said in Briggs v. Partridge, 64 N. Y. 357, 363, that persons taking nego- tiable instruments are presumed to take them on the credit of the parties whose names appear upon them, and a person not a party cannot be charged upon proof that the ostensible party signed or indorsed as his agent. It may be perfectly true, if there is proof that the holder of negotiable _paper was aware, when he received it, of the facts and circumstances connected with its making, and knew that it was intended and delivered as a corporate obligation only, that the persons sign- ing it in this manner could not be held individually liable. Such knowledge might be imputable from the language of the paper, in connection with other circumstances, as in the case of Mott n. Hicks, 1 Cow. 513, where the note read, 'the president and directors promise to pay,' and was subscribed by the defendant as ' president.' The court held that that was sufficient to distinguish the case from Taft r. Brewster, supra, and made it evident that no personal engagement was entered into or intended. Much stress was placed in that case upon the proof that the plaintiff was intimately ac- quainted with the transaction out of which arose the giving of the corpo- rate obligation. In the case of Bank of Genesee v. Patchin Bank, 19 N. Y. 312, referred to by the appellant's counsel, the action was against the de- fendant to hold it as the indorser of a bill of exchange, drawn to the order of '8. B. Stokes, Cas.,' and indorsed in the same words. The plaintiff bank was advised, at the time of discount- ing the bill, by the president of the Patchin Bank, that Stokes was its cashier, and that he had been directed to send it in for discount, and Stokes forwarded it in an official way to the plaintiff. It was held that the Patchin Bank was liable, because the agency of the cashier in the matter was com- municated to the knowledge of the plaintiff as well as apparent. Inci- dentally, it was said that the same strictness is not required in the execu- tion of commercial paper as between banks; that is, in other respects, be- tween individuals. In the absence of competent evidence showing or charg- ing knowledge in the holder of nego- tiable paper as to the character of the obligation, the established rule must be regarded to be that it is the agree- ment of its ostensible maker and not of some other party, neither disclosed by the language nor in the manner of execution." To obviate the effect of this rule, the appellant in this case proved that one, a director of the cor- PERSONAL LIABILITY OJ "I 1 l I I>. 361 "board of director.-," was the cause of action in a Kansas case. The lower court refused any evidence as to tin- eircum-tances uiiclrr whieh tin- names of the directors were indorsed ujxm the note, and thev were held l>ound as guarantors of the note of the oi-|. oration. The Supreme Court held that as between the origi- poration, the payee company, was also a director in the plaintiff bank at the time whi-n the note was discounted, und it was argued that the knowledge chargeable to him as director of the former company was imputablc to the I'laimilT. To this argument the Court of Appeals said: "But that fact is in- sufficient to charge the plaintiff with knowledge of tho character of the ob- ligation. He in no sense represented or acted for the bank in the transac- tion, and whatever his knowledge re- specting the note, it will not be imput- able to the bank. National Bank r. Norton. 1 Hill, 572, 579; Mayor, etc., tt Tenth National Rink, 111 N. Y. 446, 457; Farmers', etc.. Bank r. Payne, 25 Conn. 444. He was but one of the plaintiff's directors, who could only act as a board. National Bank r. Nor- ton, supra. If he knew the fact that these were not individual, but corpo- rate, notes, we cannot presume that he communicated that knowledge to the hoard. An officer's knowledge, de- ived as an individual, and not while cting officially for the bank, cannot Derate to the prejudice of the latter. Fink of U. 8. v. Davis, 2 Hill, 451. 'In- knowledge with which the bank n* his principal would be deemed < Una-able so as to affect it would be wfere, as one of the board of directors am participating in the discount of thepapcr, he had actetl affirmatively. or Juudulently, with respect to it, as in tc case of Bank r. Davis, m/mi, by afraudulent perversion of the bills f nnii In object for which drawn; or aa it Holden r. New York & Eric llank?2 N. V. 286, whore tin- presi- dent f the bank, who represented it 46 in all the transactions, was engaged in a fraudulent scheme of conversion. It was said in the latter case that the knowledge of the president, an an in- dividual or as an executor, was not imputablc to the bank merely because he was the president, but because when it acted through him as pr->i- dent, in any transaction where that knowledge was material and applica- ble, it acted through an agent. The rule may be stated, generally, to be that where a director or an officer hat* knowledge of material facts respecting a proposed transaction, which his re- lations to it, as representing the bank, have given him, then, as it becomes his official duty to communicate that knowledge to the bank, he will be pre- sumed to have done so, and his knowl- edge will then be imputed to the bank." See, also, Merchants' Na- tional Bank of Gardner P. Clark, (1893) 139 N. Y. 314 (an action upon similar notes to those in the case above, made by the same parties defendant). ID Bremen Saving Bank . Branch - Crookes Saw Company, (1891) 104 Mo. 425, the defendant corporation was sued on a note purporting to bo signed by it as maker and one B. as indorser. It defended in its answer on the ground that it was a manufacturing and busi- ncss corporation; that its name was used by B., the then president of tin- corporation, for his own accommoda- tion, and for the purpose of satisfying his prior individual debt; that the note was so executed without any consul - oration moving to the defendant, and that the plaintiff, when it accepted thr note, had knowledge of the foregoing facts. The court held that if the 362 PERSONAL LIABILITY OF OFFICERS. [-^~ nal parties or any subsequent holder of this note accepting the same as collateral with full notice of all the facts and circum- stances connected with the execution and delivery thereof, extrinsic evidence was admissible to show not only that the president and secretary executed the instrument in their officia, capacity as officers of the corporation, but also that the directors signed the note on the back thereof solely as officers of the cor- poration and to bind the corporation only. 1 In a Georgia case the promissory note on which the action was brought was signed by one as " ag't " payable to another, " pres't," and indorsed by the latter "president [name of corporation]." The action was brought by the indorsee, a bank, against the indorser individually and the corporation. In addition to the statutory form of such actions in that state, it was alleged that the maker was the agent and the indorser the president of the corporation, and that the money borrowed from the bank, and for which the note was given, was received and used by the corporation, and it under- took and promised to pay the bank. The effect of the statute of Georgia, that "where the agency is known, and this credit is plaintiff was induced by defendant's of which the note was payable, as- couduct under the circumstances to sured these directors that the only way believe in good faith that the defend- to make a corporation note was for the ant had assumed to pay the debt, officers and directors of the corpora- though it did not in fact assume to tion to sign their names and affix their pay it, defendant was liable. Citing official positions thereto, and that the Deere v. Marsden, 88 Mo. 512; Craw- note was thus signed under his direc ford . Spencer, 92 Mo. 498; Fitzger- tion to bind the corporation, but no aid v. Barker, 96 Mo. 661; Mechanics' the officers individually. The coui Banking Assn. v. N. Y., etc. , White said: " If the parties who wrote ther Lead Co., 35 N. Y. 505; National Park names upon the back of the note s Bank n. German-American Mut. W. directors had signed their names upn & S. Co., 116 N. Y. 292; National the face thereof, they could hare Bank of Republic v. Young, (N. J.) 7 shown by extrinsic evidence that tfey Atl. Rep. 488; Holmes, Booth & Hay- were acting for the corporation oy, dens 0. Willard, 24 N. Y. St. Repr. and we perceive no reason why, asbe- 260; Second National Bank r. Pettier tween the original parties or any ub- & Stymus Mfg. Co., 18 N. Y. St. Repr. sequent holder of the note acceding 954; Supervisors -c. Schenck, 5 Wall, the same as collateral, with full ntice 784; La Fayette Savings Bank r. Stone- of all the facts and circurnstancefcon- ware Co., 2 Mo. App. 299. nected with the execution and .eliv- 1 Kline c. Bank of Tescott, (1892) 50 ery thereof, the same rule wi not Kans. 91. It was claimed in the case apply when such signatures ar upon that the cashier of this bank, the the back of the instrument oefore assignee of the note, who was also a delivery." director of the corporation to the order 2'2> | 1M USOXAI. I.IAItll.ITY OF OFFICERS. 363 not expressly given to the agent, lie is not personally responsible npon the contract. The question to whom the credit is given is a question of fact to be decided by the jury under the circum- stances of each case," was considered. The Supreme Court held that the suit against the payee individually was demurrable, the liability sought to be enforced being that of the corporation and not of its president individually ; that the declaration showing on its face that the agency of the president was known, and that credit was extended to the principal, there being no allegation that credit was expressly extended to the agent; there wa- n<> issue which required submission to the jury. It was arguooii>il>le to his princijuil. 1 Tin- Cli.-iiM-rry C'l.urt <>f Ncu Jersey has held the treasurer of a savings bank, at the same time one of its managers, who had assigned to the bank a bond and mortgage owned by him on land not worth double the mortgage as required by the bank's charter, and without submitting the investment to the finance committee for approval, as required by its by-laws, personally liable for the loss sustained on the bond and mortgage. Further, that the fact that the manager did not object or repudiate the transaction for six years was no defense whether his breach of duty was known or not known by the other managers.* cise the ordinary skill and judgment theless, in violation of bis duty and requisite for the discharge of their trust, as it was in violation of the duty delicate trust." and trust of the president, took from 'Hun t>. Cary, (1880) 82 N. Y. 65. the funds of the bank, by check drawn That they may be treated as agents of by himself as treasurer, the amount of the bank, see In re German Mining the bond and mortgage on the assign - Co., 27 Eng. Law & Eq. 158; Belknap ment of these instruments to the bank. . Davis, 19 Me. 455; Bedford R. Nor can he shelter himself under the- R. Co. v. Bowser, 48 Pa. St. 29; suggestion that though he was a mana- Butts c. Wood, 38 Barb. 181; Austin ger and officer, he is to be regarded as . Daniels, 4 Denio, 299; O. & N. R. standing in the relation of a stranger R. Co. v. McPherson, 85 Mo. 13. As to the bank in this transaction. He tn the liability of trustees to restore was a trustee, and, as such, bound to the money illegally invested by them, protect the interests of his cextuis qu? see Adair v. Brimmer, 74 N. Y. 553; trust. That obligation involved a Ix>ndon t. Birmingham R. R. Co., 5 strict adherence to the provisions of DC Gex & Smales, 414. the charter and the regulations of the 1 Williams, Receiver, t>. Rilcy, (1881) bank designed for their protection. 34 N. J. Eq. 898. It was said by the He would not have been at liberty to chancellor: "The defendant willfully disregard them if the application had disregarded the regulations made by come from a stranger. On what prin- the board of managers for the security ciplc can he be justified in disregard - of the depositors, by which it was, in ing them in his own dealings with the effect, provided that no investment bank? Had a stranger sought to obtain should be made unless approved by from the bank the money for the bond the finance committee, and that all and mortgage, it would have been the applications for investment of the duty of the defendant, if the matter funds should be made to them alone, came to his knowledge in time, to With full knowledge that the invest- object to it, and if his objection had ment not only had not been duly been unheeded it would have then lu-en authorized, but was one forbidden by incumbent on him to do what he could the charter, he, with the concurrence to prevent the illegal transaction. of the president, indeed, but, never- Crane c. Ilearn, 11 C. E. Green (N. J.), 366 PEKSONAL LIABILITY OF OFFICERS. [229 229. Liability of a treasurer of a corporation for pay- ment of orders on forged indorsements. Certain orders upon the treasurer of a building association, a Pennsylvania 'corpora- tion, signed by the president and attested by the secretary, to cer- tain payees, were paid by the treasurer to the secretary, the latter having forged indorsements of the payee upon the same. The association brought its action upon the bond of the treasurer to hold him liable for these improper payments, as they contended. The Supreme Court of the state held that the treasurer should have had judgment in his favor. 1 878. Manifestly he is -without excuse now. He has been guilty of a misappli- cation, at least, of the funds of the bank, and where there has been a waste or misapplication of the funds of a cor- poration by an officer or agent of the corporation suit may be brought in equity, in the name of the company, to compel him to account for such waste or misapplication or breach of trust. Citizens' Loan Association v,. Lyon, 29 N. J. Eq. 110; s. c., affd. on appeal, 30 N. J. Eq. 782. Here the misappli- cation was by one who was not only an officer of the institution but a trus- tee also. Stockton . Mechanics & Labor. Sav. Bank, 32 N. J. Eq. 163; Hannon v. Williams, 34 N. J. Eq. 255. And he is bound to indemnify his cestuis que trust, and the receiver may maintain suit against him to obtain the indemnity." 1 Hibernia Building Assn. . Me- Grath, (1893) 154 Pa. St. 296. The opinion rendered by THOMPSON, Jus- tice, fully presented the facts and the by-laws regulating the conduct and acts of officers, and fully discussed the law applicable to such a case, as fol- lows: "The ground of liability was negligence in making these payments, although made upon orders signed by the president and secretary, who also attested the signatures of the payees. The money was either paid in cash to the secretary, or by cheques payable to his order. Under the by-laws the president was required to sign all or- ders drawn upon the treasurer for appropriations made by the board, the secretary to keep accurate minutes, to attest all orders drawn on treasurer for appropriations made by the board, the treasurer to pay all orders drawn on him by order of the board, if signed by the president and attested by the secretary. The orders upon which these payments were made were in the usual form, and signed by the presi- dent and attested by the secretary. The [treasurer] having no reason to suspect or doubt the integrity of either the president or the secretary, and acting in good faith, paid them. As the [treasurer] served without compen- sation for his services he became & gratuitous bailee, and as such is to be held liable for gross negligence only. In Tompkins v. Saltmarsh, 14 Serg. & R. 275, it was said : ' Tompkins is charged, as the bailee of Saltmarsh, on an undertaking to perform a gra- tuitous act, from which he was to re- ceive no benefit, and the benefit was solely to accrue to the bailor, in which case the bailee is only liable for gross negligence, dolo proximus, a practice equal to a fraud.' This rule thus stated is repeated in Scott v. Bank of Chester Valley, 72 Pa. St. 471; Bank of Carlisle v. Graham, 79 Pa. St. 117. His designation as treasurer did not change the character of the bailment. As provided in the by-laws the money 230] rKi:-"N.u. UAHii.rn "i .MIL: 367 $ 230. Liability on a contract made before complete organ- ization of the corporation. In an Ohio <-HM- it appeared that individuals who had undertaken to have an association known a* the ' Wool (iruwer-' K \ehanire" incorporated under the laws of Ohio obtained a certificate of incorporation, and before the requirement of the law as to the Mil>*cription to tin- stock of a in percentage of the capital stoek before doinj; business bad was deposited with him to be paid out fully perform tin- duties in regard to when required upon orders drawn in the bailment that the law required tin; manner as stated. A treasurer or him to perform. It is, however, con- a director may become a gratuitous tended that, as the bond provides that bailee, and his official position and he shall discharge all the duties now designation will not in any degree requin-d or may hereafter be required change his liability as such bailee. In of him as treasurer by the conslitu- Sweni/.el /. K-mk, 147 Pa. St. !>{, it tion, charter, by-laws, rules and regu- was held that directors who are gra- lations of said association, and as the tuitous mandatories were only liable board passed a resolution that all for fraud or such gross neglect that applications for withdrawals of stock amounts to fraud. In this case the must be approved by the board of [treasurer] had no office or place in directors at regular or special meet- which, as treasurer, he transacted the ings of the association before payments business of the association. When are made, the [treasurer] was guilty of orders were to be paid he testifies he negligence, without examining the would get notice from the secretary to minutes and without satisfying him- come down and see him; that he had self that the board had acted upon the some that he wanted paid, and that he withdrawals for which the orders in would go to the secretary's store and question purported to have been would there pay them to him. Tin; drawn. It is established by the proofs iation's] business was managed that no entries were made upon the principally by its secretary, who came minutes for [of?] application of [for?] in contact directly with its members, withdrawals after 1884. In point of In view of the by-law and the modes fact the secretory, after this date, kept of payment, it is very clear that he no record in the minutes of any with- was a gratuitous bailee, and is to be drawals. The duty of the president held only to that diligence required as is to preside at all meetings of the such. It is true he gave a bond as re- board and to sign all orders for appro- quired by the by-law for the faithful priations authorized by the board; performance of his duties, but that did that of the secretary is to keep accu- not change the duty cast upon him by rate minutes of all meetings of the law as a bailee. The condition of tin; board, the accounts of the association, bond was that he should perform and and to attest all orders on the treasurer discharge the duties of the office, and for appropriations of the board. These shall keep a just and true account of orders in question were signed by the the moneys received, and shall pay to president and were attested by the his successor the moneys received, and secretary in the usual form. The shall account for the moneys so re- president was and is still regarded as- ceived. The condition of the l>ond, an upright man; the secretary was therefore, was that he should faith- also at this time so regarded; the asso- / ^ 368 PERSONAL LIABILITY OF OFFICERS. [ '1 -" been complied with, had a meeting of stockholders and were elected directors and officers of the association. They then entered into a contract for the purchase of wool, and for an unpaid balance gave a note through the officers of the association. The holder of the note brought action upon the note as the founda- tion of the suit against these directors as personally liable on the contract under the facts disclosed in the case. The Supreme Court of Ohio held them liable personally on the contract. 1 The ciution trusted both of them implicitly, court discussed quite at length the lia- and had no reason or cause to doubt bility of agents under such circum- them. If it treated them thus, it was stances, and then said: "While, how- natural that the [treasurer] should in ever, the authorities generally agree no manner suspect or doubt them, that a person who, without having in These orders, therefore, came to him fact authority to make a contract as with the certificate of the presiding agent, yet does so under the bonajide officer, whose duty it was to preside belief that such authority is vested in at all meetings, and with the attesta- him, is nevertheless personally respon- tion of the secretary, whose duty it sible to those who contract with him was to keep all records of the meet- in ignorance of his want of authority, ings. If the [treasurer] had gone to a diversity of opinion is found in the the secretary he would doubtless have cases in regard to the exact nature of been assured that the board had acted the liability, and the character of the upon these withdrawals, and having action by which it may be enforced, been so advised he would have been In Jenkins P. Hutchinson, 13 Ad. & K. justified in paying them. It can be 746, it is intimated by ERLE, J., that scarcely said to be want of ordinary an action of decit would lie in such diligence to have paid these orders cases, notwithstanding the good faith under these circumstances and with of the agent, and some authorities may these signatures. They were, in fact, be found to that effect. Another class as express an authorization as if he of cases hold that the liability is upon had seen these officers officially. It the contract; but, it is believed, that was said in Swenzel v. Penn. Bank, whether the agent is so liable, depends supra: ' Nor do we think the directors upon the intention of the parties as were bound to regard the statements discovered from the contract itself; submitted to them as false, and the and on this question the form of the president, cashier and clerks as thieves, agreement and the mode of signature They had nothing to arouse suspicion, may be quite conclusive. The rule on All of these gentlemen stood high, this subject, as stated in Story on They were the trusted agents of the Agency, is that an agent cannot be corporation.' The [treasurer] was not sued on the very instrument itself, as guilty of negligence in trusting the a contracting party, unless there be secretary and in putting full faith in apt words to charge him. Section his action, and that of the president in 264a. Still another class of cases es- signing and sending to him the orders tablish the rule, which we are inclined in question." to adopt, that in cases like the one we 1 Trust Co. v. Floyd, (1890) 47 Ohio are considering, the agent is liable St. 525; s. c., 26 N. E. Rt-p. 110. The upon his implied promise that he poa- 230] PERSONAL LIABILITY OF OFFICERS. Supreme Court of Kansas affirmed a judgment against alleged directors of an athletic association upon ;i contract for goods fur- nished, holding them individually liable on the ground that the corporation had not been fully organ 'zed under the law. They said upon the subject generally : " The rule is well established MMB the Authority he assumes to have. Smith's Leading Cases, vol. 2, pt. 1, 408 (8th ed.), and cases there cited; Lewis t>. Nicholson, 83 Eng. C. L. 512. In Whit.- 9. M:i.lis,,n. 26 N. Y. 117, in a learned opinion, it is held that the liability of the agent in such cases rests upon the ground that he warrants his authority, and not that the contract is to be deemed his own. Bartholomew r. Bentley, 15 Ohio, 659, is referred to as establishing both that the liability of the agent in cases of this kind is founded on fraud, and that the petition should charge a fraudulent intent in direct terms. That was an action in case for deceit under the practice which prevailed before the adoption of the Code of Civil Proced- ure. The questions arising upon the demurrer related to the form of the remedy, and the sufficiency of the dec- laration in such an action. They are stated by BIRCHAKD, J., to be: 'First. Can a special action on the case for fraud, which has resulted in damage of the plaintiffs, be maintained in a case like this upon sufficient declara- tion ? Second. Is this declaration good upon demurrer ? ' The court answers the first question in the affirmative, and, in speaking of the declaration, says: ' The objection taken by counsel is a want of certainty. The action is founded on a fraudulent combination, and for holding out false colors at the commencement of the banking opera- tions, and at various subsequent periods. The only direct charge of a fraudulent intention is in the with- drawal of the funds, and this, for aught that appears, may have been 47 long since the bills in plaintiff's hands were issued. * * * It is thought that the averment of a fraudulent de- sign should have been made in positive terms as to each specific act n linl upon to sustain the action.' Under the practice then in force, pleadings were subject to demurrer, unless they were appropriate in their form and allegations to the particular action pursued; and we do not understand it to be there decided that no other action could be maintained on the facts of that case. A different action was maintained in Medill r. Collier, 16 Ohio St. 599, which, so far as the ground upon the liability of the bank directors was placed, is not greatly dissimilar to the case before us. Under our present system of pleading, it is not important what was formerly the most appropriate remedy. Upon the facts stated in the petition, the law, we think, implied a promise on the part of the defendants, that in making the contract with the plaintiff, they had authority to bind the corporation they assumed to represent; and if they had not, they are answerable for the consequences. That they were with- out such authority seems clear. Upon the lack of authority upon the part of the directors, it was then said: ' It was held by this court in Bartholomew r. Bentley, 1 Ohio St. :J7, that while mere irregularities in organizini: a. corporation would not subject the officers to private liability, to protect them from such liability, the provisions of the act of incorporation mu-t be substantially pursued. By our stat- utes, under which the proceedings 370 PERSONAL LIABILITY OF OFFICERS. [ 230 that a corporation must have a full and complete organization and existence as an entity, and in accordance with the law to which it owes its origin, before it can assume its franchise or enter into any kind of a contract or transact any business ; and what- ever be the mode prescribed by the act of incorporation, a sub- stantial compliance with all the provisions of the law under which it is created is required before the corporation can be said to have such an existence as will entitle it to do business. 1 And it is con- ceded in this case that nothing was done to perfect the organiza- tion after the charter was tiled. A corporation cannot act with- out officers and agents, and it is powerless to do anything until its incorporators or promoters give it the means whereby it can act. The words "organize'' or "organization" have a well- understood meaning ; and as we construe them they mean the election of officers, providing for the subscription and payment of the capital stock, the adoption of by-laws and such other steps as are necessary to endow the legal entity with the capacity to were taken for the formation of the contend that it is, nevertheless, a cor- corporation referred to in the petition, por&tionde facto, and estopped to deny the corporate powers, business and its liability to the plaintiff. If it were, property of corporations formed for it is not readily perceived how this profit must be exercised, conducted would aid the defendants. Until there and controlled by a board of directors, were stock subscriptions to an amount all of whom must be stockholders; the warranting the organization, the sub- articles of association must state the scribers could not be compelled to pay amount of the capital stock, and beyond the sum -required at the time the number of shares into which it is of the subscription; nor would the divided; and at least ten per cent of statutory liability attach, unless there that amount must be subscribed be- were some ground of estoppel, not ap- fore directors can be chosen. So that peariug in the case. The implied the subscription of the necessary undertaking of the defendants was amount of the capital stock to author- that they represented a corporation ize the election of directors is not only with the capital stock required by law; a matter of substance, but is essential while the one to which they insist the to the organization of the corporation, plaintiff shall be compelled to resort and necessary to the transaction of was, if a de facto corporation, so only business by it. It is the security which in name, without substance or capac- the law requires shall be provided be- ity; and if the doctrine of estoppel fore the corporation enters upon its could be brought to the aid of the business for the protection of those plaintiff against it, the defendants are who may deal with it. The statutory not in a position to require a resort to liability of the stock subscribers is an that remedy to relieve them from the additional security. In the effort to form liability they have incurred.' " the corporation in question, neither of ' Citing 4 Am. & Eng. Encycl. of these securities was provided. Counsel Law, 197, and authorities cited there. It)] PERSONAL LIABILITY OF OFFICERS. 371 transact the legitimate !u.-iness for whieh it was created. In tin.- .-en-e tin,- corporation was not fully organi/ed. While it had an e\i>tenee. the organization was never completed so that the corporation eoiild do business. In the case of Hart v. Salisbury, r.." Mo. :;io, which was an action brought upon a note purporting to have been executed by the directors of an agricultural associa- tion, the suit was brought against the directors upon the gronnd that the a.->oeiation was not incorporated at the time the note was given, and that the directors were, therefore, individually liable. It appeared that the association was not fully incorporated when the note was executed. The law required the charter to be filed with the recorder of the county where the corporation was located, and also in the office of the secretary of state. The charter was only filed with the recorder. The court held that the officers of the corporation had no power to issue the note, and that a note issued and signed by them would bind them personally and not the corporation. The court said, in speaking of the attempted organization of that corporation : It had organized under section 2, chapter 69, General Statutes of 1885, page 367, by sign- ing and acknowledging and recording in the recorder's office of the proper county tlie articles of the association. This step being taken, it was an organized corporation, not for the transaction of business, but for the purpose of taking the next and last step to complete its authority to transact business and give date to its legal existence. Until the officers took this final and necessary step by depositing and filing in the office of the secretary of state a copy of the articles of association as they stood recorded in the county, this corporation had no power to issue the note sued on. As it had no power to issue this note, the defendants are undoubtedly liable." " If a corporation be illegally formed, its members or stockholders are liable as partners for its acts or contracts ; and directors, officers or agents acting and contracting in its name render themselves personally liable." Beach Priv. Corp. 16; Marshall v. Harris, 55 Iowa, 182 ; Kaiser v. Savings Bank, 56 Iowa, 104 ; Coleman v. Coleman, 78 Ind. 344. The Kansas court resumed : " While in this case the charter was filed with the secretary of state, the corporation had no officer outside of the directors named for the first year. No portion of the capital stock had been subscribed and no books opened, as required by section 1173 of the General Statutes of 1889. In 372 PERSONAL LIABILITY OF OFFICERS. [ 231 fact nothing had been done to complete the preliminary business of organizing the corporation. We do not understand that a cor- poration can proceed to the transaction of business without any portion of its capital stock being subscribed or paid. It may have been the English rule, but in the United States it is otherwise. Boone Corp. 113. The corporation has no means or capacity to act until some portion of the capital stock named in the charter has been subscribed and paid. Some states have by a legislative rule made directors of certain corporations jointly and severally liable for all debts of the corporation until the whole amount of the capital stock has been paid in. Rev. Stat. of Wis. 1878> 1901." 1 231. Rule as to recovery in such a case. The measure of damages in such a case was one of the questions in this Ohio case. Referring to the theory upon which, as it appeared, the case was tried, that if the defendants were liable at all, the amount which the plaintiff was entitled to recover was the balance due on the contract, the Supreme Court of Ohio said : " This was not necessarily the measure of recovery. As we have already seen, the action in such cases is not founded on the contract made for the supposed principal, but as the implied promise of the agent that he had authority to bind the principal ; and the damages which may be recovered for its breach is the loss sustained by the plaintiff by reason of his not having the valid contract which the agent undertook that he should have. The damages may sometimes exceed the amount due on the contract made in the name of the principal, for it is held they may include the costs and expenses of an unsuccessful action against the principal to enforce the contract. White v. Madison, 26 N. Y. 117; Simons v. Patchett, 7 E. & B. 568 ; Collen v. Wright, 7 E. & B. 301 ; 2 Smith's Leading Cases, 410. In Morawetz on Corporations it is said that the measure of damages in an action against directors or officers of a corporation, who induce a person to deal with it before the capital indicated in its charter has in fact been pro- vided, is the loss sustained ' by reason of the difference between the capital which he has received and that which he was entitled to expect.' Under this rule, we think, the plaintiff might properly recover the balance remaining unpaid and the purchase price of 1 Walton v. Oliver, (1892) 49 Kans. 107, 112, 113, 114; s. c., 30 Pac. Rep. 172. 12] PERSONAL LIABILITY OF OFFICERS. 373 the wool sold. Prima fcwie, that is the amount of the plaintiffs loss, and it does not exceed the amount of the capital which the corporation was required by law to have before it could be repre- hfiiti-d by the directors, and which the defendants, by assuming to act tor it, undertook that it did him-. It i- true the petition alkies that the corporation is insolvent with an indebtedness exceeding ten per cent of the capital !-t'rk ; but whether the claims of other creditors stand upon a like footing with that of the plaintiff, or will be enforced against the defendants, does not appear. Besides, if the proper stock subscriptions had been obtained, the corporation might not have become insolvent, or, before it did, the plaintiffs claim might have been paid or secured. If, in such case, the plaintiff could recover no mere than a sum equal to the proportion of the capital which should have been provided that his claim bears to the whole indebtedness contracted in the corporate name, it would be necessary to take an account of the assets and liabilities to determine the amount of the recovery. That rule, applied to this case, would require that the defendants be charged with an amount equal to the necessary stock subscriptions, and the statutory liability of the subscribers, and that all the creditors be brought in to have their claims adjusted, before the amount of the verdict could be arrived at." 1 232. County treasurer liable upon his receipts to col- lector for money. A county auditor in California made a settlement with a collector of license taxes of the county, deter- mined the amount due the county from this collector and certified the same to the county treasurer. The county treasurer gave a receipt for the amount to the collector, and the collector, upon presenting it to the county auditor, received his discharge, and the auditor charged the same to the treasurer. The latter, also, debited himself to that amount in his account with the county. When he went out of office there was a deficiency of a certain amount, and an action was brought upon his bond by the county to recover the deficiency. The defense made by the treasurer and his sureties was that, in reality, the sum of money due from the collector was not paid in full to him, and that the collector was the one indebted to the county. The Supreme Court of 'Trust Company r. Floyd, (1890) 47 Ohio St. 525, 542, 548; s. c., 26 N. E. Rep. 110. 374 PERSONAL LIABILITY OF OFFICERS. [233 California held that, assuming the facts to he as contended by the treasurer and his sureties, they did not constitute a defense to the action. 1 233. County treasurer liable as bailee of county funds. In a Colorado case the governing authorities of a county sought, claiming a shortage in the accounts of a county treasurer, deceased, to follow the funds as trust funds in his estate as held by his representatives and to have a preference over other credit- ors of the estate. The Supreme Court in its opinion first con- sidered the question of the relationship held by a county treas- urer to the funds coming into his hands by virtue of his office, 1 San Luis Obispo County V. Pettit, (Cal. 1893) 34 Pac. Rep. 1082. The court said: " Section 115 of the County Government Act (St. 1891, p. 323) re- quires the county auditor to settle the accounts of all persons holding moneys payable into the county treasury, and to certify the amount to the treasurer; and provides that, upon the presenta- tion and filing of the treasurer's re- ceipt therefor, he shall give to such persons a discharge, and charge the treasurer with the amount received by him. In Butte Co. v. Morgan, 76 Cal. 1; s. c., 18 Pac. Rep. 115, it was held that the auditor is not required to go to the treasurer and ask him whether the amount has been actually paid, or, in other words, whether the receipt states the truth. He is authorized to accept the receipt as sufficient evidence of the fact of payment. This case presents many points similar to the present one, and must be regarded as controlling. Section 80 of the County Government Act requires the treasurer to settle his accounts with the auditor on the first Monday of each month, and, for the purpose of making such settlement, to make a statement under oath of the amount of money received prior to the period of such settlement, the sources whence the same was de- rived, and the amount remaining on hand. These settlements and state- ments were made by [this treasurer], and he ought not now to be permitted to exonerate himself from liability to the county by showing that these state- ments were false, and that, instead of requiring [the collector] to pay the money into the treasury, he had taken his individual promise to pay it at a subsequent date. By delivering to the auditor his receipt for the moneys which [the collector] had collected, he had authorized the auditor to enter upon his books a discharge of [the collector's] liability, and is thereby estopped from questioning the correct- ness of his receipt. If he chose to permit [the collector] to retain this money upon his promise to subse- quently pay it to him, to that extent he failed to perform his official duty in requiring the money to be paid into the treasury, and must be regarded as having become himself, rather than the county, the creditor of [the col- lector]. If any loss occurred by rea- son of [the collector's] subsequent failure to pay his check, it should be borne by [the treasurer], rather than by the county, since the loss had been made possible by reason of [the col- lector's] violation of his official duty, and his sureties are liable to the county equally with him for such misappro- priation or loss of the money." 233] PERSONAL LIABILITY OF OFFICERS. 375 the contention by the county authorities Inking that the relation was that of bailee of the funds, and that of the representatives of the estate that the relation of debtor and creditor existed between him and the county. The court said: "Without determining where the weight of authority lies on this question, as there is much conflict between the adjudged cases, we think that, under the provisions of the statute relating to a county treasurer, the money collected and received by him belongs to the county, and that he holds a fiduciary relationship thereto that constitutes him a bailee, with express and extraordinary liability. The bond lie is required to give before entering upon the duties of his office is conditioned that he ' shall faithfully and promptly perform the duties of said office * * * pay, according to law, all moneys which shall come to his hands as treasurer, and shall render a just and true account thereof, whenever required by said board of commissioners or by any provision of law, and shall deliver over to his successor in office, or to any other person authorized by law to receive the same, all moneys, books, papers, and other things appertaining thereto or belonging to his otftce.' Mills' Ann.' St. 886. Section 890 of Mills' Annotated Statutes pro- vides : ' It shall be the duty of the county treasurer to receive all moneys belonging to the county from whatever source they may be derived. * * * All moneys received by him for the use of the county shall be paid out by him only on the orders of the board of commissioners, according to law, except where spe- cial provision for the payment thereof is or shall be otherwise made by law.' It is further provided in section 901 of Mills' Annotated Statutes : ' Upon the resignation or removal from office of any county treasurer all the books and papers belonging to his office shall be delivered to his successor in office, upon the oath of such preceding treasurer, or, in case of his death, upon oath of his executors or administrators, etc.' The Supreme Court of Indiana having announced the doctrine in several cases that a township trustee, in common with a county treasurer, was not a mere bailee, but the owner of the money that came into his hands by virtue of his office, that court distinguished and limited such ownership in Rowley v. Fair, 104 In the order of the several persons named therein as payees. As in the case ju-t referred to, the authority to pay was express and distinct, but instead of directing that such payment should be to whomsoever might present the orders or warrants, the direction was that payment should be made to the order of a person designated by name. And at this time it may be well to state that it does not appear in the complaint, as appellant's counsel seem to assume, that fictitious or nonexistent persons were named as payees in these certificates. It is of no importance, probably, but from the language of the pleading the presumption is other- wise. Payments were not made to the persons named as payees, or to their order, in accordance with the terms of the certificates, but were made to * * * the very person who as deputy clerk had the oppor- tunity and had fraudulently issued the name, solely upon the false and f urged indorsements of the names of the payees. Common prudence ought to have suggested to [the treasurer) that before innking such payments it was ineiimhent. upon him to ascertain and satisfy himself of the genuineness of the signatures which he found iti- dnr.-ed Upon tin: back* of the ill*tni- ineiits purporting t-> he those of the payers therein named. He failed so to do, and this of itself is sufficient to sustain the charge of negligence in the performance of his official duty. As was said by the learned trial judge, had defendant observed the rule of law which governs in commercial transactions of the same nature, he would have detected the forgeries at the outset, and there could have been no great loss to the county or to him- self. His disregard of this rule was negligence, undoubtedly, and it was the immediate and proximate cause of the loss to the county, for which defendant must be held responsible, unless the fact that the certificates were fraudulently issued by the dep- uty of another county officer for whose malfeasance such officer was also responsible to the county can be allowed to excuse and relieve him. The instruments in question were cer- tificates of indebtedness for jurors' services falsely stated to have been rendered by the payees therein named, and on whose order payment was to be made. At most, they were Un- orders of one officer of a municipal corporation upon another officer for the paving out of miinici|il funds. Although negotiable in form, they were not commercial jwper in any 378 PERSONAL LIABILITY OF OFFICERS. [235 Iowa said : " A corporation has, however, not only such powers as are expressly conferred, but such others as are reasonably incident to the exercise of those expressly conferred. The inter- venor's theory is that the plaintiff [the corporation] should be confined to its remedy by action. But the power which it is conceded that the plaintiff has to maintain an action does not appear to be expressly conferred. The plaintiff has express power to make settlement with its treasurer, and must be deemed, by implication, to have power to enforce, by action, both settle- ment and payment, if necessary. But an arbitration of differ- sense. That they were in fact fraud- ulently issued could not relieve the defendant treasurer from the obliga- tion which rested upon him to see to it that he paid the same to the persons to whom payment was directed. Had he done this in good faith, we are un- able to see why his duty would not have been performed, and in his failure to pay as directed lies the claim that he was negligent. Had the certificates been regularly issued pay- ment upon forged indorsements would not have excused the defendant treas- urer, nor could it have relieved the county from a just indebtedness for jurors' services. The liability of the county treasurer for the funds in- trusted to his care cannot be allowed to depend upon the fidelity of some other county officer, but is with him alone, and to be determined by his actions. Nor can the right of the county to require of him that he account for the public funds be limited or controlled by the fact that it may also look elsewhere for relief in case of loss. For the bad conduct of the deputy in fraudulently issuing the certificates the county may have a right of action against his principal, the clerk of the court; but it is not con- fined to that action; it is not obliged to look to him alone. Unless it be upon the theory that as these certifi- cates were issued without the rendi- tion of services, and fraudulently, the payees must necessarily have been fictitious and nonexistent, we do not quite understand the assertion of counsel that no payees were named, and, therefore, the instruments were payable to bearer; or the pertinency of the authorities collated by counsel to the effect that, where a payee's name is left blank in a bill or note when the same issued, such bill or note is in legal effect payable to bearer, and until the payee is actually named the paper will circulate as though made pay able' to bearer in terms. We have already stated that from the averments of the complaint the presumption is that the payees named were not ficti- tious or nonexistent, but in any event the weight of authority is that the rule cited by counsel applies only to paper put into circulation by a maker with knowledge that the name of the payee does not represent a real person. Shipman v. Bank of New York, 126 N. Y. 318; s. c., 27 N. E. Rep. 371. The rule can have no application to the issuance of county orders or war- rants. There is absolutely nothing in the appellant's position that the county is estopped from saying that the payees named were fictitious and the indorsements forged. The wrong- ful acts of the officers of a municipal corporation cannot create an estoppel against the corporation, the taxpayers, or the people." Citing Mayor v. Ray, 19 Wall. 468. 2o;| PERSONAL LIABILITY OF OFFICERS. 379 is just as legitimate a mode of settlement as by action. Courts, indeed, are disposed to encourage n-ttlt -incuts by arbitra- tion. Zook v. Spray, 38 Iowa, 273. We may add that such settlements seem to be peculiarly appropriate when- arbitrators, possessing more or less of an expert character, can be called into re<|iii-ition. We presume that the intervenor could not deny that private corporations may submit to arbitration. Hut, in our opinion, the power may properly enough be exercised by public corporations also. It was held in Dix v. Town of Duimnerston, 19 Vt 262, that selectmen, having power to audit and allow claims, might submit to a reference. As having some bearing upon the same question, see, also, Inhabitants of Boston v. Brazer, 11 Mass. 447; Brady v. Mayor of Brooklyn, 1 Barb. 584." 1 236. Liability under special provisions of charter or statute. Where the charter of a corporation makes every director personally liable for the debts of the corporation during his administration to an amount not to exceed a h'xed sum, an action in equity may be maintained by a creditor against the directors as it would prevent a multiplicity of suits, and the liability of all the parties interested could be determined in the one suit. In such case the corporation would not be a necessary party defendant when the suit is first brought, nor would it be necessary to make all the creditors parties plaintiff. 2 And it 1 District Township of Walnut v. their entire claims, while others less Rankin, (1886) 70 Iowa, 65, 66, 67. prompt would not receive anything. Bauer r. Platt, (1893)72 Hun, 826; If the directors should find that the H. c., 25 N. Y. Supp. 426. PAUKEK, amount of their statutory liability J., speaking for the court said : " The would not equal the deficiency of the purpose of the provision [of the company to its creditors some or all charter] was not only to insure vigil- of them might arrange for a prcf- ance on the part of the directors, but erence of creditors by answering, to further assure to the creditors of the or demurring in some cases, while company payment of their claims, suffering default in others. By sui-h It has for its object the protection of methods, which even the vigilant all creditors, not a portion of them, prosecutor could not overcome, some That result might not be effectuated creditors might be paid in full \\hile if each creditor should be compelled others would receive little or nothing. to resort to an action at law. The As the statute was intended for the liability of each director does not ex- benefit of all creditors, and all of ceed five thousand dollars. If then, them, as well as some of them, must each director should suffer judgment be presumed to h-ive tni-ted in part to go against him by default, the to the protection assured them by its creditors first suing might recover provisions, it is no more than just PERSONAL LIABILITY OF OFFICERS. [236 would be of advantage to the directors to bring them all into court on the equity side, as they cannot be decreed to pay more individually than the liability named in the charter and assured by them when they became directors. Besides, such a suit is adapted for their protection in such cases from the possibility of vexatious litigation. If the amount due creditors equals or exceeds the aggregate of the statutory liability of the directors, the judgment decreeing that each make payment of the sum for which he is liable will relieve him from the annoyance and expense of further litigation ; on the other hand, if it should prove to be less, the judgment will provide for a ratable payment, and, in addition to the other litigation which would otherwise be threatened, possibly an action for contribution may be avoided. 1 The trustees, directors or managers of any society or corporation organized under the provisions of this New York statute, 2 by a section of that statute are made " jointly and severally liable for all debts due from said society or corporation contracted while they are trustees, provided said debts are payable one year from the time they shall have been contracted, and provided a suit for the collection of the same shall be brought within one year after the debt shall become due and payable." In an action brought against a trustee of a club which was organized under this statute for the recovery of the amount of a promissory note of the club payable at four months from date, it was held by the Court of Common Pleas of the city of New York, in General Term, that a judgment against the corporation was not requisite ; also that a judgment against one trustee upon his several liability would not discharge or affect the liability of another trustee. 3 The Supreme Court of New York, in General Term, has sustained the con- stitutionality of this statute. And they have also held that the creditor under it seeking to charge the trustees need not exhaust his remedy against the corporation before suing the trustees, and that each creditor should share ratably ?>. Simpson, 74 N. Y. 137, as directly in the fund which an enforcement of applicable and controlling in this case, the liability of the directors will pro- ' PARKER, J. , in Bauer n. Platt, duce." The court referred to Board (1893) 72 Hun, 326; s. c., 25 N. Y. of Supervisors v. Deyoe, 77 N. Y. 219; Supp. 426. Weeks r. Love, 50 N. Y. 568, which * N. Y. Laws, 1875, chap. 267. followed Bank of Poughkeepsie t>. 3 Strauss v. Trotter, (1893) 6 Misc. Ibbotson, 24 "Wend. 473; and Garrison Rep. 77; s. c., 26 N. Y. Supp. 20. r. Howe, 17 N. Y. 458; also to Pfohl 236] PERSONAL LIABILITY OF OFFICERS. 381 the action may be maintained against any or all of the trustees. 1 They also held that, to create a liability on the part of the trustees of this club (the action being upon promissory notes of the club), they must have been directors of the corporation at the time of the creation of the indebtedness, and that the fact that they were trustees of the club at the time of the giving of the notes, if they were given for a past indebtedness, was not sutHcient to charge. them with liability.* A prior recovery of a judgment against a corporation is not essential to the maintenance of an action to enforce the personal liability of a director where, under the charter of the corporation, every director is made personally liable in an action at law for the corporate debts. And other creditors and directors need not be joined as parties in such actions. 8 The Supreme Court of New York, in General Term, has held that the obtaining of a judgment against a corporation by a creditor, who at the same time was a stockholder and trustee, with the coop- eration of the board of the associate trustees, the corporation being insolvent, was a violation of the statute of New York which prohibits the assigning or disposing of its property by any cor- poration's officers, for the payment of a debt, or from making any transfer in contemplation of insolvency ; also that a sale of the property under such a judgment was void as to other judg- ment creditors. 4 But should there not appear an intent to defraud creditors, except as derived from the statute, and this judgment creditor purchase the property at the sale under his judgment, and afterwards satisfy a given mortgage upon it, besides other outstanding indebtedness of the corporation, the lien of the other judgment creditors would be subject to such mort- gage and indebtedness. 5 A provision in a charter of a corpora- tion that, " If the indebtedness of said company shall at any time exceed the capital stock paid in the directors assenting thereto shall be individually liable to the creditors for said excess," has been held by the Tennessee Supreme Court to impose an individ- ual liability upon them for such specific debts only as were con- 1 Metzger r. Carr, (1804) 79 Hun, Goodrich, (CU Com. PI. 1898) 2 Misc. 258; 8. c., 29 N. Y. Supp. 410. Rep. 578; 21 N. Y. Supp. 949. 'Ibid. 'King t. Union Iron Co.. (1891) 58 State Bank t>. Andrews, (Ct. Com. Hun, 601; a. c., 11 N. Y. Supp. 608. PI. N. Y. 1898) 2 Misc. Rep. 394; 8. Ibid. o., 21 N. Y. Supp. 948; Merrill v f 382 PERSONAL LIABILITY OF OFFICERS. [ 237 tracted with their assent in excess of the paid-up capital and remain unpaid after the corporate assets are exhausted. 1 237. Liability under provisions of charter Pennsyl- vania. The charter of a Pennsylvania corporation provided that if the directors failed to make an annual statement of the nature and character of the property of the association, or if they made a false statement, they should be liable for the debts of the cor- poration. The directors made no statement for three years. They then published a statement, in lumping items only, on the face of which the company was solvent. As a matter of fact the company was insolvent at the time, and two days afterwards a receiver was appointed. In an action against the directors, they filed an affidavit of defense in which they averred that they had made the statement with ordinary care and prudence, and in the belief that the association was solvent. This affidavit of defense was held by the Supreme Court of Pennsylvania to be insufficient to prevent judgment, as the delay in making the statement and its defective character brought the directors within the personal liability clause of the charter. 2 1 Allison r. Coal Company, (1888) 8 gible statement of it in conformity Pickie, (Tenn.) 60; s. c., 9 S. W. with the act of assembly. It was a Rep. 226. A case illustrating the cir- duty the association owed to the pub- cumstances under which a by-law of a lie, and the default of their predeces- corporation making the director liable sors should have hastened their per- for creating an indebtedness exceed- formance of it. But they neglected to ing the amount of the subscribed make any statement for three months, capital stock would be held to have and until the association was about to been waived : Underbill v. Santa pass into the hands of a receiver, and Barbara Land, Building & Imp. Co., when they did make one it was defec- (1891) 93 Cal. 300; s. c., 28 Pac. Rep. tive. It did not set forth with reason- 1049. able particularity the ' nature and 5 Githers v. Clarke, (1893) 158 Pa. St. character of the property of the cor- 616; s. c., 28 Atl. Rep. 232; 33 W. N. poration.' It represented the associa- C. 462. The court said: " It is quite tion as solvent, when in fact it was not clear that their belief that the corpora- able to pay more than ten per cent of tion was solvent was no excuse for its liabilities. It may be true that the their failure to make an earlier state- directors believed the corporation was ment, and that ' ordinary care and pru- solvent, and that the assets were as dence ' in making it when they did valuable as represented, but it is very cannot relieve them from the liability evident that their belief was not war- incurred by their delay. They were ranted by the facts nor consistent with chargeable with knowledge of the con- the knowledge of its affairs which the dition of the association, and they law imputes to them." ought to have made a true and intelli- '.8J PERSONAL LIABILITY OF OFFICERS. 383 238. Statutory liability California statutes. To make existing indebtedness, the payment of which can be enforced. It does not include corpo- rate liability for payments of capital stock, the liability being reunite and contingent. 2 There bein; sufficient assets in the pos- session of a corporation to pay all its debts at the time a dividend is declared, the payment of a dividend will not IKJ held illegal on a diversion of funds to objects other than tho>c authorixed. 3 The statutory provision in Iowa that intentional fraud in failing to comply substantially with the articles of incorporation, or in deceiving the public, that any person who has sustained injury from such fraud may recover damages against those guilty of partici- pating in the fraudulent act, only applies to officers or others guilty of intentional fraud. Hence, in an action to recover from individual officers of a corporation the amount of -a judgment against the corporation on the ground that such officers, have ren- dered themselves liable by fraud, they will be relieved from liability by a proof of the absence of intentional fraud and diversion of assets to their own use. 4 In an action for damages under this statute, the particular respect in which there was a failure to comply with the articles of incorporation resulting in damages to the complain- ant, or the particular act of deception, must be specified. 5 I'nder the statute of Iowa making the directors of a railroad company receiving taxes in aid thereof liable to any of its stockholders in double the amount of the par value of his stock in the event of their voting to bond or mortgage the road to exceed certain lived amounts per mile, the Supreme Court of Iowa held that no lia- bility on the part of the directors arose where such an incum- brance was voted prior to the voting of the tax, and the mortgage was executed and recorded before the tax in aid of the railroad was collected and paid to the company. 6 officers of corporations for failure to Ibid, tniike certain annual reports, and for Ibid. signing a false report knowing it to be Hoffman r. Dickey, 54 Iowa, 135. fa'se, see Matthews r. Patterson, (1891) White r. Hosford, 87 Iowa, 566. 16 Colo. 215; 8. c. f 26 Pac. Rep. 812. Walker r. Birchard, (1891) 82 1 Miller v. Bradish, 69 Iowa, 278. Iowa, 888. 49 386 PERSONAL LIABILITY OF OFFICERS. [ 24:1 241. Statutory liability Massachusetts statutes. The statute of Massachusetts makes the officers of a corporation jointly and severally liable for the debts of the corporation in case there are false statements in the certificate of the condition of the corporation which they are required by law to make at certain stated times. 1 A tax is a debt within the meaning of that statute. 2 The directors and officers signing a certificate of the condition of the corporation, knowing it to be false, are liable for the debts of the corporation then existing, as well as for debts incurred thereafter. 3 But under this Massachusetts statute directors cannot be made liable for the debts of a corporation, unless the certificate required by law be willfully false. 4 Debts due from a corporation to one of the directors are debts within the meaning of the Massachusetts statute making the president and directors of a corporation liable to the extent of the excess of its debts over its capital. 5 On a bill brought to enforce this liability by a judgment creditor, the plaintiffs may prove, not only their judgment debt, but a further sum due them on simple contract. 6 Where the debts of the corporation exceed the capital a director of the corporation, who is also a creditor, cannot share with other creditors, who are not directors, in the amount which he, or he 1 Pub. St. Mass. chap. 106, 54, had examined and been misled by the 60. false certificate, as it should be if the 3 Felkera. Standard Yarn Co., (1889) idea of the defendant were followed 148 Mass. 226; s. c., 19 N. E. Rep. out. It is not even limited to debta 220. and contracts which come into exist- 3 Ibid. It was said by the court : ance after the filing of the certificate, " And no doubt one important reason, but is general in its terms, and pro- perhaps the principal reason, for the vides that the officers who knowingly statutory provisions is to enable per- make the false certificate ' shall be sons who may have occasion to deal jointly and severally liable for its debts with corporations to ascertain their and contracts.' Pub. St. Mass., chap, condition, and their title to credit, so 106, 60. The construction of this that a person whose debt already language includes existing debts and exists at the time of the filing of the contracts, and we find nothing else- certificate certainly has not, by any where sufficient to show that the false statements contained therein, legislature meant otherwise." been misled into giving credit to the 4 Felker?;. Standard Yarn Co., (1889) corporation, and may not in any way 150 Mass. 264; s. c., 22 N. E. Rep. be injured thereby. But in imposing 896. the penalty of liability for its debts 6 Thacher ?;. King, (1892) 156 Mass, and contracts, the statute is not 490; s. c., 31 N. E. Rep. 648. limited to such debts and contracts as 6 Ibid, were created in favor of persons who 12] PERSONAL LIABILITY OF OFFICERS. 387 ami other directors, may bo compelled t.i pay towards the debts of the c'orjx>ration in consequence of such excess under this statute. 1 The statute of Massachusetts making officers of cor- porations jointly and severally liable for the debts thereof, when they exi-rrd the capital, "to the extent of such excess existing at tin- tinif of the commencement of the suit against the corporation upon the judgment in which the suit in equity to enforce such liability i< brought," has had the consideration of the federal court for the district of Vermont, and the court construed the statute and held the liability under it, before suit brought to fix it, not to be a debt, nor any fixed obligation to pay, but only that from which, by the prescribed course, an obligation to pay might be raised.* 242. Statutory liability Minnesota statutes. There is a statute in Minnesota to this effect : " If any corporation organized and established under the authority of this act shall violate any of its provisions, and shall thereby become insolvent, the directors ordering or assenting to such violation, shall be jointly and severally liable in an action founded on this statute for all debts contracted after such violation as aforesaid." 8 The Supreme Court of Minnesota held that the ultra vires acts of the directors of the corporation in the case before them in executing accommodation paper in the name of the corporation, and in lending the funds of the corporation to others, constituted a 1 Ibid. ; citing Potter t>. Stevens purpose. Pollard v. Bailey, 20 Wall. Machine Co., 127 Muss. 592; Thayer 520; Fourth National Bank p. Franck- 0. Union Tool Co., 4 Gray, 75, 79; lyn, 120 U. S. 747; s. c., 7 Sup. Ct. Merchants' Bank t>. Stevenson, 10 Rep. 757. Such a liability under a Gray, 283; Cambridge Water Works statute like this, before suit brought v. Somerville Dyeing & Bleaching Co., to fix it, is not a debt, nor any fixed 4 Allen, 239; Merchants' Bank v. obligation to pay, but is only that Stevenson, 5 Allen, 398, 401, 402, and from which, by the prescribed course, 7 Allen, 489; First National Bank r. an obligation to pay may be raised. Hingham Manufg. Co., 127 Mass. 563. Ripley r. Sampson, 10 Pick. 371; Knower r. Haincs, (1887) 81 Fed. Bangs?. Lincoln, 10 Gray, 000. This Rep. 518. WHEELER, J., said : "No Is different from cases where the law liability of officers or stockholders of a raises the liability from the acts of the corporation exists at common law, but officers or stockholders and leaves it only by statutes of the sovereignty to be enforced by the appropriate creating it. When so created, it exists remedy. Wiudham Provident Inst. only as created, and can be enforced r. Sprague, 48 Vt. 502." only as provided by such statutes * Laws Minn. 1878, chap. 11, 28 when they make provision for that (Gen. Sts. Minn. 1878, chap*. 84, 142.) 388 PERSONAL LIABILITY OF OFFICERS. [ 245 violation of the statute " by the corporation " within its meaning. As to the " assent " required to make a director liable, they held that to constitute " assent " there must be something more than mere negligence on the part of a director in not knowing what, in the exercise of proper care, he ought to have known. There must be some willful or intentional violation of duty assenting to it, knowing that the act is being or about to be done. But if r with such knowledge, he neither objects to nor opposes it when his duty requires, and when he has the opportunity of doing so, this would be " assent." Further, if a series of acts or a con- tinuous course of conduct on the part of the directors, in viola- tion of the statute, finally producing the insolvency of the. corpo- ration, is begun before the debt of a creditor is contracted, the debt is one contracted " after such violation," although the series of acts or course of conduct is not completed or the insolvency of the corporation consummated until afterwards. 1 These rules were declared as to actions to enforce this liability under the statute, to wit : A creditor of the corporation may sue one or more of the directors to enforce the liability without joining all the creditors to whom they are liable, or all the directors subject to the liability. His right of action is neither taken away nor suspended bv the fact that the affairs of the corporation may have been placed in the hands of a receiver. Nor is it necessary that the creditor sue the corporation and obtain judgment against it before suing the directors. The corporation, if necessary, may be joined as co-defendant with the directors, and the creditor may establish his claim against the corporation in the same action. 2 243. Statutory liability Missouri statutes. The Supreme Court of Missouri has held that under the statute of that state making directors of corporations, where they have allowed the debts of the corporation to exceed the amount of capital stock paid in, jointly and severally liable to the extent of such excess for all debts of the corporation then existing, and for 'Patterson . Stewart, (1889) 41 v. Bailey Manufacturing Co., 34 Minn. Minn. 84; s. c., 42 N. W. Rep. 926. 323; s. c., 25 N. W . Rep. 639; Allen v. 8 Ibid. The court commented upon Walsh, 25 Minn. 543 ; Johnson . the following cases which are of differ- Fischer, 30 Minn. 173; s. c., 14 N. W. ent kinds to enforce liability of stock- Rep. 799 ; Bassett v. St. Albans Hotel holders and officers: Dodge v. Min- Co., 47 Vt. 313; Hornor v. Kenning, nesota Plastic Slate Roofing Co., 16 93 U. S. 228. Minn. 368; Merchants' National Bank 8 344 LIABILITY OF OFFICERS. 889 all that should } contracted so long as they continued in office, were liable in an action to recover a debt contracted under such circumstances, notwithstanding one of the firm owning the debt was a stockholder in the corporation. 1 The deht> for which directors of a corporation will be held liable under this Mi.--.ouri statute are the debts voluntarily incurred by the directors. 2 A judgment against a corporation for damages for a loss of a steam- boat, for instance, through the negligence of the agents and .MTV ants of the corporation would not be one of the debts contem- plated by the statute. 3 244. Statute 01 New York liability for failure to file annual report. Under the statutes of New York, making the directors of certain corporations liable for the debts of the corporation in case they fail to file with the secretary of state the 1 Anderson r. Klattau, 43 Mo. 42. The court distinguished Kritzer r. Woodson, 19 Mo. 827, in these words: " That was a .case where a stock- holder in ti corporate company sued the directors to recover back an amount which he hud been compelled to pay to the creditors of the company. The law made him liable to the extent of double the amount of stock in the company. Its entire assets having been exhausted, lie was compelled to pay the creditor of the company the amount which lie sought to recover in that suit upon the ground that the ili lits of the corporation had been suffered to accumulate to an amount in excess of the capital stock actually paid in. But the court said this statute was given for the protection of creditors and not the individual mem- bers of the company. It is true that for any improper management of the affairs of the company, by which a liability might be incurred on the part of the directors to the individual mem- bers, an action could be maintained against them. Such liability, how- ever, exists independent of this statute. It is clear that the point decided in that case was that the statute was in- tended for the protection of such par- ties as really held debts against the company. The stockholder, by dis- charging an obligation which the law imposed upon him, could not make himself the creditor of the corpora- tion. His claim was in no sense a debt due by the company, and hence it was not covered by the provisions of a statute made for a different purpose altogether. This [claim in suit here] seems to have been a debt contracted by the company in the prosecution of its business, and the liability of the defendants cannot be affected by the fact that one of the plaintiffs was a stockholder. Certainly the interests of his copartner ought not to suffer on account of his relation to the corpora- tion. The objection differs in no essential particular from any other incurred by the company; and if it was due and owing to the stockholder alone, we can see no good reason for depriving him of the protection in- tended to be given to all creditors alike." 'Cable . Gaty, 84 Mo. 573, atlirm ini: Cal.le r. McCune. ~2(\ Mo. 1571. Cable r. Gaty, 84 Mo. 573. affirm- ing Cable r. McCnne, 26 Mo. 871. 390 PERSONAL LIABILITY OF OFFICERS. [ annual report required as to the amount of its capital stock and the proportion actually paid in, the amount, and, in general terms, the nature of its existing assets and debts, and the names of its then stockholders, and the dividends, if any, declared since the last report, 1 the directors become liable for all the debts of the corporation during the term of directorship if they fail to make and file the report. So long as the default lasts, the other essentials existing, there is no distinction between directors in office at the time of default and those subsequently elected. An incoming director, having the- power to protect himself from lia- bility by filing a report, his failure to do so imposes a liability for debts contracted during his term. 2 Where there is proof in such a case that there was a corporation which assumed to act and carry on business, having a general manager, directors and by-laws, the directors against whom the action is brought cannot defend on the ground that there was no legally organized corporation. 8 Operating as a penalty, a recovery cannot be had of the trustees for failure to file a report under such statutes, in case the statute be repealed, expressly or by implication, before the trial of the case. 4 Creditors residing in other states than New York have the same rights as resident creditors to enforce the liability of the trustees for failing to make the required annual report under this statute. 5 In a case where the number of trustees of a manufac- turing corporation organized under the laws of New York had been practically reduced to nine from twelve, and the annual report required to be filed had been signed by six of the trustees, it was claimed that the trustees had become liable for the debts of the corporation as a penalty for not filing the report, inasmuch as the report filed had not been signed by a majority of twelve trus- tees. The New York Court of Appeals held that the law had 1 Laws N. Y. 1875, chap. 611, 18. 826; citing Buffalo & Allegany Rail- * Buck v. Barker, (Buffalo Super, road v. Gary, 26 N. Y. 75; Aspinwall Ct. Spl. Term, 1887)5 N. Y. St. Repr. p. Sacchi, 57 N. Y. 331-338; Meriden 826; citing Jones t in the corporation, effected a practical reduction, and con.stitutcd the nine thereafter* ;i i/, J />' as well as a de facto board. Further, that it seemed that the question of the legality of the change in the constituency of the board could only he raised in a direct proceeding hy one whose interests were affected. And the trustees as constituted having complied with the letter and >pirit of the law, in tiling the report, it was not competent in this action again>t them to enforce a liability for non-compliance with the statute for plaintiff to >how that some of the acting trustees \vere not elected or for MUM- SI n were disqualified from acting, or to claim that, by rea>on of a non-performance or an irregularity in the performance of >ome prior duty enjoined upon the stockholders, the board a- con- stituted had no authority to perform the general duties required of them as agents of the corporation. 1 In a ca.-e before the New York Court of Appeals it appeared that an annual report was properly made out and signed by the trustees of the corporation in the time required by the statute, but by inadvertence or mis- take of the secretary was not filed in time. Within a month afterwards there was an application made to the Supreme ( 1 <>nrt for leave to file it and an order of the court that it be filed //////< /'/- tune. The Court of Appeals held that this order of the court did not of itself relieve the trustees sued from liability ; that the duty to file the report was imposed by statute upon the corporation, and over it the court had no jurisdiction. The appli- cation was an act by the trustees in supposed furtherance of their duty and was an indication of good faith in respect to the proper disposition of the report, being an effort to do that which the cor- poration had not done. 2 Under the construction of this section of the statute, in Cameron v. Seaman, 3 where it was held that the limitation of twenty days applied only to the act of making, and did not apply to the act of filing or publishing ; that, as to those acts, the section was directory, but as the object of the act wa> to insure a speedy ami public disclosure of the contents of the report, it was said that the law, in the ah.-ence of an express pro- Wallace & Sons r. Walsh. (1890) But lor r. Smnlh-y, 1 18*6) 101 N. Y. 1 _>.-> N. Y. 26; a. c., 25 N. . Rep. 71. 1076. 69N. Y. 896. 392 PERSONAL LIABILITY OF OFFICERS. [ 24ri vision on the subject, implies that both filing and publication should be within a reasonable time after the twenty days, and that this requirement exacted prompt performance and diligent action on the part of the trustees, the Court of Appeals held that in this case the referee erred in refusing to find that whether the filing of the report was within a reasonable time after the expiration of the twenty days would depend upon the circumstances ; also, that he erred in finding that there was neither prompt performance nor diligent action on the part of tlje company with respect to the filing of the report. 1 Where the certificate of incorporation was signed by seven trustees and acknowledged by nine, the provis- ion of the statute which requires an annual report to absolve the trustees from personal liability for the debts of the corporation to be signed by a majority of the trustees would not be satisfied by an annual report signed by two trustees, where it is not shown by an official record that neither one of the trustees had resigned. 2 A manufacturing corporation which has never commenced busi- ness, and where, before the time prescribed for making the report required under the statute has elapsed, the object for which the corporation was formed becomes impossible of accomplishment by it, and it is neither able nor intends at any time to prosecute 'Butler r. Smaller , (1886), 101 N. * Westerfield t. Radde, (1884) 67 Y. 71, rerg. 49 N. Y. Super. Ct. 492. How. Pr. 204. In Whitney v. Cam- DANFORTH, J., said: "To prepare a mann, (1892)60 N. Y. Super. Ct. 391; report for filing and publication, to s. c., 18 N. Y. Supp. 200; affirmed place it in good faith in the hands of in Whitney r. Cammann, (1893) 137 N. the secretary for deposit in the clerk's Y. 342; s. c., 33 N. E. Rep. 305, the office and in the office of a newspaper, court referred to Cameron r. Seaman, is at least equal in significance to a 69 N. Y. 396, and Butler v. Smalley, delivery of a report to a mail agent 101 N. Y. 72; s. c., 4 N. E. Rep. 104, for transmission to those places. In and held that while these cases held the one case as in the other the com- that substantial instead of literal com- pany avails itself of the usual methods pliance with the requirement as to the of performing its duty, and in the ab- filing of the annual report, as where sence of anvthing to show the want of the report was filed within a few days good faith and active diligence in re- after the prescribed time, yet the fail- spect thereto on its part, a trustee, when ure to comply with the statute for a no time is fixed by statute within which year clearly brought the trustees in an act shall be performed, should not this case within the mischief of the be subjected to a penalty, provided the statute and subjected them person- thing required is actually done at a ally to the liability imposed by the reasonable time, having regard to the statute, nature and circumstances of the per- formance." J'KUSONAL LIABII.1TV 'K 'H-irERB. 393 it.- bu.-iness, is not required to make such a report, and no liability under tin- >tatute attaches to the trn-tee> f..r failure to make it. 1 The >tatute> uf Nc\v York making the trustees of manufacturing corporations liable for the debt of the corporation for failure to file an annual report, it has been held that the liability does not depend upon the fact tliat defendant was a trustee when the debt \\ a- incurred, but upon his having been a trustee when the default in filing the report occurred. So where one may have resigned after the incurring of the debt, but before the default com- plained of, he would not be held liable. 1 A report made by the trn-tees of a manufacturing corporation, as required by the stat- ute, stating the amount of the capital, and that all of it had " been paid in in cash, patent rights, merchandise, machinery aeeotints, etc., necessary to the business and for which stock to the amount of the value thereof has been issued by the company," has IHJCII held by the Court of Appeals to be a .-ntlicient compli- ance with the requirement of the act ; further, that it is not neces- .-ary, in the annual report required to be tiled by the trustees under this statute, to specify therein how much of the capital stock was paid in in cash and what amount in property/ 245. Actions to enforce this liability. Under this statute the action may be brought against such of the trustees as the plaintiff may select ; and if there are three or more such trn for instance, and the action be brought against two, the non- joinder of the others would not constitute a defense. 4 In case a defendant in Bnch an action be a trustee whose election is not legally valid, where, as matter of fact, he was in form elected a trustee by those who had the right to elect one, if there was a vacancy to be filled, and thereafter acted as trustee, and while acting as such there was a failure to make and tile the report required by the statute, the court held him liable on any such default letween the time of his election and his resignation ; also 1 Kirklund c. Kille, (1885) 99 N. Y. Whitaker r. Mastcrton, (1887) 106 :;;iii N. Y. 277, holding tin- a< -turn tiirtiin>t * Bruce r. Platt, (1880) 80 N. Y. the trustees not maintainable. Citing 879. As to this statute being a penal Hound 1 r. Griswold, 80 N. V. 1> st.-it ute, see Merchants' Bank r. Bliss, 3T> 13.~); Bracket r. (Jriswold. 103 N. V N. Y. 412; Garrison r. Howe, 17 N. V -r.'.l 458; Adams r. Mills, 60 N. Y. MO. 4 Halsti-ad r. D.xit:.-, ( 1S.<4> 51 N ^ M.-IIarg r. Eastman, 35 How. Pr. Super Ct. ir.'.r > , . 1 How IV . N - 205; 8. c., 7 Robt. 187. 170; citing Strong r. Spruul, 4 Daly, 50 394 PERSONAL LIABILITY OF OFFICERS. [ 245 that he was not exempted from liability by reason of his not being a stockholder. 1 In an action under this statute brought against several trustees to enforce their liability for failure to make the annual report as required for a debt of the corporation, where there is a failure to serve one or more of the defendants the case may proceed against those served, as the action is upon a joint and several liability and for a penalty, and not upon the contract. 2 This statute is penal, and not to be extended by con- struction. In an action to enforce a liability created by it, nothing can be presumed against the trustees sought to be charged, but every fact necessary to establish their liability must be affirmatively proved. 3 The failure to file a report making the trustees jointly and severally liable for all the debts of the corpo- ration, the fact that the corporation may be indebted to a trustee would not be a defense to the action. 4 In an action against the trustees of a corporation to charge them with an indebtedness of the corporation, and on the trial there be proved the original indebtedness, and that it had been reduced to judgment, and the execution upon the judgment returned unsatisfied, the trn- would not be concluded in any respect by the judgment against the corporation, they being neither parties nor privies to the action, and should be allowed to prove any defense arising subse- quent to the accruing of the debt. 5 326; Quigley v. Walter, 2 Sweeny, (N. Y. Com. PI. Spl. Term, 1893) 5 175. Misc. Rep. 255; Smith r. Sage, (N. Y. 'Ibid. Super. Ct. Spl. Term, 1893) 5 Misc. 2 Geisenheimer v. Dodge, (1884) 1 Rep. 257. How. Pr. (N. S.) 264. 4 Morey r. Ford, (1884) 32 Hun, 446. 3 Bruce T. Plait, (1880) 80 N. Y. 381; & Kraft v. Coykendall, (1884)34 Hun, followed in Tovey v. Culver, (1887) 54 285; citing Miller v. White, 50 X. Y. N. Y. Super. Ct. 404. See, also, Mil- 137; Stephens v. Fox, 83 N. Y. 317; ler v. White, 50 N. Y. 137: Whitney Rorke v. Thomas, 56 N. Y. 565; Jones Arms Co. v. Barlow, 63 N. Y. 62. As v. Barlow, 62 N. Y. 202-205. Dissent- to not being necessary to obtain a ing opinion of DANIELS, J., in Tyng judgment against the corporation be- T. Clarke, 9 Hun, 274; Esmond c. Bui- fore action against trustee, see Green r. lard, 16 Hun, 67; affirmed in 79 N. Y. Easton, (1893) 74 Hun, 329; s. c., 26 404; Whitney Arms Co. v. Barlow, 63 N. Y. Supp. 553. As to pleading in N. Y. 62. As to judgment against actions against trustees for failing to corporation prior to suit to enforce file annual report under the New York personal liability of directors not being statute, see Wilson Manufacturing Co. necessary, see Strauss . Trotter, (Com. Schwind, (N. Y. Sup. Ct. Spl. Term, PI. N. Y., 1894) 6 Misc. Rep. 77; s. c., 1893) 5 Misc. Rep. 205; Straus r. Sage, 26 N. Y. Supp. 20. 1 246] PI.K-.NAI. J.I.UIIUTY oiial liability upon the trustees for all "debts" of a corporation which fails to Hie an annual report. 1 And in .-ucli an action, upon such a claim, the recovery of the holder of the claim will be limited to the amount of damages he may have recovered from the corporation. 8 The holder of bonds issued by a manufacturing corporation, having knowledge that such bonds were diverted from the purpose for which they were intended and authorized, cannot enforce the liability of trustees for the amount of his bonds as a "debt" within the meaning of this statute. 8 A judgment for co>t.-, recov- ered apiin.-t the corporation in an action for trespass brought by it, is such a " debt " within the meaning of the statute as the trustees of the corporation will be liable for in case they fail to file the required report. 4 It seems, however, that in such a ca.-e it would be open to the trustees sued to show that the recovery of ' Green v. Easton, (1803) 74 Hun, 329; 8. C., 26 N. Y. Supp. 553; citing New Jersey Ins. Co. r. Meeker, 37 N. J. Law, 300, 301 ; Frazcr r. Tunis, 1 Bin. 254-262; Mill Dam Foundry r. Hovey, 21 Pick. 417, 454, 455. 'Green r. listen, (1893) 74 Hun, 329; 8. c., 26 N. Y. Supp. 553. Kirkland r. Kille, (1885) 99 N. Y. 890. 4 Alien r. Clark, (1888) 108 N. Y. 269, revg. 43 Hun, 877. EAHL, J., said : "This judgment clearly was one of the debts which the company was bound to include among its 'existing debts ' in the report which it was re- quired to make, file and publish within twenty days after the 1st day of Janu- ary, 1886. The section requires tin- report to state the amount of all of its existing debts of every nature, and it is the clear meaning of the sect ion that if such report be not made the trustees shall be personally liable for all tlrhts which the company was thus bound to report. It may be inferred that it was the purpose of the lawmakers to require this report to be made, pub- lished and filed for the information, benefit and protection of existing creditors of the company not only, but of all persons who might thereafter en- ter into contract relations with it. It may also have been the purpose of the lawmakers to require the report from every manufacturing corporation as a check upon extravagance and misman- agement of its affairs by its trustees, by constantly keeping before them the reminder that at least once a year the affairs of the company are to be ex- posed to the public view. It may aUo be supposed that the reports were n-- q uired so that information might be readily obtained by assessors for the purpose of taxation, and by other pub- lic otlicials who might have occasion to supervise tin- conduct of the corpora- tion, or to proceed against it for any purpose whatever; and, therefore, to 396 PERSONAL LIABILITY OF OFFICEBS. [ 246 the costs in the action was either collusive or fraudulent. The debt created by the judgment would be proven by the production of the judgment, which would be at least prima facie evidence of its existence. 1 There was a contention in this case before the New York Court of Appeals that the words in the clause of the statute, " and for all that shall be contracted for before such report shall be made," limited the meaning of the words, " debts of the company then existing," in the clause preceding it, to such debts of a corporation as are voluntarily contracted. The court held adversely to this contention, and said : " The word ' contracted ' here means the same as ' incurred,' and includes every debt for which the corporation becomes bound. There is no apparent reason for any discrimination as to the kind of debts, and we do not think any was intended." 2 Causes of action for breaches of contract, and causes incidentally arising or resulting from such breaches on the part of the corporation, are not " debts " within the meaning of those statutes making trustees liable for debts of corporations for not filing the required annual report. 3 Where a trustee of a corporation owes a debt against it, and assigns it to another absolutely for value, the assignee of such debt, on a default in making and filing a report under the New York stat- ute, subsequently occurring, may proceed against the trustees to recover the debt on their statutory personal liability, notwithstand- ing the assignor of the debt to him may have continued to be a trustee up to the time of the default. 4 Where the existence of a corporation, by the terms of its certificate, ends, and there is not at that time a debt in favor of another against it, there can be no liability of directors for not filing an annual report, as required, make sure of the accomplishment of dependently of the judgment, by say> these important purposes, the trustees ing : ' ' The reason upon which that are made personally liable for all the decision is based can have no applica- debts of the company, in case of the tion to a case like this, where there was failure of the company within the time no liability on the part of the company specified to make the report." to pay the costs antecedently or inde- 1 Allen v. Clark, (1888) 108 N. Y. pendently of the judgment." 269. The court distinguished Miller Allen v. Clark, (1888) 108 N. Y. t>. White, 50 N. Y. 137, where the judg- 269, 275. ment was upon a debt antecedently ex- 8 Victory Webb Printing Co. v. isting, in which case it was held that Beecher, (1881) 26 Hun, 48; citing Ovi- the judgment was neither conclusive att v. Hughes, 41 Barb. 541; Whitney nor prima fade evidence of the debt, Arms Co. T. Barlow, 68 N. Y. 34. and that it was the duty of the plain- * Cornell c. Roach, (1886) 101 N. Y. tiff to prove and establish his debt in- 373. 247] PERSONAL LIABILITY OF OFFICERS. 397 fur what may, at a later date, by the terms of the contract with tin- corporation, become a debt under that contract. 1 Under the provision of the statute of New York that, for failure t<> tile the annual report of the capital and indebtedness of any corporation. as therein prescribed, the trustees snail be liable for all <1<-1.N of the corporation then existing, or contracted before such report be filed, the tru-tees cannot be subjected for an alleged liability of the corporation accruing on an accommodation indorsement. which the corporation, under its charter, had no authority to make and was not bound by. 2 Trustees of a corporation, organized for manufacturing purposes under the statutes of New York, cannot be subjected to an alleged liability of the corporation accruing on an accommodation indorsement which, under its charter, it had no authority to make, and which, consequently, did not bind it. 3 Where the annual report required to be filed under the NYu- York statute before January twentieth has been filed before the maturing of a note which has been indorsed by a corporation for the accommodation of the maker, there will be no liability of the trustees growing out of the accommodation indorsement for the failure to file the report. This being a conditional liability, it was never incurred, and created no liability before it matured. 4 A contract obligation to pay a singer employed for a specified time by the corporation at a specified salary, is a " debt " of the corpo- ration from the time the contract goes into effect, within the mean- ing of this statute, for which a director may become liable. 5 247. A United States Supreme Court decision on this subject. There was an attempt in an action which came before the Supreme Court of the United States to recover of the trustees of a corporation the amount of a judgment against the corpora- tion under the provisions of the statute of the state of New York, 1 Gold r. Clync, (1890) 58 Hun, 419; National Park Bank r. Rcmscn, a c., 12 N. Y. Supp. 581; affirmed in (1890) 43 Fed. Rep. 220. Gold t>. Clyne, (1892) 134 N. Y. 262; s. Ibid. c., 31 N. E. Rep. 980. For another il- Witherow r. Slay back, (1895) 11 lustration of circumstances as to the Misc. Rep. 526; 8. c.,32N. Y. Supp. debt under which the trustees could ?!>. not be held liable, stv Sherman r. Slay- Brandt t>. Godwin, (1889) 8 N. Y. back, (1890) 58 Hun, 2.V-; s. r., 12 N. Supp. 807. Y. Supp. 291. Also, Chapman t. Corn- stock, (1890) 58 Hun, 325; 8. c., UN. Y. Supp. 930. 398 PERSONAL LIABILITY OF OFFICERS. [ 247 whereby trustees of corporations formed for manufacturing, mining, mechanical or chemical purposes are made liable for debts of the corporation on failure to lile the reports of capital and of debts required by that section of the statute. The Supreme Court held that the provision of the statute under which the lia- bility of the trustees, it was claimed, existed on account of a failure to file such a report, was penal in its character, and that it must be construed with strictness as against those sought to be subjected to its liabilities ; and, upon this rule of construction, the judgment roll was not competent evidence to establish a debt due from the corporation to the plaintiff ; further, it was held that a claim in tort against a corporation found under that statute, as amended, was not a debt of the corporation for which the trus- tees might become liable under the provisions of the statute abov.e stated. 1 1 Chase r. Curtis, (1885) 113 U. S. 452; against the defendants, but that every s. c., 5 Sup. Ot. Rep. 554. Mr. Jus- fact necessary to establish their lia- tice MATTHEWS, in the opinion, speak- bility must be affirmatively proved." ing for the court, said: "It is the Citing Garrison r. Howe, 17 N. Y. 458; well-settled rule of decision, estab- Miller v. White, 50 N. Y. 137; Whit- lished by the Court of Appeals of New ney Arms Co. v. Barlow, 63 N. Y. 62. York in numerous cases, that this sec- This rule of construction in reference tion of the statute, to enforce which to this and similar statutory provisions the present action was brought, is penal has been heretofore adopted and ap- in its character and must be construed plied by this court. Steam Engine with strictness as against those sought Co. r. Hubbard, 101 U. S. 188; Flash to be subjected to its liabilities." Mer- r. Conn, 109 U. S. 371. In the case chants' Bank v. Bliss, 35 N. Y. 412; last mentioned, this court, following Wiles T. Suydam, 64 N. Y. 173; East- the Court of Appeals of New York in erly r. Barber, 65 N. Y. 252; Knox r. the case of Wiles r. Suydam, 64 N. Y. Baldwin, 80 N. Y. 610; Veeder r. Ba- 173, showed the distinction between the ker, 83 N. Y. 156; Pier v. George-, 86 liability of stockholders for the debts N. Y. 613; Stokes r. Stickney, 96 N. of the corporation, under a section of Y. 323. In the case last cited the ac- the same act, making them severally tion authorized by it was held to be individually liable for the debts and ex, delicto, and that it did not survive contracts of the company to an amount as against the personal representative equal to the amount of stock held by of a trustee sought to be charged. In them respectively, until the whole Bruce v. Platt, 80 N. Y. 379, it was amount of the capital stock fixed and said: "It is settled by repeated decis- limited by the company had been paid ions applicable to this case that the in, and the liability imposed upon the statute in question (Laws N. Y. 1848, trustees by the section now under dis- chap. 40, 12) is penal and not to be cussion. It was held that the former extended by construction; that in an was a liability ex contracts, enforceable action to enforce a liability thereby beyond the jurisdiction of the state, created, nothing can be presumed and that the statute should be con- 248] PERSONAL LIABILITY "I ! M< TKS. 899 248. Statute of New York liability for creation of debts in excess of capital stock. I'lider the New York htatute making the trustees of manufacturing corjorations who a.sM-nt to tin- creation of an indebtedness exceeding the amount of the capital >t<>ck personally liahle for the excess, 1 the liability strued liberally in furtherance of the remedy; that the latter was for the enforcement of a penalty, and subject t<> .-JI rules applicable to actions upon statutes of that description. The distinction is illustrated and enforced in Hustings P. Drew, 76 N. Y. 9, and Stephens ;. Fox, 83 N. Y. 318. The present ijucstion involved lien- was drcid'd by the. Court of Appeals of New York in the cast? of Miller /. White, :>(} N. V. 137. In that CUM- the complaint set forth the recovery of a judgment agaiiut the company, but mi the original cause of action against it on which the judgment was founded. The defendant moved for a dismissal on this ground, which was refused, and judgment was rendered in favor of the plaintiff on the production in evidence of the judgment roll. This was held to be erroneous on the ground that the judgment was not competent as evidence of any debt due from the corporation, and that no action could be maintained thereon against the trus- tees under this section of the act. Judge I'K< KIIAM, delivering the unanimous opinion of the court, said: "It will be perceived that this is a highly penal act, extremely rigorous in its provisions. It is absolute that the tru-tcis shall be liable for all the debts of the company, If the report be not made, no matter by whose default. If one of the trustees did all in his power to have it made, yet if the presi- dent, or a sufficient number of his co- trust.es to constitute a majority declined to sign it, or if the president and secretary declined to verify it by oath, the faithful trustee seems to be absolutely liable as well as those who refuse to do their duty." It was ac- cordingly held "that, as against these defendants, the judgment did not legally exist, as they were neither par- ties nor privies to it. * * * ' It is not a judgment as to those defendants; no action could be maintained thereon against them, * * * nor is tho judgment priinn facie evidence of the debt as against the defendants.'" This doctrine was repeated and reaf- firmed by the same court in Whitney Anns Co. /-. Harlow. (\:\ N. Y. In that caM- the court said: "The debt must be proved by evidence competent against the defendants. The facts upon which the debt is founded must be proved. The naked admissions of the corporation or judgment against the corporation are not evidence against the trustees. They are ret inter aliog urta, ; but, when facts are proved which establish the existence of a debt against the corporation, the liability of the trustees for the debt follows upon the proof of the other facts upon which the liability is made by statute to depend." The case of Miller r>. White, 50 N. Y. 137. has never been overruled nor questioned by the New York Court of Appeals. On the contrary, it has been repeatedly (iiul expressly cited and approved, and either followed or distinguished from the case under decision in the follow- ing cases: Rorke r. Thomas, 56 N Y . 559-565; Hastings v. Drew, 76 N. Y. 9-15; Stephens r. Fox, 88 N. Y. 818- 317; Knox r. Baldwin. 80 N. Y. 610- 618; Bruce r. Platt, 80 N. Y. 879- 3H1. 1 Laws N. Y. 1848, chap. 40, 28. 400 PERSONAL LIABILITY OF OFFICERS. is one of contract and not of penal liability. 1 And the trn.-trr- assenting to the creation of indebtedness exceeding the capital stock will be personally and individually liable for such excess to the creditors of the corporation to whom such excess may be owing. 2 In a case before the Supreme Court of New York the 'Patterson v. Robinson, (1885) 37 Hun, 341. LANDON,* J., for the court said : " The assenting trustee, know- ing that the indebtedness of the com- pany has reached at least an amount equal to the capital stock, concurs with the company in contracting fur- ther indebtedness. He knows that- the statute, in case he assents, makes him also liable. He gives his consent and thereby, under the statute, pledges his liability. The statute says to the assenting trustee, ' you may contract as many debts as you choose to be- come liable for.' It was insisted that the language of section 13 of the act was similar to that of section 23, and, as the liability under the former was, by settled law, a penal one, the same must be true under the latter." Refer- ring to section 13, which makes trus- tees liable for declaring dividends, the payment of which would make the corporation insolvent, it was said : "The section seeks to deter the trustee from despoiling the company to the profit of the stockholder and to the ruin of the creditors. Such a wrong has no connection with the con- tracting of the debt, but imperils its payment and the liability affixed upon the offending trustee may well be called a penalty. There is no such flagitiousness in the act of assenting to an excess of indebtedness over the amount of the capital stock. It may be wise and right; at any rate the in- tent may be honest. Why affix a penalty upon performance of a good act ? Such is not the policy of the law. It may lead to reckless specula- tion, but speculation is no offense, and the statute prudently tempers the venture for gain by making the assent- ing trustee a partner with the com- pany in the risk of loss, or, more ac- curately, in liability to such creditor. And, if this view be correct, the creditor for the excess cannot be de- prived of his recourse to the assenting trustee by any decrease in the aggre- gate indebtedness of the company, or otherwise than by his own consent, or by payment to him." 2 Ibid. ; affirming, and reaffirming on a rehearing, Patterson v. Robinson, (1885) 36 Hun, 622. The court dis- guished Hornor v. Henning, 93 U. S 228; Merchants' Bank of Newburyport v. Stevenson, 10 Gray, 232; Anderson v. Speers, 21 Hun, 568. In Patterson' P. Robinson, (1885) 36 Hun, 622, the court reasoned well to this conclusion, and cited as in harmony with their views Wiles v. Suydam, 64 N. Y. 173; Corning r. McCullogh, 1 N. Y. 47; Story v. Furman, 25 N. Y. 223, and Veeder v. Mudgett. 95 N. Y. 295. In Patterson . Robinson, (1885) 37 Hun, 341, they said of their argument in the case supra : " We saw that this excess of indebtedness was due by the con- tract of the company, and, without re- gard to the statute, indeed wholly in- dependent of the statute, to the creditors to whom the contract of the company made it due. We feel that no statute could deprive such creditor of his contract engagement with the company. Such being the contract relation between the company and such creditor, we thought that when the statute stepped in and added to the contract liability of the company for such excess of indebtedness the personal and individual liability of the 248] PERSONAL IJ ABILITY uK OFFICERS. 4> 1 question was whether or not a director of a corporation organized under the statute 1 was liable for a debt of the corporation. Section 18 of that statute requires the filing of an annual report stating the amount of capital, the proportion actually paid in, etc., and provides that the report shall be signed " by the president and a majority of the directors, and shall be verified by oath of the president or secretary of such corporation and filed in the office of the secretary of state ; and, if such corporation shall fail so to do, all the directors thereof shall be jointly and severally liable for all the debts of the corporation then existing, and for all that shall be contracted before such report shall be made." Section 21 declares that " if any certificate or report made, or public, notice given, by an officer of any such corporation shall be false in any material representation, all the officers who have signed the same shall be jointly and severally liable for all the debts of the corporation contracted while they are officers thereof." A majority of the court held that a director was an " officer " within the meaning of this last section, and would be liable under it where he had signed a report which was false in a material representation. 2 A trustee not assenting to the creation of an indebtedness in excess of the capital stock of a corporation, his subsequent failure to dissent, when informed of the fact, would not be equivalent to the assent required by this statute. 8 In a case before the Supreme Court of New York, where it was not shown that either of two of the trustees of the corporation dur- ing the time in which there was incurred an indebtedness in excess of the capital stock of the corporation, ever attended any of the meetings of the trustees, or were consulted with reference tru-ti-es assenting thereto.it added it confidence in this construction, be- to the liability of the company where cause of our opinion that section 23, that liability was placed, namely, to unlike some other sections of the act, the creditors to whom the company did not impose this personal liability was liable for it. We saw no language as a penalty for wrong done or duty in the statute at variance with such a omitted, but as the terms upon which construction, certainly none which such excess of indebtedness might, s fined to imply that the liability of with safety to the creditors, be per- the assenting trustees for such excess mittcd to the company." of indebtedness should be diverted 'Laws N. Y. 1875, chap. 611. from the creditors to whom the com- * Torbett t>. Eaton, (1888) 49 Hun, panyowed such excess, and be devoted 209; 8. c., 1 N. Y. Supp. 614. to, or conferred upon, or shared among * Patterson t>. Robinson, (1885)86 the creditors to whom the company Hun, 622. did not owe it. And we had the more 51 402 PERSONAL LIABILITY OF OFFICERS. to the management of its business, or participated in its affairs, except to sign its annnal reports, and then only upon their faith in the assertions of a co-trustee that they were correct, the court held that no such assent on their part was shown as was required to make them liable under the statute. 1 All the directors who are liable must be made parties to an action brought by a creditor of a corporation to enforce the individual liability imposed by the statute of Xew York upon the directors of a corporation by whom an indebtedness exceeding the amount of its capital stock is created, such liability being joint and not several. 2 In deter- mining the amount of the liabilities of a corporation, to ascertain whether or not they exceed the amount of the capital stock, a judgment recovered against the corporation by one of its directors for money advanced by him to it, which judgment may have been subsequently assigned by him to a third person, cannot be treated as one of such liabilities. 3 249. Liability for incurring indebtedness in excess ox capital stock Illinois statute. In an action against directors of a corporation by the holder of notes of the corporation which had been issued under their directorate, based upon their liability for incurring such indebtedness in excess of the limit, as con- tended, imposed by the following section of the statute of Illinois, to wit : " If the indebtedness of any stock corporation shall exceed the amount of its capital stock, the directors and officers of such corporation assenting thereto shall be personally and individually liable for such excess to the creditors of such cor- poration," upon the question whether the facts stated in the bill brought the cause of action within the bar of the Statute of Limitations, the contention of the directors was that their liability, if any existed, was for a statutory penalty. The Supreme Court of Illinois held that the liability was not for a statutory penalty, and that the Statute of Limitations was not a bar to a recovery ^bid. As to what is a properly & Wright Co., (1891)61 Hun, 619; s. stated cause of action against directors c., 15 N. Y. Supp. 278. under the statute of New York (Laws * McClave v. Thompson, (1885) 36 N. Y. 1875, chap. 611, 22), which Hun, 365. imposes a personal liability for an 3 Ibid.; citing following: Robinson excess of indebtedness, in case the in- v. Thompson, 20 N. Y. Wkly. Dig. debtedness of the corporation shall at 557; Easterly r. Barber, 65 N. Y. 255; any time exceed the amount of its Knox r. Baldwin, 80 N. Y. 610. capital stock, see Loveland r. Doran 249 1 I'KKSONAL LIABILITY OF OFFICERS. 403 by the creditors of these directors. 1 The same court, in a com- paratively rt-cent case have construed this statute, and said : " The liability is created only where the indebtedness of the corporation exceeds the amount of the capital stock, and is imposed only upon the directors and officers assenting to such excess of indebtedness. Thin plainly means assenting to its creation. Manifestly, a recog- nition of the indebtedness by the directors after it has been so contracted as to become binding upon the corporation, should not 'Woolverton r>. Taylor, (1890) 183 Dl. 197. Arguendo, it was said: "In the absence of statutory prohibition it la not unlawful for the officers of a corporation to contract debts in excess of its capital stock. Unless restricted by statute, corporations, as individ- uals, may contract debts to the full extent of their credit, without refer- ence to the amount of their capital stock. Neither is it, under all circum- stances, bad management in a corpo- ration to contract debts in excess of the amount of its capital stock. Its assets may be of such value as to give it credit, and warrant the incurring of liabilities far beyond that amount. While statutes in some states, by dif- ferent forms' of language, limit the right of such officers to contract in- debtedness beyond prescribed limits, in others no restriction whatever has been enacted, and in many of those in which a limit is prescribed the indebt- edness which may be contracted is not limited by the amount of capital stock, but may equal twice or three times that amount. If, therefore, such en- actments are to be understood as indi- cating that it is deemed unwise to allow corporations to incur liabilities beyond a prescribed limit, it must be admitted that the sentiment is by no means har- monious as to where the limit should !>< placed. These statutes do not, there- fore, indicate, as contended by counsel for appellees, that legislatures have considered it bad management in the affairs of a corporation to contract debts beyond the amount of its capital stock. [The quoted section] of our statute does not prohibit the contract- ing of indebtedness in excess of capital stock; neither does it in terms inflict a penalty for so doing. Therefore, a prohibition cannot be implied, and to say, as counsel insist should be done, that the assenting is made unlawful by the infliction of a penalty, is to assume the very question controverted. While it is trie that statutes of other states making officers of corporations indi- vidually liable for contracting debts beyond a prescribed limit have been held to be penal, the language of those statutes will be found materially dif- ferent from ours, and so far as we have been able to ascertain expressly pro- hibit the incurring of liabilities beyond certain limits fixed. In Hornor et al. v. Henning etal., 93 U. 8. 238, the Su- preme Court of the United States, in passing upon an act of congress regu- lating corporations in the District of Columbia, the language of which is almost identical with that of our stat- ute, it was held that the act was not penal, for reasons which we think un- answerable. We followed that decis- ion in Low r. Buchanan, 94 111. 76, in holding that the liability created by [our statute] could only be enforced in chancery, and this is, in effect, decid- ing that the action is not for the recov- ery of a penalty. ' It is a universal rule in equity never to enforce either a penalty or a forfeiture. ' 2 Story's Eq. Jur. 1319; Queenan r. Palmer, 117 404 PERSONAL LIABILITY OF OFFICERS. have the effect of charging them with this statutory liability. After the indebtedness has been created by such agents and in such manner as to constitute it a valid obligation of the corpora- tion, it becomes the duty of the directors to recognize its validity, and, so far as in their power, provide for its payment. * * * Such assent of [directors] could only be given by some affirmative voluntary act on their part, or at least some active participation or co-operation in the particular transaction out of which that indebtedness arose." 1 In a case where it was sought to enforce 111. 619. In Morawetz on Corporations (Vol. 2, 908) it is said: ' It is not always quite clear what the courts mean to express by saying that stat- utes of this character are penal, and that they impose upon the directors a penal liability. The liability of direct- ors under such a statute is undoubtedly not the result of a contract between the directors and the creditors of the corporation; but that is evidently not what the courts mean to express. The liability of directors to creditors for a tort, or a misapplication of corporate funds, or a breach of trust, does not arise out of contract; yet the courts would certainly not call this a penal liability, or refuse to enforce it because it urose under the laws of a foreign state. Nor is the liability of the direct- ors under these statutes penal, in the sense in which the word penal is used in common law. It is not a penalty or fine imposed by the state for the in- fraction of public law. The liability of the directors is, both in form and substance, a private obligation, simi- lar in many respects to that of sure- ties. It is imposed by the legislature partly for the purpose of inducing the directors to do their prescribed duties, and partly for the purpose of securing the company's creditors from losses caused by those who have control over the company's funds. The statutes imposing this liability establish a new rule of private right, a rule which, al- though unknown to the common law, may be founded on sound principles of justice and expediency.' In Neal t>. Briggs, 12 Ga. 104, it is directly held that a provision in the charter of a corporation prohibiting the contracting of debts in excess of three times the amount of the capital stock paid in is not penal within the statute of that state limiting the bringing of penal actions to a period of six months." 1 Lewis v. Montgomery, (1893) 145 111. 30; s. c., 33 N. E. Rep. 880. The court, in its opinion, recites the facts as to meetings of the board, the incur- ring of certain debts, etc., summing up with a statement that they found no evidence except that furnished by the record of the proceedings of the board, which tended "to charge the directors, with the exception of [one who managed the business], with any direct or personal agency in the incur- ring or contracting of the corporate in- debtedness. Except so far as they acted officially at the meetings of the board they are not shown to have personally taken any part in the corporate busi- ness. It is not shown that they per- sonally entered into any contracts, made any purchases, transacted any business or in any way interfered with the corporate dealings. The evidence is clear that [this managing director], during all the time the corporation was. doing business, was in fact its general financial manager, and had complete and unquestioned control of its busi- ness affairs. Purchases and sales were 249] PERSONAL LIABILITY OF OFFICEBS. tin .statutory liability of directors and officers of a manufacturing corporation for the excess of indebtedness incurred beyond the capital stock of the corporation, it was hrld by the Supreme Court of Illinois that advances by a factor to a manufacturing corporation of a part of the invoice price of goods, under a con- tract that the former is to reimburse himself from the proceeds of the goods when sold, did not create any substantial liability or made and indebtedness incurred by him :it his discretion. The directors, having full confidence in him, and recognizing the preponderating influ- ence to which the ownership of three- fourths of the stock of the corporation seemed to entitle him, allowed him to manage the business substantially as he pleased, and failed to keep them- selves informed as to the financial situ- ation. That in all this they were grossly recreant to their legal duties as directors and officers of the corpora- tion goes without saying. But whether they thereby incurred the statutory liability for the debts of the corpora- tion in excess of the amount of the capital stock presents quite another question. The provisions of the stat- ute are as follows: 'If the indebted- ness of any stock corporation shall exceed the amount of its capital stock the directors and officers of such cor- poration assenting thereto shall be per- sonally and individually liable for such excess to the creditors of such corpo- ration.' It should be observed that the statutory liability is not predicated upon the negligence of the directors or officers in the disehargeof their official duties, but upon the fact of their hav- ing 'assented* to the indebtedness which constitutes the excess over the amount of the capital stock. The con- tention of the complainants seems to be that as the board of directors is the governing body of the corporation, their constituting [one of their num- ber] its genenil financial agent, either by appointment or by sufferance, made him their agent so as to warrant an application to them of the maxim respondent superior, and to make his acts and assent the acts and assent of the directors. This position is clearly untenable. The directors, though the governing body of the corporation, are only its officers and agents, and any subordinate agent appointed by them or acting by virtue of their sufferance or recognition, does not thereby be- come their agent but the agent of the corporation. His acts are the acts of the corporation so as to make it liable for debts or obligations incurred by him on its behalf, but they are not the acts of the directors unless commanded or authorized by them. The fact that the directors might have interfered to prevent [this manager] from running the corporation in debt beyond the amount of its capital stock, or that they failed in other respects to perform their appropriate functions, may be charged against them as negligence, but it fails to establish their assent to the indebtedness thus contracted. In Woolverton v. Taylor, 133 III. 197, the statute sought to be invoked here was under consideration, and we then- held that while the liability imposed is not penal but contractual, it is like that of a surety, and, therefore, stricti juris. This being the case, the statute should receive a construction in consonance with the nature of the obligation im- posed. The words employed should be interpreted according to their plain and obvious meaning, and should not tic extended by construction M> as to embrace cases not clearly within the terms of the statute. The liability is 106 PERSONAL LIABILITY OF OFFICERS. [ 250 indebtedness against the corporation while the goods are in the hands of the factor and before their order, within the meaning of the statute of Illinois relating to such liability of directors and officers of corporations ; also, that the fixing of the salary of the superintendent of the corporation and that of the secretary, in the absence of other proof, was not sufficient to show that any corporate debt was thereby incurred, as it would be presumed that such salaries were paid as they accrued. Further, it was held that to show the incurring of an indebtedness of a corporation in excess of its capital stock, it was not sufficient to show that various expenditures were ordered or authorized by the board of directors, when, so far as it appeared, such expenditures may have been met at the tune by cash payments. It must be shown that -such expenditures resulted in indebtedness, or formed part of the indebtedness in excess of the capital stock. 1 250. United States Supreme Court decision on a similar statute the proper action in such a case. An action at law was brought by a creditor of a savings bank in the District of Columbia against the trustees of the bank upon a liability as alleged incurred by a violation of the following section of the act of congress under which it was organized, to wit : " If the indebtedness of any company organized under this act shall at any time exceed the amount of its capital stock, the trustees of such company assenting thereto shall be personally and individu- ally liable for such excess to the creditors of the company." The Supreme Court of the United States affirmed the sustaining of a demurrer by the lower court to this action, holding that an action at law could not be sustained by one creditor among many for the liability thus created, or for any part of it, but that the remedy is in equity. 2 created only where the indebtedness of the indebtedness has been created by the corporation exceeds the amount of such agents, and in such manner as to the capital stock, and is imposed only constitute it a valid obligation of the upon the directors and officers assent- corporation, it becomes the duty of the ing to such excess of indebtedness, directors to recognize its validity, and, This plainly means assenting to its ere- so far as is in their power, provide for ation. Manifestly, a recognition of the its payment." indebtedness by the directors after it l Lewis r. Montgomery, (1893) 145 has been so contracted as to become 111. 30. binding upon the corporation, should * Horuor v. Henning, (1876) 93 U. S. not have the effect of charging them 228. Mr. Justice MII.LEK, speaking with this statutory liability. After for the court, said: " We are of opinion '."!] PERSONAL LIABILITY OF OFFICl 1"7 251. New York statute liability for false statements in certificates, etc., filed. It ig entirely immaterial whether the creditor of the corporation relies upon the ecrtiticate tiled by the officers or not. As long as the trustee knows the certificate to be false, and the deltt is thereafter contracted while he is an officer of the company, it come> within the provisions of the stat- ute making the trustees liable on account of the ful.se statement in the certificate. 1 The plaintiff in such actions mu.-t estaMi>h that the certificate filed was in point of fact false, and that the trus- tees signed it with knowledge of its falsity. 2 Renewal notes given after the tiling by the officers of a corporation of a false certificate that all of its capital stock had been paid in for a debt contracted by the corporation before the filing of the certificate is a "debt" within the meaning of the statute making dir and officers liable for the debts of the corporation. 3 A director cannot defend an action to make him liable for .signing an annual report false in any material particular upon the ground that he was also a creditor of the corporation. 4 The constitutionality of that the fair and reasonable construe- number and names of the creditors, tion of the act is that the trustees who the amount of their several debts, to assent to au increase of the indebted- determine the sum to be recovered of ness of the corporation beyond its the trustees and apportioned among capital stock are to be held guilty of a the creditors in a manner which the violation of their trust; that congress trial by jury and the rigid rules of intended that so far as this excess of common-law proceedings render im- indebtedness over capital stock was possible. This course avoids the in- necessary, they should make good the justice of many suits against defend- debts of the creditors who hud been ants for the same liability, and the the sufferers by their breach of trust; greater injustice of permitting one that this liability constitutes a fund creditor to absorb all or a very un- f or the benefit of all the creditors who equal portion of the sum for which are entitled to share in it, in propor- the trustees are liable, and it adjusts tion to the amount of their debts, so the rights of all concerned on the far as it may be necessary to pay their equitable principles which lie at the debts. The remedy for this violation foundation of the statute." of duty as trustees is in its nature Ferguson r. Gill, (1892) 64 Hun, appropriate to a court of chancery. 284; s. c., 19 X. Y. Supp. 149. The powers and instrumentalities of *Ibid. that court enable it to ascertain the 3 Ibid. excess of the indebtedness over the * Richards r. Cnii-krr. iN. V. City capital stock, tho amount of this Court, Spl. T. 1887) 19 Abb. N. C. which each trustee may have assented 78. Judge KAPALI.O in Pier r. Han to, and the extent to which the funds more, 86 N. Y. 101, says of the pur- of the corporation may be resorted to pose of this statute: "The purpose for the payment of the debts; also the for which tin- annual reports are re- 408 PERSONAL LIABILITY OF OFFICERS. [251 the New York statute has been sustained by the Court of Appeals. 1 In actions against directors under this statute it is not necessary to show knowledge on the part of the officer at the time of signing ; proof that the writing is untrue " in any material representation " would be sufficient. 2 The rule governing the action of a jury in such a case is that they are not required to give the defendants the benefit of any reasonable doubt in the quired to be published is that the pub- lic may be correctly informed of the financial condition and resources of their companies in order that they may judge of the credit to which they are entitled." In Walton v. Godwin, 58 Hun, 91, Mr. Justice DANIELS used this language: "The report has evi- dently been required as information to the public concerning the financial condition and responsibility of the corporation. This information is in- tended as a security to persons dealing with the company. And whatever would materially affect their judg- ment in their dealings should be re- garded as a material representation in the report itself. But if a report proves to be untruthful in representa- tions which would have no effect whatever upon the judgment or con- duct of persons dealing with the cor- poration, such representations could not be consistently held to be material. And it must be by this criterion that the question of the liability of the per- sons signing the report should be de- termined, for if it contains untruthful statements and those statements ap- pear to be so entirely unimportant that they would not affect, in the least degree, the credit of the company or the conduct of persons dealing with it, then they cannot legally be held to be material misrepresentations. " After quoting the above in Torbett v. God- win, (1891) 62 Hun, 407, 411; s. c., 17 N. Y. Supp. 46; 27 Abb. N. C. 444, BARRETT, J., as to the construction to be given to the section imposing lia- bility upon officers for certificates, etc., " false in any material representation," has said: " The construction * * * should, if possible, be in harmony with its object and purpose as thus defined. That will be accomplished by confining the liability to cases where credit may possibly have been given to the corporation upon the faith of the report. In other-words, to debts contracted after it is filed. This gives force also to the word ' representa- tions ' as used in the section. That section does not read false in any material ' statement ' or material ' fact,' but falsein any material ' representa- tion.' Representation implies an ob- ject addressed. Representations to whom, then ? Plainly to any one who contemplates trusting the company thereafter. And this view is rein- forced by the fact that the false rep- resentation which creates liability is not limited by the section to a certifi- cate or report, but may be embodied in any toublic notice given by the officers of thecompany. Shall it be said then that for any negligent or inadvertent publication the officers of the com- pany are to be mulcted, not only for the possible consequences of such publication, but for debts contracted before it was thought of?" The re- versal of the judgment against the directors on this case negatives this query. 1 Huntington r. Attrill, (1890) 118 N. Y. 365; 8. c., 23 N. E. Rep. 544. 9 Ibid. PERSONAL LIABILITY <>l "II K KR8. 409 sense applicable to criminals. They may be governed in reach- ing a satisfactory result by the fair preponderance of evidence. 1 Tlu; fidsc rrpivsiMitiition alleged in this case was tliat the direct- .ore Iiad represented in their report that the whole capital stock, $700,000, had been paid in. The whole stock was issued to one individual, one of the defendants here, for a tract of land upon the seashore. It became necessary, therefore, in the progress of the case for the jury to consider what was the " fair value " of this property when considered in connection with the . provision of the statute which prohibits the issuing of stock of a corpora- tion organized under it except for " property actually received for the use and legitimate purpose of said corporation at its fair value." " Fair value " in this connection the Court of Appeals of New York held to be that which the property had at the time of sale ; that it was not dependent upon the subsequent success or failure of the investment, further than that result may have been legitimately within evidential contemplation at the time of the sale in view of the uses for which it may have had available advantages within itself. 2 As bearing upon the real value of this property for which the stock was issued to so large an amount it was held not to have been error to allow the plaintiff to prove on the ques- tion of value that the land purchased, with extensive improve- ments thereon, was afterwards sold at judicial sale for $175,000. 3 In an action of another creditor against these same defendants upon their liability under the statute for having made a false statement in their certificate which they had filed, the Court of Appeals sustained the action of the trial judge in refusing to accept a verdict of the jury for an amount less than the whole amount of his debt and directing a verdict for the latter amount on the ground that having found that the plaintiff was entitled to a recovery, that being a matter of fact for the jury, the measure of damages was the amount of the debt and this he was entitled to recover. 4 Where the liability of a trustee or director under the statute for making a false certificate has reference to an over- valuation of property taken by the corporation from its stock- holders, the statute would not l>e violated in respect to the issuing of stock in payment for property unless such persons in bad faith 1 Ibid. Hatch r. Attrill, (1890) 118 N. Y. * Ibid. 888; 8. c., 28 N. E. Rep. 549. Ibid. 52 410 PERSONAL LIABILITY OF OFFICERS. [ '!'>'! put a fictitious value upon their property for the purpose of evad- ing the statute and defrauding others. If done, and the trustee knew of it, lie would be liable. 1 The rule that to sustain an action for fraud founded upon representations made by one charged with fraud, it must be made to appear that he believed, or had reason to believe, at the time he made them, that the rcj> resentations were false, or that, without knowledge, he assumed or intended to convey the impression that he had actual knowl- edge of their truth, and that the injured party relied upon them to his injury, is applicable to the case of representations made by a director of a corporation, in the form of published state- ments and reports, as to its financial condition. Knowledge of all the affairs of the corporation cannot be imputed to him for the purpose of charging him with fraud. 2 In a case brought by one who alleged that he had been led to loan a large sum of money to a corporation by the false and fraudulent representa- tions of its trustees as to its capital stock having been paid in, etc., in a report, there was a judgment against all the trustees. On the appeal it was held by the court that the facts that the name of one of these defendants was published as a trustee of the corporation and that a certificate of stock was issued to him were not sufficient to authorize a verdict against him for the fraud perpetrated by other trustees and agents of the corporation. 3 The mere fact of being a director and stockholder is not sufficient per se to hold one so situated liable for the frauds and misrepre- sentations of the active managers of a corporation. They are the agents of the corporation, not of the directors, as individuals, and have no power to bind the latter by their statements. Some knowledge and participation in the act claimed to be fraudulent must be brought home to the person charged. It is only where a director lends his name and influence to promote a fraud upon the community, or is guilty of some violation of law or other mismanagement that he is personally liable. 4 252. Illustrations. A statement in such a report that cer- tain persons are stockholders in the corporation, and that the 1 Van Vleet v. Jones, (1894) 75 Hun, Arthur v. Griswold, (1874) 55 N. 340; s. c., 26 N. Y. Supp. 1086. Y. 400. 4 Wakeman v. Dalley, (1872) 51 N. 4 Ibid. Y. 27; s. c., 10 Am. Rep. 551, affirm- ing 44 Barb. 498. 252J PERSONAL LI A HI LITY OF OFFICERS. 411 amount of their stock has been already paid, when in fact such persons are not stockholders at all, would be "false in a matt-rial representation." 1 That defendant signed .-m-h rejxjrt in good faith under the advice of counsel, and that he believed the state- ment made in it to be true would be no defense against his statu- tory liability under this statute.' It appeatv by the corporation under the requirements of the statute as one of the stockholders was not and never had been the owner of stock in the corporation ; that a certificate for ten shares of stock, amount- ing to the sum of $1,000. had been sent to him, which he had refused to accept and had returned, and that this amount, as well as an additional sum of $1,000, for which there was no founda- tion whatever, was included in the amount of the capital stock of the corporation stated in the report to have l>een paid in. The other stock paid in was stated at $148,600. The Supreme Court in General Term held that, in view of the fact that the jury might have found that $146,600 of the capital stock of the corporation had been paid in, this error to the extent only of $2.000 did not make the- report " false in any material representation." ! In a case before the New York Court of Appeals, brought by a creditor against a trustee of a corporation to enforce the liability of the latter under the New York statutes for making a state- ment in the annual report that the capital stock of $2,000,000 had been paid up in full, on the ground that the statement was false to the knowledge of the signers, it appeared that the stock of the corporation was issued to one, in payment for certain iron mining property, then undeveloped, which property he had pur- chased of a corporation of which the trustee sued was a stock- holder, and the latter received from him $10,000 of the stock of the new corporation to enable him to act as trustee. The vendor of the property sold to the corporation surrendered to the new corporation 1,000 shares of the stock, which was pledged, with 'Brandt r. Godwin, (City Court N. upon the transactions or dealin Y.. Spl. Term, 1889) 8 N. Y. Supp. creditors with the rporation An. I 807. for that reason these statements could * Ibid. not be assumed 1i> be. as they appear 1 Walton r. Godwin, (1890) 58 Hun, to have Iteen in t lie charge of the court, 87; fl. c., 12 N. Y. Supp. 486. DAN- materially false .statements rendering IBL8, J., said: "This slight discrep- tin- olVirers who signed the report ancv or difference in HO lanre an liable for its debts." amount would have no effect whatever 4 1 2 PERSONAL LIABILITY OF OFFICERS. [ 252 $70,000 of the bonds of the corporation, to secure a loan of $35,000, and gave 500 shares of the stock as a commission to the officer who negotiated the loan. The property which was sold by this vendor to the new corporation for $1,000,000 of the stock of the new corporation and $200,000 of its bonds, and the con- sideration for which was expressed in his deed to the new corpo- tion as $600,000, proved to be worth not over $60,000. The trustee sued had knowledge, it was shown, of all these facts. The Court of Appeals held that the facts justified a finding that this trustee signed the report in bad faith, knowing it to be false. 1 In an action against trustees of a manufacturing corporation to enforce the liability imposed by the statutes of New York 3 for making a false report, where the falsity alleged was solely in the statement that the capital stock had been paid in full, without stating that all or a portion of it was paid for in property as required by a later statute, 3 the New York Court of Appeals declared this rule to be applicable, to wit : To charge the officer with the severe penalty imposed for signing a false report, know- ing it to be false, some fact or circumstance must be shown indi- cating that it was made in bad faith, willfully, or for some fraudu- lent purpose, and not ignorantly or inadvertently, and this is a question of fact which must be passed upon before the liability can be adjudged. 4 FINCH, J., further said : " But the necessity of such proof of a willful and fraudulent purpose we confined to a case where the sole falsity of the report originated in our con- struction of its import, as meaning a payment in cash, although not so stated in express terms, and where, as a consequence, it was possible for the officer to have signed what we construe to be a falsehood, but what, as he understood it, might have been a truth. In such case it is just to require that some evidence of bad faith, something indicating a consciousness of falsehood instead of belief of truth should be given. In other words, the penalty follows an actual and not a constructive falsehood ; one known and understood to be such and possibly believed to be otherwise." 5 The trustees of a manufacturing corporation 1 Blake v. Griswold, (1886) 103 N. Y. 'Bonnell *. Griswold, (1882) 89 N. 439. The court distinguished Lake Y. 122; rule declared in Pier v. Han Superior Iron Co. . Drexel, (1892) 90 more, 80 N. Y. 128. N. Y. 87. 6 Ibid., in which it was held that * N. Y. Laws 1848, chap. 40, 15. where the stock of the corporation 3 N. Y. Laws 1853, chap. 333. was actually paid in in cash, the mere 252] PEK80NAL LIABILITY OF OFFICERS. \ I '', would not incur the liability imposed upon them by the stat- utes of New York l for signing an annual report " false in any material representation," simply by omitting from the aggregate indebtedness of the corporation certain liabilities of the corporation, although they may have known of it at the tin it; the report was made. 9 The liability of a director of a cor- poration grilled under the New York statute 8 by reason of making a false report abates on the death of the original creditor of the corporation, and cannot be revived in favor of or prose- cuted by his personal representatives. 4 The Maryland Court of Appeals, two justices, however, dissenting, has held that the lia bility imposed upon directors or officers by the New York statute on account of false statements in reports, etc., required of them as to any material representation was a penalty and not enforceable in the state of Maryland ; and that if a judgment had been obtained in New York under the statute, no action could be maintained on the judgment in the state of Maryland. 9 The officers of a corpofetion organized in pursuance of a plan of a syndicate for whom property had been purchased for $150,000, with a view to sell the same to this corporation, certified that stock of the value of $1,500,000 had been issued to the amount of the value of the- property purchased of the syndicate for the pur- pose of the corporation. These officers were held liable to per- sons who had advanced money to the corporation under th> statute of New York, which provides that " if any certificate or report made, or public notice given, by the officers of any such company, in pursuance of the provisions of this act, shall be false in any material representation, all the officers who shall have signed the same, knowing it to be false, shall be jointly and severally liable for all the debts of the company contracted while they are stockholders or officers thereof." The statement in the fact that the corporation boupht out 'Laws N. Y. 1875, chap. 611. assets of an old company at their fair * Boyle v. Thurber, (1888) 50 Hun, value did not call for or authorize a 250; following Brackett c. Griswold, statement in the report that the stock 103 N. Y. 425. had been paid for in property. See, *Attrill v. Iluntington, (1889) 70 also, Wickens . Foster, (1885) 22 N. Md. 191; 8. c., 16 Atl. Ifc-p. 651; citing, Y. Wkly. Dig. 426. in support of the holding. Flash r. 1 N. Y. Laws 1848, chap. 40, 15. Conn, 109 U. 8. 876; Wisconsin r. Butler t. Smalley. (1885)101 N. Y. Pelican Insurance Co., 127 U. 8. 290. 71. 414 PERSONAL LIABILITY OF OFFICEES. [ 253, 254 certificate as to the stock was held to be a false one within the letter and the spirit of the statute. 1 253. Statutory liability Rhode Island statutes. The statutes of Rhode Island providing that if certain certificates are not filed, certain officers of corporations shall be liable for " all debts of the company contracted," has been construed by the Supreme Court of that state, and they have held that the words " debts contracted " did not include torts of the corporation, nor judgments against the corporation founded on such torts. 2 So, all the other statutes which provide that, if the debts of a corpora- tion exceed its paid-in capital, the directors under whom the excess occurs shall be liable jointly and severally to the extent of the excess, " for all the debts of the company then existing, and for all that shall be contracted as long as they shall respectively con- tinue in office," and until the excess shall disappear, have also been construed, and the directors held not to be liable for torts of the corporation committed pending the exce|p, nor for judgments against the corporation founded on such torts. 3 254. Statutory liability various states. The statutes of Indiana provided, as to such corporations as the one involved 1 Chittenden v. Thannhauser, (1891) the second it was held that the phrase 47 Fed. Rep. 410. ' debts contracted,' being broadly con- * Pub. St. R. 1. 1882, chap. 155, 2, strued, covered a liability incurred by 3, 4. the infringement of a patent, or, in ''Pub. St. R. I. 1S82, chap. 155, 15; other words, a liability for tort. Judge Leighton v. Campbell, (1890) 17 R. I. STOKY, in giving this construction, re- 51; s. c., 20 Atl. Rep. 14. The court lied somewhat on the authority of Mill said: "The plaintiff cites in support DamFoundery. Hovey, but still more of this contention Mill Dam Foundery on his view that the provision impos- T. Hovey, 21 Pick. 417, 455, and Carver ing the liability was to be regarded as T. Braintree Manufacturing Company, remedial, and was, therefore, to be 2 Story, 432. These cases relate to liberally construed, in fact virtually the liabilities of corporations under a conceding that, in any other view, the Massachusetts statute subjecting them construction would be too broad. In to individual liability for the 'debts Child v. Boston & Fairhaven Iron and contracts 'of the corporation, or Works, 137 Mass. 516. the court say, for the ' debts contracted ' by it, in criticism of Carver T. Braintree and not to the liability of officers of Manufacturing Company: 'There are corporations under other provisions, no cases decided by the courts of the In the first case it was held that the commonwealth in which a stockholder phrase covered a claim for unliqui- has been held liable for a tort of the dated damages arising ex contractu. In corporation, and other decisions of Mr. .; L'.~4] PERSONAL LIABILITY OK OFFICERS. H ", in ;i case before the Supreme Court of that state, as follows: Tiu> capital stock, as fixed by such company, shall be paid into the treasury thereof within eighteen months from the incorpora- tion of tin- same." ''If any company organized and established iiinler the authority of this act, and of the act to which this is supplementary, shall violate any of the provi.-ions thereof, and shall thereby become insolvent, the director- ordering or assent- ing to such violation shall jointly and severally be liable, in an action founded on said acts, for all debts contracted after such violation as aforesaid." It was ruled in the case that if the directors, or any number of them, refused to enforce, on behalf of the company, the duty of the company to collect the stock, such refusal was an assent on their part to a violation of the com- pany's duty, and it was immaterial whether the plaintiff sued all or a majority of the directors. 1 A protest, not in writing, by a director of a gravel road company, before the l>oard against the contracting of debts in excess of its solvent stock, will absolve Justice STORY stand unsupported by been r<*luced to judgment, and thus any direct authority, either before or become a debt of the corporation, it since.' There are cases of other states was said: "The New York cases, under in which it has been held that the statutory provisions similar to ours, words ' debts contracted ' do not sub- hold that, in that state, the trustees of ject the corporators to liability for the corporations are liable, if at all, only torts of the corporation. Heacock r. on the original claim, and that a judg- Sherman, 14 Wend. 58; Bonn r. Brown, ment against the corponition thereon 33 Mich. 257; Cable r. McCune, 26 has no effect as against them. Miller Mo. 871. In the case at bar, however, r. White. 50 N. Y. 137; Whitney the question relates not to the cor- Arras Co. r. Barlow, 63 N. Y. 62; Es- porators, but to officers, under pro- mond r. Bullard, 16 Hun, 65. It has visions relating to them exclusively as been held in other states that the re- such, imposing duties on them, and duction of a claim for damages against making them liable in case they reject a corporation arising ex delicto to a or refuse to perform them. These pro- judgment does not change its char- visions, as contradistinguished from acter as against the delinquent officers, the provisions in regard to corpora- so as to charge them thereon as for a ti. >!is. are deemed to be penal, and for debt contracted by the corporation, that reason to be strictly construed. Cable r. Qaty, 34 Mo. 573; Bohn r. Chase P. Curtis, 113 U. 8. 452. We do Brown, 33 Mich. 257; so, also, by the not think that any court would hold Supreme Court of the United States, that the words ' debts contracted,' if Chase r. Curtis, 113 U. 8. 452; " citing, strictly construed, would cover un- also, Whitaker t>. Masterton, 106 N. liquidated claims for damages arising Y. 277, 280, upon some points. ex delicto. Child r. Boston & Fair Clow r. Brown. (1892) 134 Ind. 287; haven Iron Works, [187 Mass. 516]." B. < 88 N. E. Rep. 1126. As to the contention that the claim had 416 PERSONAL LIABILITY OF OFFICERS. [ 254 i him from liability on account of such contracting of debt. 1 In an action to enforce such a liability of directors, it must be averred and proved that the directors against whom the action is brought contracted the debt, and that the debt, when contracted, exceeded the solvent stock of the company. 8 The failure of a majority of the directors of a corporation to file the reports, as required by the law of Michigan, will be presumed intentional, and will render each director liable for the debts of the corpora- tion under the statute which renders the directors of corporations liable if they " intentionally neglect or refuse to comply " with its provisions. 8 The Montana Supreme Court has held that the stat- ute of that state imposing an individual liability upon the trustees of a corporation for not filing the annual report of the corpora- tion's condition required by the statute could not be construed so as to excuse the trustees from liability for debts contracted prior to a default in the matter of filing the report. Therefore, they held that the facts stated in defense to an action to enforce such statutory liability that before the time for filing such annual report the corporation was insolvent and had entirely abandoned its business ; that all the property of the corporation belonged to one of its trustees, having been delivered to him in satisfaction of an indebtedness, and that for a period of two months no officer or trustee had exercised any corporate act or function, and that there was no intention to resume the business of the corporation, did not dissolve the corporation and constituted no defense to the action. 4 Officers of a corporation certifying that the capital 1 Schofleld v. Henderson, (1879) 67 future period; something which might Ind. 258. be the subject of a suit as a debt, and * Aimen v. Hardin, (1877) 60 Ind. 119. not something to which the party may 3 Van Etten . Eaton, 19 Mich. 187. be entitled as damages in consequence As to the construction of the statute of a failure to perform a duty or keep referred to, see Breitung v. Lindauer, an engagement. A right to a divi- 37 Mich. 217. As to what are ''debts " dend from the profits of a corporation within the meaning of this statute, the is no debt until the dividend is de- Supreme Court of Michigan has said, clared. Until that time, the dividend in Lockhart v. Van Alstyne, 31 Mich, is as something that may possibly come 76, 78: "Liabilities of a company into existence, but the obligation on which may give cause of action against the part of the corporation to declare it and result in judgments are not it cannot be treated as the dividend within the statute unless they consti- itself." tute present debts. A debt is that 4 Gans . Switzer, (1890) 9 Mont. 408; which one person is bound to pay s. c., 24 Pac. Rep. 18. another, either presently or at some 254] PERSONAL LIABILITY OF OFFICERS. 417 of the company i> paid in, when in fact it i- paid in proj>- erty of an uncertain value, will \tc liable under the New .1 statute making them liable for the dent.- of the corporation in case they fal.-ely certify that the capital ,-tock has Keen paid in. 1 The statute i.f Yennent making the directors <.f a private corpora- tion liable for all " debt* contracted " before the publication of it- article- of a.-.-ociation, has been, held not to embrace all contracts entered into by the corporation before >uch publication, but only " debts " SO contracted ; it would not embrace damages for the non-performance of a special contract.- The assenting by a director of a corporation to the execution of new notes for former notes held by the corporation, where the original indebtcdne was not increased thereby, it being only the substitution of one set of notes for the other, it has been held did not fall within the statute of Vermont which prohibited the contracting of debts to an amount greater than three-fourths of the capital stock paid in, and making any director assenting thereto liable for the excefifl TO the creditors of the corporation. 8 A statute of Vermont (R. L. Vt. 3279) provides that in case debts are contracted by a cor- poration for voluntary association before compliance with the provisions of the preceding section (3278). the president and directors shall be personally liable for such debts. The Supreme Court of that state said : " It is clear that the conditions prece- dent to the creation of a liability under that section are, first, the existence of a corporation, recognized as such by the laws of this state ; second, the contracting of a debt by such corporation, and, third, a failure to comply with the provisions of section '-'>^~^ before the contraction of such debt." They held that where articles of association, under chapter 153, Revised Laws of Ver- mont, are signed upon the understanding that they shall not take effect until the happening of a certain contingency, they do not become effective, and no corporation exists until that contingency happens; in such case a director, who is guilty of no act or omis- sion by which the party extending the credit is misled, would not be liable; but where the defendant represented to the plaintiff that such corporation had been legally organi/ed, and that he was a director, he was held to be e-toppcd from making this defense 1 Waters c. Quimby, 3 Dutch. (N. * Oady r. Sanford, 53 Vt. 632. J.) 198; affirmed in 4 Dutch. 538. * National Bank r. Paige, 53 Vt. 452. 53 418 PERSONAL LIABILITY OF OFFICEBS. [ 2.V. and to be liable under the statute. 1 "Debts contracted" for which negligent officers of corporations, under Connecticut stat- utes, may be held liable, must be debts of the corporation in favor of some one who gave it credit. 2 The Code of Virginia makes those of the directors of a corporation, who declare a dividend of net profits, when the corporation is insolvent, who concur in the act in their individual capacity, jointly and severally liable to the creditors of the corporation for the amount of the capital stock so divided. In an action to enforce the personal liability under this statute, the question of the insolvency of the corporation when the dividend may have been declared is a question of fact, and the insolvency of the corporation must be established by proof to justify a recovery from the directors individually. 3 The United States Supreme Court has held that the remedy in the courts of the United States to enforce the personal liability of directors for permitting the corporation to contract debts in excess of the capital stock, under the statutes of a state, is by bill in equity. 4 255. Liability of directors or officers under an English statute. An English statute provided that if it appears, in the J Corey v. Morrill, (1889) 61 Vt. 598; amount of the capital stock actually s. c. , 17 Atl. Rep. 840. paid in; facts which the directors, upon 2 Armstrong v. Cowles, 44 Conn. 48; whom the liability is imposed, have a Gen. St. Conn. 314, 3. right to have determined, once for all, 3 Slaymaker's Admr. r. Jaffray & in a proceeding which shall conclude Co., (1886) 82 Va. 346. all who have an adverse interest, and 4 Stone v. Chisolm, (1885) 113 U. S. a right to participate in the benefit to 302; s. c., 5 Sup. Ct. Rep. 497, a case result from enforcing the liability, brought under the statute of South Otherwise, the facts which constitute Carolina. It was said by the court: the basis of liability might be deter- " The conditions of the personal Ha- mined differently by juries in several bility of the directors of the corpora- actions, by which some creditors might tion, expressed in the statute, are that obtain satisfaction and others be de- there shall be debts of the corporation feated. The evident intention of the in excess of the capital stock actually provision is that the liability shall be paid in, to which the directors sought for the common benefit of all entitled to be charged shall have assented, and to enforce it according to their interest this liability is for the entire excess or apportionment, which, in case there both to the creditors and to the corpo- cannot be a satisfaction for all, can ration. To ascertain the existence of only be made in a single proceeding to the liability in a given case requires an which all interested can be made par- account to be taken of the amount of ties." Adhering to and reaffirming the corporate indebtedness, and of the Hornor r. Henning, 93 U. S. 228. ~>5] PERSONAL UAlilLITT OF OFFICERS. 419 of winding up any company, " tliat any past director, manager, official or other liquidator, or any officer of such com- pany, has nii-:i|)|)li-i! or retained in his own hands, or become lia- ble or accountable for any moneys of the company, or been guilty of any mM' -usance or breach of trust in rel.it ion to tin- company, the court may * * * examine into the conduct of such director, manager or other officer, and compel him to repay any moneys so misapplied or retained, or for which he has become liable or acc< >u nt- alilr, together with interest, after such rate as the court thinks just, or to contribute such Bums of money to the assets of the company by way of compensation in respect of such misapplication, retainer, misfeasance or breach of trust as the court thinks just." This statute has been construed by the Court of Appeal with this result : The remedy afforded by this statute is only for the recovery of damages for losses incurred. The misfeasance to which it is directed is not restricted to acts of commission, but extends to all breaches of trust in relation to a company, through which loss is incurred. Misfeasance is not to be imputed to a director unless he has dishonestly acted or abstained from acting in conflict with his plain duty, and the burden of proof lies on the party making the charge, but in considering the question of the directors liability, thero must be imputed to him a special knowledge of the business which he has undertaken. The Court of Appeal held that directors were liable for losses occasioned through acts done by them as directors in matters which are ultra vires the company, and that their liability was not depend- ent upon any question of honesty of intention. 1 In a very recent case involving the liability of directors of a company under this statute or a later one replacing it, the directors were held liable to repay an amount of money which they had invested, of the company's, in shares of a building securities company, which investment was ultra vires on the part of the company they rep- resented. It appeared, also, in this case that two of the directors were not present at the meeting when the in vestment was ordered, but they were present at the next meeting at which the minutes of the previous meeting were read and confirmed. One of them was in the chair and signed the minutes. lie was, also, in the chair at the next general meeting of the company, and then 1 In re The Liverpool Household Stores Association (Limited), (1890) 59 L. J. R. (N. S.) Ch. Div. 616. 420 PERSONAL LIABILITY OF OFFICERS. [ 255 referred to this investment, and, speaking in behalf of the directors, said : " We carefully considered the matter and deemed it advisable to exercise our right of subscription, and have no reason to regret our decision." The Court of Appeal held that although the presence of these two directors at the meeting at which the minutes of the previous meeting were confirmed was not sufficient, in itself, to make either of them liable for the ultra vires investment, yet the one presiding had, by his action as chair- man at that meeting, and by his statement at the general meeting of the company, shown that he took an active part in the invest- ment and would be held responsible for it. 1 It was held that as to one ultra vires investment these directors, being considered in these matters of liability P by the courts, in the light of trustees, were entitled to the benefit of the English Statute of Limitations with reference to trustees. 2 A director in this English case held shares of a company not fully paid up, and his directors' fees were unpaid. On a day when the company's balance at its bankers was two pounds, eleven pence, he gave to the company a cheque for seventy pounds, the amount remaining unpaid on his shares, and received at the same time from the company a cheque for a like amount, on account of his fees, signed by him- self and another director. Within three months there were pro- ceedings for winding up the company. The Court of Appeal held that the payment to the director was a preference which, by the terms of the statute, should be deemed to be fraudulent, and that all the directors who concurred in making the payments were guilty of a misfeasance, and that they should be ordered, jointly and severally, to repay the amounts. 3 In another case of a winding up of an English company, it appeared that two per- sons who were working a quarry in partnership, one of them owning an adjoining quarry and having an option of a lease of a third, wishing to form a company for working them, called in. two other persons for the purpose, and the four entered into an agreement with a trustee for the intended company to sell to the company the quarries, to be paid partly in cash and partly in paid-up shares, the two who were called in to receive 120 shares each. The company was formed. One of the latter two persons 1 In re Lands Allotment Co. . Law 3 In re Washington Diamond Mining Rep. (1894), 1 Ch. 616. Co., Law Rep. (1893), 3 Ch. 95. * Ibid. ri.KSo.VAI. UAIUI.ITY OF OFFICERS. 421 was one of the first directors. The agreement between the four and the tru.-tee of the company was confirmed and these two received their paid-up shares. It developed, upon the winding up of the company, that these parties called in had no interest in tlu: property sold to the company, except their interest as lessees of the third quarry, which lease was of even date with the agree- ment to sell to this company, and the director of the company admitted that he had no interest in this latter, until that day, and had nothing to do with fixing the price. The articles of the company provided that the agreement for sale should not be impeached F OFFICERS. L88 Appeal, in a proceeding under the Winding I p Act, to charge him as director, hold that, having regjltfd to hi> petition M director of, and, therefore, agent for, the company, whatever benefits or profits accrued to him under the indemnity constituted by hi.s agreement with the promoter belonged to the eompain , and that tin- retention by him of the proceed- of the indemnity occasioned a loss to the company for which he was accountable, with interest. 1 In re North Australian Territory Co., Archer's Case, Law Hep. (1892), 1 Ch. 3*2. LINULKY, Lord Justice, in his opinion quotes from MKI.- LISH, Lonl Justice, in Ilay's Case, Law Rep., 10 Ch. 593, 601, these words: "There is no doubt about the rule of this court, thtit an ugent can- not, without the knowledge and con- sent of his principal, be allowed to make any profit out of the matter of his agency, beyond his proper remu- neration as agent. It is perfectly -set-, tied law that that rule applies, with peculiar stringency, to the directors of joint-stock companies, who are the agents of the company for effecting the sales or the purchases made by the company." FRY, L. J., in his opinion, said: "In Hay's Case [Law Rep.. 10 Ch. 593], the company agm'd to pay a sum of money to the vendors of the property. On one day they were pay- ing a sum of 58,000, in part payment of that purchase money; cheques were drawn in favor of the agent of the vendors, and one of these cheques was indorsed over to Sir John Hay, and cashed by him. The company, therefore, were making a puyim-nt which they were bound to make, and they lost nothing, in one sense, by Sir John Hay receiving that money. Tin- only loss they sustained was by Sir John Hay not accounting for it when he got it. It appears to m<- there \\.-i*. therefore, exactly the same loss in that case as there is in tin- pr. -. M case. Again, in Pi-arson's Case |."iCh. Div. 886], the same observation can be made. The company there issued to its promoter*, under an agreement, fully paid-up shares. Some of these shares were given by one of the pro- moters to Sir Kdwin Pearson, oae of the directors, on his qualification. The company, therefore, got all they stipulated for, all the share* that they issued and which were in Sir Kdwin IVarson's hands, having been, by agreement, issued as fully paid up, and yet, because he ought not to have taken those fully paid-up share*, but ought to have paid the amount which was not payable by reason of the bar- gain between the company and the promoters, he was held liable to make good, and treat the shares as if they had not been paid up at all. It might be said in both these cases (in Hay's case the payment was by the vendors, and in Pearson's case the payment was by a promoter), that the company lost nothing by the money in the one case, and the shares in tne other, reaching the hands of the director, but the court said in each case tliat, because the director was accountable, the company were losers to that ex- tent. * * * On principle, I think the two cases to which I have referred are not distinguishable from the pre* ent." As to the liability, under this English statute, of a trustee or man- ager of a savings bank, to pay an adequate sum towards the assets of the l>ank by way of compensation for any !os* occasioned to the bank by his neglect or omission, see In re Cardiff Havings Bank, Davi.s Case, (1890) 45 Ch. Div. 587. CHAPTER VII. i ULTRA VIRES PUBLIC CORPORATIONS. 256. Issue of negotiable securities. 257. Borrowing money by school districts. 258. Incurring liability in excess of funds in the treasury and amount of tax allowed for one year. 259. Incurring a debt without pro- vision by taxation for inter- est and sinking fund. 260. Employment of an agent to negotiate bonds. 261. Investment of sinking funds. 262. Contract with corporation at- torney for legal services. 263. Discount of its warrants by a corporation. 264. Illustrations of ultra vires contracts. 265. Estoppel of a public corpora- tion to deny its liability on an ultra vires contract. 266. Estoppel of a contractor with a public corporation to en- force an ultra vires contract. 267. Injunction of public officials rules. 256. Issue of negotiable securities. The officers or offi- cial agents of counties, as well as other municipal corporations, without express legislation, have no power to issue commercial paper and thereby impose upon the corporation the duties and liabilities incident to such paper. 1 In a case before the federal court a city had entered into a contract with a firm by which the latter agreed to vest title in the city to certain strips of land, to do certain other things with reference to widening a street, and to secure certain sewer privileges and the relocation of certain tracks of railroads, and the city agreed to pay them for such real estate and their services. In payment of the same the city issued to this firm certain " certificates of indebtedness " and delivered them to the bank to which the firm had contracted to sell them. It was held in the United States Circuit Court that, in the absence of any special statutory authority, a city had no right to issue such certificates in negotiable form, even in payment for property which it had authority to buy. 2 1 People ex rel. . Johnson, 100 111. city were discussed by the courts, and 537; People ex rel. r. Kingsbury, 100 the powers thereunder given were de- Ill. 509; People ex rel. v. La Salle clared in the opinion. THAYER, J., County, 100 111. 495. said: " [The city] had [the] right [to s Bangor Savings Bank r. City of contract with this firm for the acqui- Stillwater, (1891), 46 Fed. Rep. 899. sitionof land and privileges], we think, The provisions of the charter of the under power conferred upon the 1 257 ULTRA VIRES PUBLIC CORPORA ;; 257. Borrowing money by school districts. As a gen- eral rule a corporation, either public or pri\ -ate, lias an implied pi.urr tn IxiiTnw money for object* t-xpivly authorized by the t-tatutr liy which it was rivaled and endowed with corporate powers and privileges, but if such power i- expressly or by city council * * * 'to open, es- talilish. vacate and widen street*, to construct, maintain and extend sew- ers, and to condemn and purchase the lands necessary to be used for street and sewer purposes.' * * * These powers were sufficient to authorize the city council to contrail with [the firm] to purchase the lands in question, and to render the sen ices which they un- dertook to render for and in behalf of the city. But it is a different ques- tion whether the city nad authority to pay for such services in the manner proposed; that is to say, by the issue of certificates of indebtedness, pay- able to order and running one, two and three years. Plaintiff's attorneys strenuously insist, and in that we atrrce with them, that the so-called 'certificates of indebtedness' are in reality negotiable bonds or notes, whidi, under the law-merchant, may be transferred by indorsement from hand to hand, so as to cut off equities of defense. In a recent case, which contains an elaborate review of previ- ous decisions on the same subject, the doctrine was restated that municipal corporations have no power to utter commercial paper, unless it i^ e\ pressly conferred upon them by law or is clearly implied from some other power expressly given. It was further held that no implication arises that a municipality may make e.>m mercial paper and put the same on the market from the fact that it is e\ pressly author! /rd to Ixtrrow money. 4 To borrow money.' say the court, 'and to give a bond or obligation therefor which may circulate in tin- market as a negotiable security, freed 54 from any equities which may beset up by the- maker of it, are, in tin -ir nature and in their legal effect, essen- tially different transactions. Merrill r. Town of Monticello, i:js I". S. 678; 8. c., 11 Sup ( t Hep. Ml, 448. Sec, also, Claiborne Co. c. Brooks, 111 I s 400, 486; 8. c., 4 Sup. Ct. Rep. 489; 1', li.e Jury r. Britton, 15 Wall. 566; Young r. Clarendon Township, 132 U. 8. 840; 8. c. ( 10 Sup. Ct. Rep. 107. In the present instance it appears that the so-called 'certificate' or 'bond' remains in the hands of the original payee, the Bangor Savings Bank; it has not been negotiated, and it con- tains on its face a recital that it was issued in consideration of the per- formance by [this firm] of a certain contract * * * dated December 21, 188?,' which is notice to the holder of the provisions of that contract. No question of estoppel or touching the superior rights of u transferee for value can arise in this case. The point to be determined is simply whether the city of Still water had any authority, under its charter, to issue negotiable bonds to [this firm] for the land to be procured and the service* to be rendered, and this question we think must be answered in the nega- tive. By |:b certain] section * * * of its charter 'the committee on finances of the city council, * * * upon order of the council, may, from time to time, borrow for and in behalf of said city such sums of money as may be necessary for temporary pur- poses, and to anticipate tin- current revenue only.' It is obvious, we think, that the issue of bonds to [this firm], under the circumstances acd for 426 ULTRA VIRES PUBLIC CORPORATIONS. [257 implication denied by such statute, then no such power exists. The trustee of a school township, for instance, in Indiana, under the provisions of the school law which, by implication, deny the existence of such a power, cannot negotiate a loan for money and execute a note for its payment. 1 But where the purpose explained, cannot be sup- ported under this clause. Short, tem- porary loans, in anticipation of, and to be paid out of the current revenue for the year, is all that this section con- templates. Again, by [other] sections * * * the city was authorized to issue and sell bonds and put the avails thereof in the city treasury to create what is termed a ' permanent improve- ment fund.' Whether the city had already issued all the bonds authorized to create the permanent improvement fund does not appear, but that is im- material, as, in our view, it could not issue the so-called 'certificates' un- der the sections of the charter last referred to, its duty having been in our judgment to pay [the firm] in money out of the ' permanent im- provement fund,' as the charter seems to contemplate, instead of issuing to them negotiable bonds. The only other authority to be found in the city charter to issue negotiable paper is contained in [a section authorizing] an issue of bonds to meet other ma- turing bonds of the city when there was a deficiency in the ' sinking fund; ' but it also contains the follow- ing important prohibition in the con- cluding paragraph of the section, to wit: ' But neither said city council nor any officer or officers of said city shall otherwise, without special author- ity of law, have authority to issue any bonds or create any debt or liability against said city in excess of the amount of revenue actually levied and applicable to the payment of such liability.' " ' Wallis v. Johnson School Town- ship, (1881) 75 Ind. 368. The court said: "Section 7 [of the school law] provides, inter alia, that the trustee shall receive and pay out the special school revenue and also the revenue for tuition appropriated to his town- ship, and shall pay out the same for the purposes for which such revenues were collected and apportioned. Sec- tion 10 in express words places the trustee in charge of all the educa- tional affairs of the township and em- powers him to employ teachers and to build and furnish school? houses. These provisions do undoubtedly con- fer broad and comprehensive powers upon township trustees, and were there no restrictive provisions we should be compelled to hold that, with this broad grant of express pow- ers, there was coupled the incidental one of borrowing money. We think, however, that there are restrictive provisions which, fairly construed, must be held to deny the authority to negotiate bonds. In section 6 it is provided that the county auditor, in fixing the penalty of the bond of trustees, ' shall see to their sufficiency to secure the school revenues which may come into their hands.' There is here a clear implication that the only money which a trustee can officially receive is that yielded by the school revenues. Money obtained by bor- rowing cannot be said to be school revenue. If an action were brought upon the trustee's bond, and the only breach shown should be the misap- propriation of money obtained by borrowing it, it is clear that the action would fail, for the reason that the penalty of the bond extends only to money received from the school reve- 257] ULTRA VIRES Pl.'UUC CORPORATIONS. ll'T money is thus borrowed for a school township district by its tru- md actually and rightfully expended for the benefit of the school corporation it will be liable for the amount. 1 In a later case the Indiana Supreme Court adhered to the ruling that tin; trustee of a school corporation has no authority to borrow money and execute promissory notes therefor in the name of the corporation.* 258. Incurring liability in excess of funds in the treasury and amount of tax allowed for one year. The Minnesota nues. The sources from which school actually received the property pur- revenues ure derived are created and chased, that subrogation can take defined by law, and it is from these place. It is well known that suhroga- sources only that the trustee has a lion arises, not by contract, but by right to secure money for school force of equitable principles, and only purposes." in cases where good conscience re- 1 Wallis r. Johnson School Town- quires that it should take place in ship, (1881) 75 Ind. 368. See, also, order to prevent injustice." Upon the Bicknell r. Widner School Township, subject of estoppel, it was said: " It 73 Ind. 501. Where the money bor- is a fundamental principle that a gov- rowed was actually used in paying for ernmental corporation is not estopped a school house, the township was held by the act of an officer in cases where liable as " for money had and received, the act is beyond the scope of his au- which was applied to the lawful use thority. Public corporations stand oil of the township." an essentially different ground from. Union School Township r. First private ones, and other rules which National Bank of Crawfordsvillc,(1885) apply to the one class do not apply to 102 Ind. 464; citing in addition to the other in cases where the doctrine the two cases last cited, First National of ultra vires is invoked. Driftwood Bank r. Union School Township, 75 Valley Turnpike Co. r. Board, etc., 72 Ind. 361; Pine Civil Township r. Ind. 226; Cummins r. City of Seymour, Huber Manufacturing Co., 83 Ind. 79 Ind. 491, 497; B. c.. 41 Am. Rep. 121; Kecvo School Township . Dod- 618. But the power of a school cor- son. 98 Ind. 497. Upon this point it poration is much more limited than is said by the court in Union School ordinary public corporations, for there Township c. First National Bank of is no general power to incur debts or Crawfordsville, (1885) 102 Ind. 464, execute evidences of indebtedness, 475: " It is true that we have held and, certainly, no such power e\i>ts that where the money received on where the school trustee is provided notes executed in the name of the with money from the school revenues. school corporation goes to pay for The school corporation is, in truth. property received by it, the person one of unusually limited powers, for advancing the money will be subro- the only source from which it can gated to the claim of the person \\lio derive money is the school fund or actually furnished the property, hut school revenues, and, strictly speak we have steadily held that it is only in ing, its only power is to receive add cases where the school corporation disburse the funds allotted to it." 428 ULTBA' VIRES PUBLIC CORPORATIONS. [258 statutes as to counties and their financial management have been construed by the Supreme Court of that state, and they have held that the board of county commissioners has no power to incur liability for the county, which, with the ordinary current yearly expenses arid other liabilities payable within a year, will exceed both the amount of funds in the county treasury and the maximum amount which can be assessed as one year's taxes for county purposes according to the tax lists on tile when the con- tract is made under which the liability will be incurred. Nor can the board, in addition to anticipating the above resources, in incurring liability also anticipate uncollected taxes. It has no power to anticipate in a year more than a year's uncollected taxes assessed at the maximum rate. They held further that, under the general laws of that state, a board of county commissioners has no power to issue bonds for the erection of a court house. 1 The same court in a recent case held that a contract made by the city council of a leading city of that state for lighting its streets for a term of five years was, under its charter, void, unless the funds on hand and the taxes actually levied when the contract was made were sufficient to cover all the liability incurred by the contract and payable during 1 the five years, and also to cover the current expenses and other existing liabilities of the fiscal year for which such taxes were levied ; further, the conditions required to make the contract valid were so exceptional that its validity would not be presumed. 2 The United States Circuit Court for 1 Rogers . Board of Comrs. of liability matures. To this it may be Le Sueur County, (Minn. 1894) 59 N. answered that a liability is incurred W. Rep. 488. See, also, Johnston v. when the contract is made. The point County of Becker, 27 Minn. 64; s. c., here involved is disposed of in the 6 N. W. Rep. 411. cases of Johnston v. County of Becker, 2 Kiichli v. City of Minneapolis, 27 Minn. 64; s. c., 6 N. W. Rep. 411, (Minn. 1894) 59 N. W. Rep. 1088. and Rogers v. Board of Comrs., The court, after reciting the various (Minn. 1894) 59 N. W. Rep. 488, where sections of the charter regulating the the court held that a liability was financial conduct of the city's affairs, incurred when the contract was made, said: "It is urged that making a con- though not to be performed, or the tract this year, to be performed in performance paid for, until after the part this year, in part next year, and taxes of subsequent years would be in part the year after, and paid for available to pay it. There the county only as performed, is not incurring commissioners were limited in incur- liability at the time the contract is ring liability to the maximum amount made, as the tax will be levied before which could be levied in one year the debt is created ; that is, before the according to the tax lists then on file. 2.V.I] ULTRA VIKES I't'tfUC CORPORATIONS. the western district of Missouri has held that the charter pn>- vi.-ion forbidding tin- council of a city to appropiiate any money in excess of the revenue for the fiscal year actually collected or to bind the city by any contract or act in any liability until a definite sum j-liall first be appropriated for the liquidation of all liability flowing thcivtYom, did not apply so as to prevent the council accepting a devise of lands for a public park, subject t> an annuity to the widow of the devi-or during her life, which annuity was paid by annual appropriation from the general fund, as the council was vested by other provisions of the charter with ample powers to acquire land for this purpose, either by ; *. <.. IS S. W. 1 Budd v. Budd, (1894) 59 Fed. Rep. Hep. 691; City of Ti-rn-11 r. Dcssaint, 785. 71 Tex. 778; a. c., 9 8. W. Rep. 598; 430 ULTRA VIBES PUBLIC CORPORATIONS. [260 26o. Employment of an agent to negotiate bonds. In a late California case the action was against a county by one upon a contract with the county board to secure bids for county bonds. The Supreme Court held the employment of this person by the county board for this purpose to be a void act, and that his acts in pursuance of such employment, however beneficial they may have been to the county, created no liability against it. 1 Bell v. Live Stock Co., (Tex.) 11 8. W. Rep. 344; City of Bryan v. Page, 51 Tex. 532. 1 Smith v. County of Los Angeles, (1893) 99 Cal. 628; s. c., 34 Pac. Rep. 439. Upon the power of the county board to make this contract, the court in discussing the point states the follow- ing provision of the " County Govern- ment Act" of that state: Section 25 of the act provides that ' ' the board of supervisors in their respective counties have jurisdiction and power, under such limitations and restrictions as are prescribed by law," to create a bonded indebtedness and to issue bonds of the county, as provided by section 37 of said act, and subdivision 14 of section 25 provides that ' ' whenever bonds issued under this chapter shall be duly exe- cuted * * * they shall be de- livered to the county treasurer, and his receipt taken therefor, and he shall stand charged on his official bond with all bonds delivered to him and the proceeds thereof, and he shall sell the same or exchange them under the direction of the board of supervisors. * * * He shall also keep a record of bonds sold or exchanged by him, * * * and shall also report, under oath to the board, at each regular ses- sion, a statement of all bonds sold or exchanged by him since the preceding report, and the date of such sale or exchange * * * and the amount of accrued interest received by him on such sale or exchange, * * * but such bonds shall not be sold or ex- changed for any indebtedness of the county, except by the approval of the board of supervisors of said county. No sale shall be made of any such bonds except to the highest bidder, after advertising bids for the purchase of the same" in the manner pre- scribed. And subdivision 35 of the same section empowers the board "to do and perform all other acts and things required by law not in this act enumerated, or which may be neces- sary to the full discharge of the duties of the legislative authority of the county government." Section 6 of the same act provides that " all con- tracts, authorizations, allowances, pay- ments and liabilities to pay, made or attempted to be made in violation of this act, shall be absolutely void, and shall never be the foundation or basis of a claim against the treasury of such county. * * *" And section 36 thereof provides that "the board must not for any purpose contract debts or liabilities except in pursuance of law." The court then said: " It is clear that these provisions of the statute confer no express power upon the board of supervisors to ' make such a con- tract as the one sought to be recovered on in this action; and unless it can be implied from subdivision 35 referred to then it follows that no such power exists, and the contract sued on is, therefore, void, because not made in pursuance of law. As the [County Government Act] distinctly enumer- ates the acts which the board is re- quired to perform with reference to the issuance and disposal of county bonds; and, as the employment of a procurer of bids for bonds delivered . L't'-l ULTIJA VIUKS - PUJUC CORPORATIONS. 431 3 261. Investment of sinking funds. The Supreme Court <>f Illinois refused ;i v.-rir of nin>1 otherwise >pecially provided." Of this con- tention, the court said : " This cannot be understood to give to county hoards the absolute and unlimited power of management of county funds, where there is the absence of any specific pro- vifioii of law to the contmry. It hardly means more, we think, than a power to manage the county funds and county business according to law. See Hot h rock r. C'arr, 55 I ml. 334. We cer- tainly cannot allow to it any such sco]>e as giving a general power to county lx>ards to invest surplus funds in the county treasury in Mich manner as they shall see lit. So far from there being any provision of law which, in express words, or by necessary implication, authorizes the action taken by the county board in this case, section 3i>, ' that whenever a tax is levied for the payment of a specific debt, the amount of such tax collected shall be kept as a separate fund in the county treasury, and expended only in the liquidation of such indebtedness,' would seem to prohibit the doing of what has been here attempted. We would not be understood, however, as applying this provis- ion with such strictness as to deny all power of investment what- l<> tin- treasurer for sale or exchange other words, the bid for the bonds is under the luw was not in any way solicited and obtained upon the ad- necessary to the full discharge of the vertisement by the treasurer for such legislative authority of the county bid, and the law recognizes no other ir<>\ eminent, no such implied authority mode of procurement. The treasurer to make such a contract was conferred alone procures the bid, the mode and upon the board as contended for. The manner of such procurement being board of supervisors cannot sell or specifically pointed out by statute, negotiate the sale of its county bonds. The making of the < miinict in <|m-s That power is expressly conferred by tion by the hoard of supervisors was statute on the county treasurer, and/ is an unwarranted, if not a pragmatical, to be exercised by him under the direc- interference with the power and duties tion of the board, and the sale or ex- of the county treasurer as expressly change of bonds by him is made sub- conferred and defined by law." ject to the approval of the board; in 432 ULTRA VIRES PUBLIC CORPORATIONS. [-''! ever of the moneys of a sinking fund, and compel them to remain in specie in the county treasury, and lie idle and unproductive until required to be applied to the purpose for which they were raised. In Union Pacific Railroad Co. v. The* United States, 99 U. S. 700, the court remark : ' The duty of the manager of every sinking fund is to seek some safe investment for the moneys as they accumulate in his hands, so that when required they may be promptly available.' " The Illinois court then continued : " An investment, for instance, in the public funds of the United States is, all know, so readily convertible into money, that it would be, essentially, the equivalent of money. Such an investment, we are not prepared to say, would be incompatible with the require- ment that the money represented by such investment should be kept as a separate fund in the county treasury, and expended only in liquidation of the indebtedness it was raised to pay. But the same cannot be affirmed of county securities, as to their being the representative of money. Constant experience shows that the promises to pay of a county are quite different from being the equivalent of money in hand.'' l A Texas city, having determined by its council, to invest certain sinking funds, in the hands of its treasurer, in bonds of the city of another series, gave certain warrants for the amount to the parties through which it proposed to make the investment against those sinking funds. The treas- urer declined to honor them. The city then brought its writ to compel him, by mandamus to pay, as directed, these warrants. He resisted upon various contentions. Among others, was this contention : That, if the city could invest these funds otherwise than in paying off and canceling the bonds themselves, it could not invest them in the purchase of its own outstanding bonds of another series, because a purchase by a debtor of a debt against himself ipso facto works a cancellation thereof. Over this con- tention the Court of Appeals of that state held that the power to invest in its own bonds of another series existed in the city. 2 1 Cook County . McCrea, (1879) 93 by the debtor in the same capacity in 111. 236, 239, 240. which he owes the debt, but even in 9 Elser v. City of Fort Worth, (Tex. such cases, it is very easy to keep the Civ. App. 1894) 27 S. W. Rep. 739. security alive by having the creditor Arguendo, the court said: "It must be make a transfer to a third party. 1 conceded that [the statement of the Jones' Mortg. 943-946. Also, see contention] is a correct statement of Jones' Corp. Bonds & Mortg. 325, the law in its application to ordinary where it is said: ' A company may pur- cases in which the purchase is made chase its own bonds as an investment, 2C2] ULTRA VIRES ITBI.ir CORPORATIONS. 262. Contract with corporation attorney for legal services. The question of whether the commiioner- of a county in Pennsylvania were authorized to make a contract with the enmity solicitor to take proceedings to ohtain credit for the county iu its accounts with the commonwealth for all unpaid l on personal property, for which he was to have as comix n sation twenty-five per centum upon the amount or amounts which might be credited, received the full consideration of the Supreme Court of that state, and they held that such contract was ultra vires. 1 The Supreme Court of Kansas has held a contract and reissue them. If the facts show that there was no intention of paying the bonds, but they were regarded and reputed by the company as still outstanding, they are valid in the hands of a subsequent purchaser, and are secured by the lien of the mort- gage.' But, be this as it may, it will hardly be contended that if the pur- chase be made in a different capacity than that in which the debt is owed (for instance, if A., as trustee, should, with the trust fund, purchase a debt which he owes as an individual), the rule would apply, and" we are of opin- ion that as to those funds set apart for special purposes, both by the law and by the ordinances passed by the city council, as in this case, the city must be regarded as a trustee pur- chasing with the trust fund a debt which it owes as an individual, and that the debt so purchased is not can- celed, but is kept alive for all pur- poses, and becomes the property of the ctttui que trust the special fund just as the house and lot taken from a defaulting collector was said by our Supreme Court, in the case of City of Sherman r. Williams, 84 Tex. 421; s. c., 198. W. Rep. 606, to be- come the property of such a fund. We think this view receives striking illustrations in numerous provisions of our Constitution and laws, author- izing the investment of special funds, such as the university and public schoo. funds, held by the state; in its o\\ n bonds, and by the different counties in thdr own obligations. We believe that it has never been contended that a purchase of this kind caneels the. bonds thus acquired. We do not re- gard the opinions in the cases of Rink r. Grace, 102 N. Y. :JJ: N. K. Rep. 162, and Wilds r. Ifciilroa '. 102 N. Y. 410; 8. c., 7 N. K. Hep. 290, as conflicting herewith. Those decisions were controlled entirely by the statutes and ordinances therein construed, which were quite dissimi- lar to the provisions contained in the charter of this city." 1 County of Lancaster v. Fulton, (1889) 128 Pa. St. 48. The court, speaking through STKKRETT, J.,said: "In substance, the defense interposed by the county was, that at the time the resolution [referring to the contract ] was adopted plaintiff below ' wa.s tin- duly elected and qualified solicitor ' of the county, serving under the act of February 18, 1870, at a salary of five hundred dollars, fixed by that act; and, for that reason, neither he nor the county commissioners hud any power or authority to enter into the contract, under which the services were ren- dered and on which the claim is founded. It is conceded that when the contract wax made and for a con- siderable time thereafter plaintiff be- low was the duly elected ami quali- fied solicitor of the county. The 434 ULTKA VIRES PUBLIC CORPORATIONS. [2C3 by the board of county commissioners for the county with attor- neys at law, for their services as such, which services the law requires the county attorney to perform, ultra vires and void. 1 263. Discount of its warrants by a corporation. A county in Nortn Dakota created from portions of two other 4th section of the act under which he was elected declares: ' The salary of the officer elected as hereinbefore pro- vided shall be five hundred dollars per annum, payable quarterly; and the officer so elected shall be the legal adviser of the board of commissioners of Lancaster county, and shall repre- sent the said board in all proceedings in law or equity wherein the said county is a party or has any interest.' He was undoubtedly a public officer within the meaning of the Constitu- tion, article III, 13, and article XIV, 1 and 5, the first of which declares: ' No law shall extend the term of any public officer or increase or diminish his salary or emoluments after his election or appointment.' The services for which the contract in question undertakes to provide are clearly within the sphere of the duties of the ' solicitor of Lancaster county ' as defined by the act of February 18, 1870. He 'shall be the legal adviser of the board of commissioners of Lancaster county and shall represent the said board in all proceedings in law or equity wherein said county is a party or has any interest.' What authority then had either the plaintiff below or the county commissioners to enter into a contract to compensate the former for services within the sphere of his duties as solicitor of the county? We are of opinion that they had none; that the act of the commissioners in undertaking to bind the county to pay the compensation provided for in the contract was ultra vires. Doubtless the very object of the act in creating the office of county solicitor, provid- ing for his election and fixing his salary, etc., was to take the power out of the hands of the county commis- sioners and place it beyond their reach. But, be that as it may, we think the contract was ultra tires and void. * * * " Further on, referring to the trial judge's charge, it is said: "In saying, as he correctly did, that if the services of plaintiff below ' had been rendered while he was county solicitor, then there could be no recovery,' the learned judge rightly assumed that the contract in question was unauthorized and illegal. All such contracts, whether intended to be so or not, are in effect evasive and subversive of law, contrary to public policy, and, therefore, void. They are no more capable of ratification than was the contract in Hunter T. Nolf, 71 Pa. St. 282. Speaking of the illegal contract under consideration in that case, Mr. Justice SHARSWOOD said: ' It is undisputed law that such a con- tract is illegal as against public policy and cannot be enforced. Even if there had been an express contract on entirely different terms than those agreed upon before, it ought to be viewed with a considerable degree of suspicion as an attempt to evade a sound and salutary rule of public policy.' A case more nearly parallel with this in some of its features is Chester County v. Barber, 97 Pa. St. 455. Barber, one of the plaintiffs below, was attorney for the county of Chester, but it did not appear whether he was*serving under atuinnual salary 1 Waters v. Trovillo, (1891) 47 Kans. 197. 203] ULTRA VIKKS IM'BLIC CORPORATIONS. counties, though its board of commissioners, made a contract with one to make a transcript of the records of th. unties so far as they affected the territory embraced in the new county at an agreed price for which he was to be paid in a county warrant for such a sum as, at the prevailing discount of such warrants, would raise the amount which was to be paid him. The validity of these warrants issued by the county was contested in the courts. The Supreme Court held the warrant to be wholly illegal and void from its inception, for the reason that the county commis- sioners, in the absence of legislative authority, either general or special, to do so, were without power to enter into such an arrangement. 1 One of the warrants sued on in this case repre- fixcd 1>7 act of assembly or under a special agreement with the commis- sioners. The county commissioners, however, made a contract with him and two other attorneys to pay them fifty per centum of the amount they recovered from the state for taxes improvidently paid into the state treasury. Speaking for the court, the present chief justice said: 'The com- missioners hud no power to bind the county by such a contract. * * * It was against public policy, and, therefore, null and void. * * * These commissioners were acting in a fiduciary character. They were but trustees of the money when received for the use of the county. When, therefore, they contracted to give one- half of it to the plaintiffs for their services they exceeded their power. They were giving what did not belong to them. As well might a trustee contract to give away one-half of the trust estate as compensation tocounsel for services in connection therewith. And, if he may give away one-half, why not three- fourths, or even H greater proportion? Can it be doubted that a court of equity would strike down such a contract as improvident and a legal fraud? * * * Whether the plaintiff Barber can recover any- thing will depend upon the terms of his previous engagement as solicitor to the commissioners.' If it had ap- peared in that case that Barber was acting under a salary, fixed by act of assembly (as was Mr. Fulton in this case), and that his defined duty was to act as a legal adviser of the com- missioners and represent them in all proceedings at law or in equity wherein the county had any interest, it is not likely that any doubt as to his legal status would have been sug- gested. According to the reasoning of the opinion the contract as to him would have been declared illegal, con- trary to public policy, and absolutely void. We are, therefore, of opinion that the learned judge erred in hold- ing that plaintiff below might recover if the commissioners recognized his services after the expiration of his term of office as county solicitor; that such recognition would be a rati- fication of the oiiginal illegal agree- ment, etc." 'Erskine r. Steele County, (N. D. 1894) 60 N. W. Rep. 1050. The holders of the warrant cited specially in sup- port of their position the case of Kilvington t>. City of Superior, 83 Wis. c., 58 N. W. Rep. 487. The Supreme Court of North Dakota referred to that case in these words : " In [that case] tho court held that 430 ULTRA VIRES PUBLIC CORPORATIONS. [263 sented entirely the discount of the warrant which was issued to the contractor for transcribing the certain records of the two coun- ties from which this county was created. This warrant the Supreme Court of North Dakota held also to be wholly illegal and void for the reason that the county commissioners were with- out power to enter into an agreement for such discount. 1 the general power conferred upon village trustees to 'appoint a board of health to prevent the deposit of unwholesome substances, and prevent or abate nuisances, is sufficient to authorize a contract for the erection of a crematory for the consumption of any matter calculated to affect the health or comfort of the community.' The reason of this holding is plain. While the authority to erect a crema- tory was not expressly conferred by the legislature upon the trustees, such authority was implied if necessary in carrying out the power to abate nuisances, etc., which power was given in clear terms. But we see no analogy in the case cited to the case at bar. The right to enter into such a contract, as that concluded with the [one who did the transcribing] was not expressly conferred upon the com- missioners, nor was such authority necessary or at all appropriate to the execution of any power vested in the commissioners by any law of the territory then existing. In the absence of legislative authority authorizing it any such contract was, in our opinion, clearly ultra vires in character. We, therefore, hold that the warrant was wholly void from its inception. It was issued without authority of law and upon no legal consideration. Rasmusson v. County of Clay, 41 Minn. 283; s. c., 43 N. W. Rep. 3; Pugh v. Good, 19 Or. 85; s. c., 23 Pac. Rep. 827." 'Erskine v. Steele County, (N. D. 1894) 60 N. W. Rep. 1050. Upon this branch of the case, the court said : "Essentially the same question has been frequently presented to courts in other jurisdictions, and the au- thorities, so far as we have examined them, are unanimous in condemning such discount transactions. Judge DILLON, in his learned treatise upon Municipal Corporations (Vol. 1 [4th ed.], 503), says : ' Without express authority from the legislature, a municipality cannot discount its war- rants for more than the sum actually due the claimant, and as to the excess they are void, and the holder will be treated only as the equitable assignee of the valid, legal claim of the payee.' In Foster v. Coleman, 10 Cal. 278, a claim for services to the amount of $1,650 was allowed by the board of supervisors. County warrants of the county were then at a discount, and worth only forty cents on the dollar. The board ordered a warrant to issue for a sum which, at this prevail- ing discount, would sell for $1.650, the amount due the claimant. Upon such order the warrant issued. A taxpayer of the county brought suit and the county treasurer was enjoined from paying the warrant. The Supreme Court, in the course of its opinion, referring to the order of the board directing the warrant to issue, said : ' The effect of the order was to create a debt or liability on the part of the county, and this the super- visors were not empowered to do for any purpose except as provided by law. Their action was entirely with- out authority, and altogether inde- fensible.' The settlement and allow- ance of an illegal claim against the county when made by a county ULTRA VIRES PUBLIC CORPORATIONS. 437 264. Illustrations of ultra vires acts. Furni.-hing aid to a gravel road OT turnpike company in building or repairing its road at the expense of a county, or entering into contracts with them for the future repairs of a bridge or the approaches of a bridge, being beyond the powers of a county, a lioard of com- missioners of a county have no authority to make contracts for such purposes. 1 Without enabling authority a municipal corpo- ration cannot purchase lands and lots at a tax sale. Such a power is not included in a general authority to buy and hold real estate for the convenience of the corporation. 1 Hut where a municipal board, has no more conclusive effect road company to aid in the construc- than such an adjustment would huve tioo of its road. The court, among if made by private persons. See other things, said: 'The counties are Commissioners r. Keller, 6 Kans. 511. corporations created for the purpose In a recent case clearly in point, the of convenient local municipal govern- Supreme Court of the state of Wash- ment, and possess only such powers as ingtoii, in referring to the act of a are conferred upon them by law. municipality in discounting its own They act by a board of commissioners warrants, uses the following language : whose authority is defined by statute. ' Such a proceeding is manifestly be- One of the powers conferred is to col- yond the scope of legitimate cor- lect taxes levied upon the people and porate power, and u practice of that property within the county. In the character might lead to various disposition of the money thus col- results. City warrants are evidence lected into the general treasury the of indebtedness, or promises to pay, board has not unlimited discretionary and are payable with interest pre- choice as to the objects upon which it scribed by law ; and the corporation shall be expended. It can only be ap- cannot cast upon the taxpayers any plied to certain specified objects, and further burden in respect thereto, the building of railroads is not one of nml the courts have uniformly, as far these objects, or necessary to carry as we are advised, disapproved of any into effect any of the purposes for effort to do so.' Arnott v. City of which such corporations were created." Spokane, 6 Wash. St. 442; s. c., 83Pac. In Burnett r. Abbott, 51 Ind. 254. the Rep. 1063. See, also, Clark r. DCS- county board made a contract con- Moines, 19 Iowa, 199; Bauer r. Frank- ditionally to pay certain expenses of lin County, 51 Mo. 205; Shirk r. Pu- boring wells for oil and digging for laski County, 4 Dill. 209: s. c., Fed. minerals. The contract was held void Cas. No. 12,794." See Pugh o. City for want of authority to enter into it. of Little Hock. 35 Ark. 75. Nor can the board appropriate the 1 Driftwood Valley Turnpike Co. t. funds of the county to the payment Board of Comrs. of Bartholomew of the debts of a county agricultural County, (1880) 72 Ind. 226. The court joint-stock company or to the build said: "In the case of Haruey e. ing of school houses. Warren County Indianapolis, etc., R. R. Co., 82 Ind. Agricultural Joint-Stock Co. r. Itarr. 244. it was held that a county had no 55 Ind. 80; Rothrock r. t'arr. .Vi Ind. power, without .affirmative legislation, 884." to make an appropriation from its * City of Champaign r. Harmon, treasury by way of donation to a mil- (1881) 98 111. 491. It was said by the 438 ULTRA VIRES PUBLIC CORPORATIONS. corporation is vested with general authority to purchase real estate for any purpose, a vendor of land to a municipal corpora- tion will not be allowed to avoid his contract by insisting that his deed is void, because the corporation may have exceeded its powers in making such purchase. 1 In a case before the Supreme Court of Alabama, an action to enforce a penal bond given by a court: "Municipal corporations are creatures of the statutes, and can only exercise such powers as are expressly conferred, or such as arise, by impli- cation, from general powers granted. In this case the plaintiff corporation is empowered by its charter to buy and hold real property, but that must be understood to be purchases made in the ordinary way, and only for corpo- rate purposes, and a grant to purchase real property for particular purposes would seem to be a limitation on the powers of such corporations, and would exclude, by necessary implica- tion, all purchases for mere specula- tion or profit. Power to purchase real estate for speculative purposes is not among the usual powers bestowed on municipal corporations, nor does such power arise, by implication, from any of the ordinary powers conferred on such corporations. Authority to buy and hold real estate is only given to them to that extent that may be necessary to carry into effect corporate powers granted. Under a general grant of power to buy and hold real property, it is understood municipal corporations may buy and hold such property, within the corporate limits, as may be necessary for corporate pur- poses, and may even buy and hold real estate beyond the corporate limits, for the location of cemeteries, pest houses and other purposes connected with the sanitary condition of the municipality." 1 City of Champaign r. Harmon, (1881) 98 111. 491. In Halstead v. Mayor, etc., of New York, (1850) 3 N. Y. 430, the Court of Appeals of New York held that it was beyond the power of the corporation to as- sume the defense of suits brought against the county supervisors indi- vidually for the penalty incurred by them for neglecting the duty of audit- ing the salaries of certain judges ap- pointed under a statute which they as- sumed to be unconstitutional, and was afterwards held to be unconstitutional, or to pay the judgments and costs re- covered against those supervisors, upon the principle that such corporations are creatures of limited powers, especially upon the subject of the appropriation of the funds of the people, as settled in Pledges t>. City of Buffalo, 2 Den. 110. Ultra vires contracts of munici- palities: Bourdeaux r. Coquard, 47 111. App 254; Sang r. City of Duluth, (Minn.) 59 N. W. Rep. 878; City of Aberdeen t. Honey, 8 Wash. 251; s. c., 35 Pac. Rep. 1097; Penley v. City of Auburn, 85 Me. 278; 8. c., 27 Atl. Rep. 158; East St. Louis Gas Light & Coke Co. v. City of East St. Louis, 47 111. App. 411; Hay ward v. Board of Trustees of Town of Red Cliff, (Colo.) 36 Pac. Rep. 795; Town of Newport v. Batesville & B. Ry. Co., 58 Ark. 270; s. c., 24 S. W. Rep. 427; Lamar Water & Electric Light Co. v. City of Lamar, (Mo.) 26 S. W. Rep. 1025; Griswold v. City of East St. Louis, 47 111. App. 480; Hamilton t>. City of Shelby ville, 6 Ind. App. 538; City of Nashville v. Sutherland, 92 Tenn. 335; State v. City of Bayonne, 55 N. J. Law, 268; Hintrager v. Richter, 85 Iowa, 222; Bateman v. City of Coving- ton, 90 Ky. 390. L>05] IM.TRA VIKES PUBLIC CORPORATIONS. 439 private corporation to u municipal corporation for the faithful application by the private corporation of bonds of the municipal corporation loaned by it, without authority under its charter, to aid in the eoiiftniction of the works of the private corporation, the bond was held to. be invalid and not enforceable by suit ; further, that its validity was not affected by the subsequent sale or transfer of the municipal bonds by the private corporation, and that the private corporation contracting with the municipal corporation for the construction of works which the latter had no authority to construct and had received the benefit of the con- tract, was not estopped when sued by the municipality from set- ting up its want of authority to make the contract. 1 265. Estoppel of a public corporation to deny its liabil- ity on an ultra vires contract. A manufacturing corporation which furnished school furniture to a school district of Kansas brought its action against the district to recover the value of the goods sold and delivered to it. It appeared in the pleadings and record before the Supreme Court, that the court below took the view that the written order set up in the petition, and, also, the written contract made by the board of directors with the agent of the plaintiff for the furniture, were void because unauthor- ized. The Supreme Court, having referred to the findings of the court below that the furniture had been in use by the school district for a period of nearly live and a half years, said : " It may be conceded, for the purpose of this case, that both these written instruments were void, and that no action could be maintained on either or both of the*m, yet the defendant district, having received and retained the property, which the court finds to have been fairly worth the price stated in the written contract, is 1 City Council of Montgomery t. need argument to overturn it. See on Wetumpka Plank Road Co., (1857) 81 this point Pennsylvania, Delaware A: Ala. 76. The court said: If the [doc- Mar}' land Steam Nav. Co. r. I)nn- trine contra the text] be established, dridge, 8 Gill & J. 24*. :51J. :0, and these corporations, no matter how authorities cited; Albert r. Savings limited their powers, may make them- Hank of Baltimore. 1 MS; Hodges r. City them beyond the scope of their powers of Buffalo. v> Menio. 110; Life & Fire and their very usurpations have the Ins. Co. r. Mechanic Fire Ins. Co., 7 effect of conferring powers on them Wend. 31: New York Firemen Ins. which the legislature have withheld. Co. r. Ely, 5 Conn. 560. A proposition so erroneous can scarcely 44:0 ULTRA VIRES PUBLIC CORPORATIONS. [ 265 bound, in common honesty, to pay for it. During all the time this furniture has been in the possession of the defendant dis- trict, it is fair to presume that the school house which was fur- nished with the seats and desks purchased from the plaintiff, was used in the same manner as school houses are ordinarily used. It is fair to presume that school district meetings were therein held annually at the time appointed by law. It is fair to presume that the school district board met there and caused the seats to placed in the building and to be used by the district. The board and the residents of the school district must all have known orf the use of this property, and their continued retention and use of it shows a perfect and complete ratification of the purchase made by the district officers." In the case of Sullivan v. School Dis- trict, 39 Kans. 347, it was held that a contract for the construc- tion of a school house, made by one member of the school district board alone, on behalf of the district, might be ratified and made binding on the whole school district. This case came again before this court, and is reported in 48 Kans. 624, and the court then held that : " A contract for building a school house, void because made only by one member of the school board, may be ratified and made binding by the action of the school district in completing the building left unfinished by an absconding con- tractor, by furnishing the same with seats, desks and other neces- sary school house furniture, by occupying the same for school house purposes, arid by insuring the same." l A bill was tiled by a taxpayer in Iowa against the vendor of land sold to a county for a poor house farm, the county treasurer and supervisors, to which the county was not made a party, to have the contract set aside as being ultra vires, and the treasurer enjoined from pay- ing certain warrants issued for the residue of the purchase money (the county having paid a part of the purchase money and been placed in possession). The Supreme Court held that the bill was not maintainable in a court of equity, because such a decree would be inequitable while the county was allowed to retain the land, and its title could not be disturbed in an action to which it was not a party. 8 A corporation which has enjoyed the provis- 1 Union School Furniture Company court said: "It appears to us to be v. School District No. 60, in Elk well settled as a rule, with one excep- County. (1893) 50 Kans. 727, 730, 731. tion, that, where the consideration * Turner t. Cruzen, (1886) 70 Iowa, received by a corporation under an 202; s. c., 30 N. "VV. Rep. 483. The ultra tire* contract can be restored, a ' ; "'J ULTRA VIBES Pritl.ic < >UI'< >i:.\ l I 441 iun- of a lease from a city, cannot, in an action f wer t execute the lease. 1 It was in>i>tced to bet up that it was ultm ud to sus- tain this j)osition counsel relied ujxm State Board of Agriculture v. Citizens' Street Railway Company, 47 I ml. 407. The Supreme Court said: "That, however, was the case of a private corpora- tion, the street railway company, that sought to avoid its obliga- tion on the ground of want of power to make the contract. There is a broad difference between a private corporation organ- ixed for a private purpose, though subserving a public interest, and a public corporation, like a county or city, organized for public purposes only, and whose obligations must be paid from public funds raised for public purposes only. The latter class of corporations may always defend, on the ground that the supposed contract was outside of the authority conferred on it by law. In court of equity will not relieve the very object of the constitutional pro- corporation, as against the contract, vision would be defeated." without providing for a restoration of 'City of Corpus Christ! r. Central the consideration. Pratt r. Short, 53 Wharf & Warehouse Co., (Tex. Civ. How. Pr. 506; Leonard r. City of App. 1894) 27 S. W. Rep. 803. The Canton, 35 Miss. 189; Argent! r. San court said: "There was nothing [in Francisco, 16 Cal. 255. 282; Moore r. this lease contract] immoral or illegal. Mayor, etc.. of New York, 73 N. Y. in the sense of an infraction of a posi- 238; Lucas County r. Hunt, S Ohio live prohibition of law, in the action St. 488." Afterwards it was said: of cither party. At most, their action ' \Vr are aware that there is a class of was in excess of the powers conferred, cases where courts of equity declare a The restrictions upon the powers of contract ultra rireti, and grant relief in the city government are imposed by favor of a corporation, without any law for the protection of the inhabit - decree for the restoration of the con- ants of the city and the general public, sideration received by the corporation. By proper proceedings, taken by the This is so where municipal bonds right parties in due time, all such have been issued in excess of the con- transgressions of power may be stitutional limit of indebtedness, and promptly remedied. But, when such the money obtained thereon has been contracts have been allowed to stand expended. Courts of equity decree until fully carried out, it does not lir the cancellation of such bonds, or en- in the mouth of the {tarty who re- join payment, without decreeing re- ceived their benefits to urge the de- payment to the bondholders of the fense of nltnt rir?*." See Bigelow money received by the corporation Estop. 405; 7 Am. & Eng. Encycl. on the bonds. But this results from Law, ,*.; IVnch I'riv. Corp. $ 421- thc necessity of the case. If the 420. !:{-..'. 4:. As to a taxpayer hav- courts should decree repayment, the ing no right to complain of an illegal 56 442 ULTRA VIRES PUBLIC CORPORATIONS. [ 266 1 Dillon Munic. Corp. 381. the author, after stating 'the gen- eral doctrine, that the officer of a municipal corporation cannot bind the corporation by any contract which is beyond the scope of its powers, or entirely foreign to the purposes of the corpora- tion, says : ' It results from this doctrine that unauthorized con- tracts are void, and in actions thereon, the corporation may successfully interpose the plea of ultra vires, setting up as a defense its own want of power under its charter, or constituent statute, to enter into the contract.'" * A county id not estoppel as against a warrant issued by one of its officers, from setting up the defense of ultra vires* The Kansas Supreme Court has said, upon this matter of estoppel of a corporation : " The ten- dency of the courts and others, at the present time, is to treat corporations, including municipal corporations, witli respect to their business transactions, about the same as the courts and others treat individuals, and where a corporation, municipal or other- wise, "has received benefits from others, upon contracts ?////'< v ires or void because of some irregularity or want of power in their creation, but not void because made in violation of expivs< law, or good morals, or public .policy, and where the corporation retains such benefits, it must pay for them." 3 Where the acts of a. municipal corporation are such as the corporation is pro- hibited from performing, they will be ultra vires and void, and the corporation and its taxpayers will not be estopped from insisting upon such invalidity even as against parties acquiring rights without knowledge of the fact. 4 266. Estoppel of contractor wJth a public corporation to enforce an ultra vires contract. In an action by citizens and taxpayers of a town to restrain a contractor from enforcing a judg- contract on the part of a city, such contend that a contract by the board contract being voidable only at the with the county medical society, for option of the city, see Waco Water & medical treatment of the poor of the Light Co. v. City of Waco, (Tex. Civ. county, was ultra vires the society App. 1894) 27 8. W. Rep. 675. and did not bind its members. 1 Driftwood Turnpike Co. r. Board 3 Board of Comrs. of Hamilton of Comrs. of Bartholomew Co., (1880) County v. Webb, (1891)47 Kims. 1<)4. 72 Ind. 226. 105, 106; citing City of Ellsworth p. 'Webster County v. Taylor, 19 Rossiter, (1891) 46 Kans. 237, 242; Iowa, 117. In Woodruff v. Commis- Comrs. of Leavenworth Co. r. Brewer, sioners of Noble County, (Ind. App. 9 Kans. 307; Huffman r. Comrs. of 1894) 37 N. E. Rep. 732, it was held Greenwood County, 23 Kans. 281. that a county physician could not 4 McPherson v. Foster, 43 Iowa, 48. 266] ULTBA VIRES PUBLIC CORPORATIONS. ment against the town obtained by default and to restrain the town and its officers from paying this contractor anything upon hi* alleged contract upon which the judgment wa> rendered, it being alleged in the complaint tliat the judgment was obtained through the connivance of the officers of the town, it appeared that the town was empowered by its charter to levy special assessments for opening and grading streets upon the real estate in front of, or adjacent to, which such improvements should be made. A later act provided for the assessing of the costs of such improvements in the first instance upon the property deemed to be benefited thereby ; and, further, it was provided in this later act that the town council should " order said improvements to be made by the owners of real estate, or occupants of such real estate, in front of or adjacent to where said improvements are so ordered." There was a further provision that such owners or occupants " shall make or cause to be made said improvements at their own cost and charges," and that in case of their default the council may cause the improvements to be made and assess the expense upon the property. It was not controverted that the statute required that an order should have been made for the adjacent proprietors to make the improvement and opportunity given them to do so before the council could rightfully let a contract for doing it, and it was admitted that this was not done. Whether this contract was ultra vires, and whether the municipality should be heard to interpose that defense to an action by the other party to recover upon the contract after it had been performed, were the points considered by the Minnesota Supreme Court. The court held that the contract was unauthorized, and that, not having been misled by any fact, the contractor was not entitled to recover on such contract. 1 The court, after stating the powers of the cor- poration, and restrictions upon the same, said : " Not only was the party entering into this contract legally chargeable with notice; that by the public charter the authority of the council was thus restricted (McDonald v. Mayor, 68 N. Y. 23; Schumm y. Sey- mour, 24 N. J. Eq. 143), but the allegation in the complaint that the plaintiff warned the defendant that the contract was void before he commenced to perform it, is admitted by the answer. The doctrine of ultra vires has with good reason leen applied : Newbery r. Fox, (1887) 87 Minn, ing the sustaining of a demurrer to 141: s. < .. 33 N. W. Hep. 333. affirm- the iinswcr of defendant. 444 ULTRA VIRES PUBLIC CORPORATIONS. [ 266 with greater strictness to municipal bodies than to private cor- porations, and in general a municipality is not estopped from denying the validity of a contract made by its officers when there lias been no authority for making such a contract. 1 A different rule of law would, in effect, vastly enlarge the power of public agents to bind a municipality by contract, not only unauthorized but prohibited by the law. It would tend to nullify the limita- tions and restrictions imposed with respect to the powers of such agents, and to a dangerous extent expose the public to the very evils and abuses which such limitations are designed to prevent. In the case here presented it is not to be denied that the town council had no authority to make this contract ; that the charter set forth the conditions which would authorize sucli a contract to be made ; that those prescribed conditions had not been fulfilled, nor did the defendant believe that they had been. The most that appears in his favor is that, without being misled or mis- taken as to the fact, but being warned that the contract was void, he nevertheless judged that it was legally valid ; and, being also advised by the members of the council, he took the risk of per- forming it. The contract being thus unauthorized was not effectual as a contract, and the defendant does not appear in a position entitling him to invoke the doctrine of estoppel to aid him in enforcing the claim as though the contract was obligatory upon the town." The Supreme Court of Colorado has held that the provision of the charter of the city involved declaring that neither the city council nor any officer of the city shall make any contract or do any thing binding or imposing upon the city any liability to pay money as upon contract until a definite appropria- tion shall be made to meet the requirements or consequences of such contract, was mandatory, and the ditch company furnishing the water for the necessary uses of the city could not recover against the city the reasonable price for the use of the water in the absence of such a definite appropriation. 2 1 Citing Mayor v. Ray, 19 Wall. 468; The court referred to the cases of Brady T. Mayor of New York, 20 N. Argenti v. City of San Francisco, 16 Y. 312; Hague v. City of Philadel- Cal. 255; Nelson T. Mayor, 63 N. Y. phia, 48 Pa. St. 527; 1 Dill. Mun. 535, quoting from the opinion of Corp. 457; Nash n. City of St. Paul, FOLGER, J., in the latter, and cited 8 Minn. (172). further, McDonald T. Mayor, 68 N. Y. * Smith Canal or Ditch Co. r. City of 28; Smith r. City of Newburgh, 77 N. Denver, (Colo. 1894) 36 Pac. Rep. 844. Y. 130; McCoy v. Briant, 53 Cal. 247; 2!7 I ULTRA VIRES PUBLIC CORPORATIONS. 1 \'< 267. Injunction of public officials rules. The Snprvtin; Court of Washington lias held in a taxpayer's action against the commissioners of a county, that the taxpayer was entitled t< ;m injunction to restrain them from issuing certain bonds as the del >t proposed to be increased was beyond the limitation of indebted- ness which the corporation was allowed to incur and had not been properly ratified or validated, and, further, the arrangement with a trust company for the sale of the bonds, by which the hit- ter was to be allowed commissions, etc., of a large amount, vio- lated the requirement of law that they should not sell the bonds below par. 1 People v. May, 9 Colo. 80; s. c., 10 manner best calculated to accomplish Pac. Rep. 641. When one benefited that object. Lawless r. Reese, 4 Bibb, by a contract with a municipality can- 309. The propriety of their election not object that it was ultra rire* the and the binding efficiency of their t-m- municipality, see City of Buffalo v. tract cannot be questioned collaterally. Balcom, (1892) 184 N. Y. 532; s. c., 32 If their proposed expenditure was an N. E. Rep. 7. abuse of their powers, any of the c>r- 1 1 1 unt P. Fawcettetal., County Com- porators have an ample remedy by in- missioners, (Wash. 1894) 36 Pac. Rep. junction. See Christopher c. Mayor 818. In Avery v. Job, (Ore. 1894) 36 of New York, 13 Barb. 567. and au- Pac. Rep. 293, the Supreme Court af- thorities cited." For a full discussion firmed the granting of an injunction of the subject of injunctions against in a taxpayer's suit, restraining the public boards of commissioners, etc., mayor, etc., of the city from purchas- see Stevens v. St. Mary's Training ing a plant of a waterworks company School, (1893) 144 111. 336. That per- for $28,000, worth only $10,000, and sons dealing with a municipal corpo- inadequate and unsuited to the pur- ration through its officers must know pose, though the purchase or erection and are charged with a knowledge of of waterworks was a matter within the their powers in contracting, see Mc- discretion of the city council. In In- Donald r. Mayor, etc., of New York, tendant & Town Council of Living- 68 N. Y. 23; Cornell r. Guilford. 1 ston v. Pippin, (1858) 81 Ala. 542, an Den. 510; Sutro P. Pettit, 74 Cal. W2; action against the municipality to re- Hodges r. Buffalo, 2 Den. 110; Lowell cover the price agreed to be paid for Savings Bank c. Winchester, 8 Allen, the boring of an artesian well, it was 109; Merchants' Bank r. Bergen held that the municipal corporation County, 115 U. 8. 884; Wallace r. could not set up the defense that Mayor, etc., of San Jose, 29 Cal. 181; though its corporate authorities had Dorsey County o. Whitehead, 47 Ark. power to contract for the procuring of 205; Barton r. Swepston, 44 Ark. 437; a supply of water on the public square Schumrn t. Seymour, 24 N. J. Eq. of the town, they ought to have 148; Alton r. Mulledy, 21 III. 76; adopted some loss expensive means of Cleveland v. State Bank of Ohio, 16 procuring it. The court said: "The Ohio St. 236; Chicago c. Shober, etc.. corporate authorities, having the power Co., 6 Bradw. (111.) 560; Craycraft v. to procure the supply of water, were Selvage, 10 Bush (Ky.), 708; Perkin- themselves the judges of the mode and son r. St. Louis, 4 Mo. App. 322; 446 ULTRA VIRES PUBLIC CORPORATIONS. [267 Clark T. Polk County, 19 Iowa, 248; Carpenter v. Union, 58 Iowa, 335; Estep v. Keokuk County, 18 Iowa, 199; Whiteside v. United States, 93 U. S. 247; Harshman v. Bates County, 92 U. 8. 569; Maupin v. Franklin County, 67 Mo. 327. As' to when a municipal corporation is not estopped to set up a plea of ultra vires in actions brought upon contracts entered into by its offi- cers, see Sioux City v. Weare, 59 Iowa, 95; Stidger v. Redoak, 64 Iowa, 465; State v. Haskell, 20 Iowa, 276; East Oakland v. Skinner, 94 U. S. 255; Post v. Kendall County, 105 U. S. 667; McClure v. Oxford Township, 94 U. S. 429; Bates County v. Winters,97 U. S. 83; South Ottawa v. Perkins, 94 U. S. 260; Daviess County v. Dickinson, 117 U. S. 657; Burrill v. Boston, 2 Cliff. 590; Fox v. New Orleans, 12 La. Ann. 154; Seibrecht v. New Orleans, 12 La. Ann. 496; Cheeney v. Brook- field, 60 Mo. 53; McCaslin t>. State, 99 Ind. 423; State v. Bevers, 86 N. C. 588; Dill v. Wareham, 7 Met. 438; Yancey v. Hopkins, 1 Munf. (Va.) 419 ; Nalle v. Fenwick, 4 Rand. (Va.) 585; Ship- man v. State, 43 Wis. 381; Perry v. Superior City, 26 Wis. 64; State t. Hastings, 12 Wis. 596; Nash T. St. Paul, 8 Minn. 172; Donovan v. Mayor, etc., of New York, 33 N. Y. 291; Ap- pleby v. Mayor, etc., 15 How. Pr. 428; Martin v. Mayor, etc., of Brooklyn, 1 Hill, 545; Albany t>. Cunliff, 2 N. V. 165; Overseers of Norwich v. Over- seers of New Berlin, 18 Johns, 382; Cowen v. West Troy, 43 Barb. 48; Trustees of Paris Township v. Cherry, 8 Ohio St. 564; Western College of Medicine v. Cleveland, 12 Ohio St. 375; Mitchell t>. Rockland, 41 Me. 363; Fluty v. School District, 49 Ark. 94; Hal but v. Forrest City, 34 Ark. 246; Mitchell v. Rockland, 45 Me. 496; People v. Baraga Township, 39 Mich. 554; Taft v. Pittsford, 28 Vt. 286; Haynes v. Covington, 13 Sm. & Marsh (Miss.), 408; Treadway v. Schnauber, 1 Dak. 236; Neely v. Yorkville, 10 S. C. 141; Bryan v. Page, 51 Tex. 532; Trustees of Belleview v. Hohn, 82 Ky. 1; s. c., 4 Am. &Eng. Corp. Cas. 524; Murphy v. Louisville, 9 Bush (Ky.), 189. CHAPTER Vin. ULTRA VIBES PRIVATE CORPORATIONS. 368. The doctrine of ultra vires as explained by English courts. 269. These rules applied by English courts to special acts of cor- porations. 270. The doctrine of ultra vires as ex- plained byUnitril Statescourts 271. Illustrations of acts not ultra vires the corporation. X.'7'J Illustrations of acts ultra vires the corporation. 27:$. Leasing corporation's property and franchises for a term of years. 274. Loaning funds of a corporation. 275. Investing funds of corporation in stock of others. 276. Directors of an insurance com- pany raising a guaranty capital. 277. Converting common Into pre- ferred stock. 278. The effect of laches on the part of complaining stockholders in such coses. 279. Rules declan-d by courts as to estoppel of corporations to plead ultra vires. 280. When the doctrine of ultra vires is not applicable. 281. Rules declared by courts as tc estoppel of parties to con- travts with corporations to plead ultra vires. 282. Financial arrangements con- trary to public policy rules governing proceedings on the part of the state, etc. 268. The doctrine of ultra vires as explained by Eng- lish courts. Where a corporation is created by an act of parlia- ment for particular purposes, with special powers, " their deed, under their corporate seal, and that regularly affixed, does not bind them, if it appear by the express provisions of the statute creating the corporation, or by necessary or reasonable inference from its enactment*), that the deed was ultra vires that is, that the legislature meant that such a deed should not !>< made," was stated to be the rule by Baron PAKKK. ' Ix>rd Chancellor CHAN- WORTH has olwerved in a case that he thought the statement of the rule by Baron PAKKK " the more correct way of enumerating the doctrine, though practically it makes very little difference whether we say that the railway company has no authority given to it by its incorporation to en'.er into contracts as to matters not connected with its corpoi-ate duties, or that it is impliedly pro- 1 South Yorkshire Railway r. Great way r. Stewart, 8 Macq. 882, 415, by Northern Railway, 9 Ezch. %. 84. Lord WKKKLKYDALK. See, also, Scottish Northeastern Hail- 448 ULTRA VIRES PRIVATE CORPORATIONS. [ 20J) hibited from so doing, because by necessary inference the legisla- ture must be considered to have intended that no such contracts should be entered into." 1 Lord ST. LEONARD has distinctly recog- nized that " directors cannot act in opposition to the purpose for which their company was incorporated, nor bind their companies by contracts foreign to the purposes for which they were estab- lished." 2 Lord Chancellor CRANWORTII has said that the English authorities had " established the proposition that a railway com- pany cannot devote any part of its funds to an object not within the scope of its original constitution, how beneficial soever that object might seem likely to prove ; " and, after a review of the cases reported, " it must, therefore, be now considered as a well- settled doctrine that a company incorporated by act of parliament for a special purpose cannot devote any part of its funds to objects unauthorized by the terms of. its incorporation, however desirable such an application may appear to be." 3 269. These rules applied by English courts to special acts of corporations. In an English case the objects of the company registered under the English Joint-Stock Companies Act of 1862 was created were stated in its memorandum of asso- ciation to be " to make and sell or lend or hire railway carriages and wagons and all kinds of railway plant fittings, machinery and rolling stock ; to carry on the business of mechanical engi- neers and general contractors ; to purchase, lease, work and sell mines, minerals, land and buildings ; to purchase and sell, as mer- chants, timber, coal, metals or other materials, and to buy and sell any such materials on commission or as agents." The directors agreed to purchase a concession for making a railway in a foreign country, and afterward (on account of difficulties existing by the law of that country) agreed to assign the concession to an asso- ciation formed there, which was to supply the materials for the construction of the railway and receive periodical payments from the English company. In an action at law brought by the foreign associates against the English company upon this agree- ment, it was held in the lower courts, as well as in the House of Lords, to be ultra vires. The House of Lords unanimously held the contract not to be within the scope of the memorandum of 1 Shrewsbury & Birmingham Rail- 9 Eastern Counties Railway v. way v. Northwestern Railway, 6 H. L. Hawkes, 5 H. L. Gas. 331. Cas. 113, 135-137. Ibid. 269] ULTRA VIRES PRIVATE CORPORATIONS. association and, therefore, void and incapable of being ratified, ami that the action could not In- maintained. 1 In an Kn^li^h case it was held that no action could be maintained by one railway company against another upon an agreement made by tin* i to take a lease of the railway of the first company and to pay the expenses incurred by that company in the soliciting and promot- ing of bills in parliament for the extension and improvement of that railway, even if the object and effect of the agreement were to increase the profits of the defendants' railway. 2 In a 1 Ashbury Railway Carriage & Iron Co. v. Ricbc, L. R., 7 H. L. 653; in the lower courts, L. R., 9 Exch. 224. Lord SELBORNE of the House of Lords said: "The action in this case is brought upon a contract not directly or indirectly to execute any works, but to find capital fora foreign mil way company in exchange for shares and bonds of that company. Such a con- tract, in my opinion, was not author- ized by the memorandum of asso- ciation of the Ashbury Company. All your lordships and all the judges in the courts below appear to be so far agreed. But this, in my judgment, is really decisive of the whole case. * * * I think that contracts for objects and purposes foreign to or in- consistent with the memorandum of association are ultra rire* of the cor- poration itself. And it seems to me far more accurate to say that the Inability of such companies to make such contracts rests on an original limitation and circumscription of their powers by the law, and for the purposes of their incorporation, than that it depends upon some express or Implied prohibition, making acts un- lawful which otherwise they would have had a legal capacity to do. This being so, it necessarily follows * * * that where there could be no mandate there cannot be any ratification; and that the assent of all the shareholders can make no difference when a stranger to the corporation is suing the 57 company in its corporate name upon a contract under the common seal. No agreement of shareholders can make that a contract of the corporation which the law says cannot and shall not be so." *East Anglian Railways r. K Counties Railway, 11 C. B. 775. It was said by Chief Justin- JKKVIS. in delivering the judgment of himself and Justices MAULK, WILLIAMS and TALFOURD: "This act is a public act accessible to all and supposed to be known to all, and the plaintiffs must, therefore, be presumed to have dealt with the defendants with a full knowledge of their respective rights whatever those rights may be. It is clear that the defendants have a lim- ited authority only and are a corpora- tion only for the purpose of making and maintaining the railway sanctioned by the act; and that their funds can only be applied for the purposes directed and provided for by the stat- ute. Indeed, it is not contended that a company so constituted can engage in new trades not contemplated l>y their act; but it is said that they may embark in other undertakings, how- ever various, provided the object of the directors be to increase the profits of their own railway. This, in truth, is the same proposition in another form, for if the company cannot earn- on a trade merely because it was not contemplated by the act, they cannot embark in other undertakings not 450 ULTRA VIRES PRIVATE CORPORATIONS. [270 case where a railway company, authorized by act of parliament to purchase a branch line and to raise a sum of money for the purpose of constructing that line, applied part of the sum so raised to the construction of its main line, Vice-Chancellor WIG- RAM and Lord Chancellor COTTENHAM, on appeal, sustained the bill of a shareholder, not only to restrain such application of the rest of the sum, but also for an account of the part already illegally expended. 1 270. The doctrine of ultra vires as explained by United States courts. The Supreme Court of the United States has approved the rules established in the English cases, and held that the purchase of a steamboat to run in connection with a railroad corporation's road and the giving of a note for the same, was a departure from the business of the corporation, and that the officers in the purchase and the execution of the note for the Durchase money exceeded -their authority. 2 Speak- sanctioned by the act merely because they hope the speculation may ulti- mately increase the profits of the shareholders. They cannot engage in a new trade because they are a cor- poration only for the purpose of mak- and maintaining the Eastern Counties Railway. What additional power do they acquire from the fact that the undertaking may in some way benefit their line? Whatever may be their object or the prospect of success, they are still but a corporation for the purpose only of making and main- taining the Eastern Counties Railway; and if they cannot embark in new trades because they have only a lim- ited authority, for the same reason they can do nothing not authorized by their act and not within the scope of their authority. Every proprietor, when he takes shares, has a right to expect that the conditions upon which the act was obtained will be per- formed; and it is no sufficient answer to a shareholder expecting his divi- dend that the money has been ex- pended upon undertakings which at some remote period may be highly beneficial to the line. The public also has an interest in the proper adminis- tration of the powers conferred by the act. The comfort and safety of the line may be seriously impaired if the money supposed to be necessary and destined by parliament for the main- tenance of the railway be expended in other undertakings not contemplated when the act was obtained and not expressly sanctioned by the legisla- ture." See, also, Macgregor v. Dover & Deal Railway, 18 Q. B. 618. 1 Bagshaw v. Eastern Union Rail- way, 7 Hare, 114; s. c., 2 Macn. & Gord. 389; 2 Hall & Twells, 201. In Caledonian & Dumbartonshire Rail- way r. Magistrates of Helensburgh, 2 Macq. 391, the House of Lords held that no action would lie against a rail- way company on an agreement of its projectors to advance money to con- struct a pier and harbor at the end of a proposed branch of the railway. 8 Pearce v. Madison & Indianapolis Railroad, 21 How. 441. 270] i I.TK'A \ n:i> PRIVATI < ..I:I-..I:A i 451 in^ of the decision in Ashbury Railway Carriage fc Iron Co. v. Riche, 7 II. L. 653, as establishing M the broad doctrine tlmt a contract not witbin tlie scope of the powers conferred on the corporation cannot be made valid lv the assent of every one of tin- >h;iiv!iolders, nor can it by any partial performance become the foundation of a right of action," Mr. Justice MILI.KR, of the Supreme Court of the United States, expressed the opinion that that decision "represents the decided preponderance of authority both in this country and in England, and is based upon sound principles." l This may be generally stated as settled law with reference to corporations. A corporation has power to do such business only as it is authorized to do, and no other. It is not hdil out by the government nor by the stockholders as authorized to make contracts which are beyond the purposes and scope of its charter. It is not vested with all the capacities of a natural per- son, or of an ordinary partnership, but with such only as its char- ter confers. If it exceeds its chartered powers, not only may the government take away its charter, but those who have subscribed to its stock may avoid any contract made by the corporation in clear excess of its powers. If it makes a contract manifestly beyond the powers conferred by its charter, and, therefore, unlaw- ful, a court of chancery, on the application of a stockholder, will restrain the corporation from carrying out the contract, and a. court of common law will sustain no action on the contract against the corporation. 2 The Court of Appeals of Maryland 1 Thomas t. Railroad Co., 101 U. light of a common partnership and OB 8. 71. subject to no greater vigilance than * Davis c. Old Colony R. R. Co., common partnerships are, would, I (1881) 131 Mass. 258. This reference think, be greatly to mistake the func- is made to a leading English case: tions which they perform and the 44 In the lending case of Colman r. powers which tney exercise of inter- Eastern Counties Railway, 10 Beav. 1, ference, not only with the public but the directors of a railway company with the private rights of all individu- were restrained by injunction from als in this realm. We are to look carrying out an agreement by which, upon those powers as given to them for the purpose of increasing its traffic, in consideration of a benefit which, they proposed to guarantee certain notwithstanding all other sacrifices, it profits to, and to secure the capital of, a is to be presumed and hoped, on tin- steam packet company, to ply between whole, will be obtained by the public. a port near one end of the railway in But it being the interest of the public England and certain foreign ports, and to protect the private rights of all in Lord LAM; i> M.I:. M. R., said: 'To dividuals, and to defend them from all look upon a railway company in the liabilities beyond those necessarily oc- 452 ULTRA VIRES PRIVATE CORPORATIONS. [270 have decided that corporations are not only incapable of making contracts which are forbidden by their charter, but in general they can make none which are not necessary, either directly or indirectly, to effect the objects of their creation, and that the cor- poration itself may, in an action brought against it upon such contract, deny its power to enter into it. 1 In a New York case, involving the issue of preferred stock by a corporation to certain of its stockholders who advanced money for t'he purposes of the corporation, FOLGER, J., of the Commission of Appeals, very fully explained this doctrine in words which have been gen- erally approved and accepted as correct by the courts of this country. He said : " In the application of the doctrine of ultra vires, it is to be borne in mind that it has two phases, one where the public is concerned ; one where the question is between the corporate body and the stockholders in it, or between it and its stockholders and third parties dealing with it and through it casioned by the powers given by the and thereby to increase the profit to several acts, those powers must always the shareholders. There is, however, be carefully looked to, and I am no authority for anything of that kind, clearly of opinion that the powers It has been stated that these things, to which are given by an act of parlia- a small extent, have frequently been ment like that now in question, extend done since the establishment of rail- no further than is expressly stated in ways, but unless the acts so done can the act, or is necessarily and properly be proved to be in conformity with the required for carrying into effect the powers given by the special acts of undertaking and works which the act parliament, under which those acts are has expressly sanctioned. * * * done, they furnish no authority what- Ample powers are given for the pur- ever.' And after full consideration of pose of constructing and maintaining the case he summed up his opinion the railway, and for doing all those thus: ' To pledge the funds of this things required for its proper use when company for the purpose of support- made, but I apprehend that it has no- ing another company engaged in a where been stated that a railway com- hazardous speculation, is a thing pany, as such, has power to enter into which, according to the terms of this all sorts of other transactions. In- act of parliament they have riot a deed, it has been very properly admit- right to do.' They have the power to ted that railway companies have no do all such things as are necessary and right to enter into new trades or busi- proper for the purpose of carrying out nesses not pointed out by their acts; the intention of the act of parliament, but it has not been contended that and they have no power of doing any- they have a right to pledge without thing beyond it." See, also, Salomons limit the funds of the company for the v. Laing, 12 Beav. 339, 352, 353. encouragement of other transactions, ' Pennsylvania, Delaware & Mary- however various and extensive, pro- land Steam Navigation Co. v. Dan- vided the object of their liability is to dridge, 8 Gill & Johns. (Md.) 248. increase the traffic upon the railway 271] DLTBA VIBBI ri:i\ ATE CORPORATIONS. with them. "When the public i- concerned, t.> re-train tliecorpora- timi within the limit- .f tin- power given to it by its charter, an assent 1>\ tbertoekholden t. the use of unauthorized power by the* corporate body will be of no avail. When it in a question of the right of a stockholder to restrain tin- corporate body within its express or incidental powers, the right of the stockholder may, in many cases, be denied on the ground of hi- \|.r >s assent or his intelligent though tacit consent to the corporate action. If there be a departure from statutory direction, which is to be considered merely a breach of trust to be restrained by a stockholder, it is pertinent to consider what has been his conduct in regard thereto. A corporation may do acts which affect the public to its harm, inasmuch as they are per se illegal or are malutn prohibitum. Then no assent of stockholders can validate them. It may do acts not thus illegal, though there is want of power to do them, which affect only the interest of the stockholders. They may be made good by the assent of the stockholders, so that strangers to the stockholders dealing in good faith with the corporation will be protected in a reliance upon those acts. The instance put in Bissell v. Mich. So., etc., R. R. Co., 22 N. Y. 269, is illustrative. A bank has no authority from the state to engage in benevolent enterprises, and a subscription, though formally made, for a charitable object, would be out of its powers, but it would not be otherwise an illegal act, yet. if every stockholder did expressly assent to such an application of the corporate funds, though it would still be in one sense ultra vires, no wrong w r ould be done, no public interest harmed, and no stockholder could object or claim that there was an infringement of his rights and have redress or protection. Such an act, though beyond the power given by the charter, unless expressly prohibited, if con firmed by the stockholders, could not be avoided by any of them to the harm of third persons. This arises from the principle that the trust for stockholders is not of a public nature." ' 271. Illustrations of acts not ultra vires the corporation. In furtherance of its legitimate objects and in the due prosecution of its business, a corporation may loan money and take mortgage security. 3 If the term for which a corporation is authorized t Kent r. Quicksilver Mining Co.. 'Madison, etc.. Plank Hoad Co. r. (1879) 78 N. Y. 159, 185. 186. Water-town Plank Road Co.. r> NVis. 173. 454 ULTRA VIRES PRIVATE CORPORATIONS. [27t loan money on mortgage be limited to one year, it may still enforce securities given for a loan of two years, if there is no pen- alty attached to taking such securities ; and it may ratify a loan made without the required vote of its directors. 1 A building and loan association having conferred upon it by the statutes of a state expressly the power to loan money to its shareholders, on mort- gages of real estate, on such terms and conditions as may be pre- scribed by the by-laws, a loan to one of its shareholders, though not strictly in conformity to one of its by-laws, or even contra- vening it, would not be ultra vires? Corporations formed under the general law of California, it has been held, have the power to purchase and hold an exclusive franchise or privilege granted by the legislature to an individual and his assigns. 3 It does not fol- 1 Germantown F. M. Ins. Co. v. Dhein, 43 Wis. 420. 1 Kelly T. Mobile Building & Loan Association, (1879) 64 Ala. 501. In Cooper v. Frederick, (1846) 9 Ala. 738, it was held that a resolution by the direct- ors of a railroad corporation, that the stockholders might relinquish one-half of their stock and the payments pre- viously made accounted for as if made on the stock retained, provided the stockholders paid all the calls subse- quently made by the directory, was in the nature of a contract, entered into between the corporation and its mem- bers, and was not on its face illegal and improper. 3 California State Telegraph Co. v. Alta Telegraph Co., (1863), 22 Cal. 398. A purchase by a corporation in the face of a positive prohibition would be void; but that is not this case. There was no provision of law forbidding the purchase; and, admit- ting that the corporation had no power to make it, the want of power, in the absence of an express prohibi- tion, is not sufficient to avoid it as to third persons. The rule in such cases was laid down by this court in Na- toma Water & Mining Co. v. Clarkin, 14 Cal. 544. In that case the corpo- ration was empowered to purchase such property as the purposes of the corporation should require, and it was objected that the property in controversy was not of that de- scription, and that the corporation had no power to purchase it. The court overruled the objection, saying: " Whether or not the premises in con- troversy are necessary for those pur- poses, it is not material to inquire; that is a matter between the govern- ment and the corporation, and is no concern of the defendant." The rea- son of the rule is obvious. As be- tween the parties the purchase is valid and it must be so as to third persons, until, by a proper proceeding, a for- feiture has been declared. It is well settled that a cause of forfeiture can- not be inquired into collaterally." In his concurring opinion COPB, Ch. J., said: "As to the capacity of the corporation to purchase, the defendant is not the party to ob- ject. If the corporation, in making the purchase, has acquired property which, under the law of its incorpora- tion, it had no right to acquire, all that can be said is that it has exceeded its powers, and may be deprived of the property by a judgment of for- feiture. The question is one which, the state alone can raise." 271] TI.l KA VIKE8 PKIVATK CoKl'ORATIOXS. lo\v l'n>m the prohibition in u charter of a, corporation of dealing in commercial paper that the corporation may not receive ami sell notes given for the sale of its land.-. 1 A corporation -ueoeed- ing to the bu>iness of an individual in IN line of manufacture-, tor in>tance, may accept from the individual whom it .succeeded an order accepted by him upon particular term-.- Though tho articles of an incorporated college may not e.\prely give it power to raise and control funds by taking endowment notes, it may accept and enforce payment of such notes. 3 A contract entered into by a railroad corporation before the completion of its line ,,f road, for the transportation of freight after the completion of its line, is not ultra vire*, but is binding and enforceable. 4 And such a corporation, while retaining the benefit of such a contract which has been fully executed, cannot assert that it had no power to make the contract the consideration for which it had received. 5 A railroad corporation, under the statutes of Indiana, may pay in advance for the use of another railroad thus aiding in its coir strnction.' It is not beyond the power of a corporation author- ized by its charter to purchase "any real estate or other prop- erty," etc., to purchase its own stock. 7 In an early Massachusetts case it was held that where a statute of the state prohibited the receiving or negotiating in any way of bills or notes of banks \\^\ incorporated in that state, the taking of a note payable in such bills was an &ct ultra vires a Massachusetts banking institution and the "Buckley r. Briggs, (1860) 30 Mo. Aurora & Cincinnati R. Co. v. 4.72 In Western Organ Co. r. Red- City of Lawrenceburgh, (1877)56 Intl. dish, 51 Iowa, 55, it was held that the 80. As to the right of a corporation corporation, though organized for the to purchase its own stock and reissue manufacture and sale of musical instru- it, see City Bank r. Bruce, 17 N V. menu, with no power to engage in the 507; C., P. & S. W. R. R. Co. c. Mar- business of loaning money, might still seilles. 84 111. 145. 643; L. 8. I. Co. v. take from its agent in payment of in- Drexel, 90 N. Y. 98; State Bank r. ill-lit i-dness by him to the corporation Pox, 3 Blatchf. 434; Otter e. Brevoort tli.- note of a third party belonging to P. Co., 50 Barb. 256. As to the JM\VT him. of n corporation to purch.-iM- sh.m-s of 'Cook Manufacturing Co. r. Ran- its own stock in good faith, and not in dall, 62 Iowa 244. fraud of its creditors, see Chicago. 3 Simpson Centenary College r. Pekin & So.Westi-rn K K ( o . . 1'n -i Bryan, 50 Iowa. 293. dent, etc., Town of Marseilles. (18 Louisville. New Albany & Chicago 84 111. 145; on n-li.arin-. *4 111 H4:: ; Ry. Co. c. Flanagan, (1887)113 Ind. Clnpp I 1 - M -.n. (1883), KM III 498. : Iowa Lumber Co. v. Foster, 49 456 ULTRA VIRES PRIVATE CORPORATIONS. [271 note was void. 1 A manufacturing corporation may take shares of another corporation in payment of a debt. 2 An academy being incorporated for the purpose of holding funds to be applied to the education and moral and religious improvement of youth, its trustees are capable of holding funds in trust for an associa- tion the objects of which are similar and to any extent auxiliary to those for which they may have been incorporated. 3 A corpo- ration vested with power to take and dispose of the securities of another corporation may guarantee the payment of those securities if it disposes of them to another party in payment of its own debt. So, too, if it buys property subject to a mortgage security bond, it may guarantee the payment of such bonds if the guar- anty be taken as payment pro tanto of its debt. 4 A corporation created for the purpose of constructing a road, empowered by statute to borrow money to be used in the construction of its road or in paying for materials purchased for its construction and to mortgage its road to secure the payment of the money so bor- rowed, may mortgage its road to secure the payment of money due a contractor for constructing the same ; and it may mortgage any portion of its road as well as the whole of it. 5 Such a corpo- ration, the charter of which authorizes it to borrow money " on such terms as might be agreed upon between the parties," may borrow money at a rate of interest beyond that established by the general law. 6 An insurance corporation authorized to invest its capital, profits and surplus funds in such securities, and in such manner as it may elect, and required to invest its reinsurance fund among other securities, in " bonds and mortgages on unin- 1 President. Directors, etc., of (1892) 50 X. J. Eq. 656, the defendant Springfield Bank r. Merrick, (1817) 14 corporation being authorized by char- Mass. 322. ter to issue bonds for proper corporate 9 Howe v. Boston Carpet Co , (1860) purposes, and the validity of the con- 16 Gray, 493; citing Hodges v. New tract being established, the Court of England Screw Co., 1 R. I. 312, and Chancery declined to interfere to regu- 3 R. I. 9; Treadwell r. Salisbury Mfg. late the character of the payments, or Co., 7 Gray, 393. of the instruments to be issued there - * Phillips Academy v. King (1815), for, as long as the same were not ex- 12 Mass. 546. pressly unauthorized. 4 Ellerman v. Chicago Junction 6 Greensburgh, Milford & Hope Railway & Union Stock Yards Com- Turnpike Go. . McCormick, (1873) 45 pany, (1891), 49 N. J. Eq. 217. In Ind. 239. Willoughby v. Chicago Junction Rail- 6 Morrison r. Eaton & liamilton R. ways& Union Stock Yards Company, R. Co. (1860)14 Ind. 110. . 1J ULTRA VIRES PRIVATE CORPORATIONS. 1.-7 cumbered real estate," will not commit an art '////-/ ///<* by making a loan of money to one, accepting his notes and mortgage to secure them. 1 The charter of a Massachusetts corporation authorized it to purchase and liold "in fee .simple or otherwise" real and personal estate to the amount of $50,00o, which was increa-ed by subsequent statutes to $600,000. The corporation was also by its charter authorized to appropriate its funds to charitable purposes, and to employ its annual income, among other purposes, " to promote inventions and improvements in the mechanic arts, by granting premiums for said inventions and improvements." There was no direction in the charter or subse- quent statutes as to the manner in which the provisions for grant- ing these premiums should be carried out. It was held by the Supreme Court of Judicature that the corporation might pur- chase land and erect a permanent building thereon in which to hold exhibitions and the meetings of the corporation.- '"Daly r. National Life Insurance for carrying out this provision, Co., (1878)64 Ind. 1. not inconsistent with any other pro- " Richardson r. Massachusetts Chari- vision of the charter; and any profit table Mechanic Association, (1881) 131 arising therefrom might properly Mass. 174. It was said by the court: be held by the association and the " For many years the association has income thereof devoted to the pur- been in the habit of holding such ex- poses for which it was incorpo- hibitions in buildings hired or tempo- rated. In order to do this, a place. rarily erected for that purpose. The must be provided for the exhibition. money received from such exhibitions, either by hiring buildings, or by erect- oviTand above the expenses, has been ing temporary or permanent buildings invested in real and personal estate, for the purpose, for the association has and the income therefrom devoted to full power to acquire title to real es- the use of the association as directed tate in fee simple or otherwise, and it by the charter. We cannot say that can undoubtedly hold such real estate the method thus adopted for carrying as is necessary for its use in the exer- into execution this particular provis- cise of the powers conferred upon it." ion of the charter is beyond the power In Seymour r. Spring Forest Cemetery of the corporation. The charter fail- Association. (1892) 64 Hun. <:V,J; s. c., ing to indicate in what manner this 19 N. Y. Supp. 94, the bonds given by power shall be exercised, a wide dis- the association for lands purchased cretion is given to the association; for under the powers granted suchassocia- there are many ways in which it might lions by statute to " purchase such real be executed. An exhibition open to estate as the purposes of the associu- the public at a proper charge, at tion may require " were held not to be which mechanics may display their void MS ultr the laws of Illinois, through its stockholders SUM] officers eir into an agreement with other [xjrsons ownin.ir patent-, adapted to its business, by which a new corporation \vw organ- i/ed. the former as a part of its agreement transferring to the new one 10,000 of its shares of stock, which had been prop- money on favorable terms and at a low rate of interest; it might be necessary to borrow it upon long time, providing a sinking fund for its payment, by setting apart a certain portion of the corporate revenues, to be loaned out on interest, suffering the principal and interest to accumulate to an amount sufficient to repay the borrowed money when due. Such is the usual mode of conducting the business of corpora- tions of that character, and there can be no objection to it so long as the legitimate business of the corporation is not changed into that of a loan com- pany. So long as the loans are a mere incident to the exercise of its legiti- mate powers they are rightful and valid. So numerous other cases of a like character might be suggested where loans by a corporation might be very proper and necessary in con- ducting its business operations; and if all corporations are to be considered as absolutely prohibited.or not permitted, to make any loan of money except in the few classes of cases of corporations \vlu-re it is expressly allowed by the statute, and all such contracts are to be held void, a result would be pro- duced which certainly never was in- tendril by the legislature, nor is it sustained by the rules of law. A cor- poration had power to insure lives and grant annuities, and it was held that, as it must have funds to apply to those purposes, it might loan its money, and the loan by it would be presumed to have been made in the ordinary course of its business, and, therefore, valid, although it hud no express power to loan money. The authority to loan money was upheld as an incident to the other powers con- t'erred by the charter. Farmers' I. A: T. Co. t>. Clowes, 4 Edw. CI. 8. c., 8 Comst. 470; Farmers' L. & T. IVrry. 15 Sandf. Ch. 889. So, too, an insurance company was incur- poratrd without any special provision in relation to the. mode of investing ita capital, and it was held that it had tin- power to invest the whole or any part of it* capital by way of loans on bond and mortgage and lo reinvest it in the same way whenever it should become. necessary or convenient to do so. Mann v. Eckford. 15 Wend r.pj. Where a bank was authorized to take mortgages in security for debts pre- viously contracted, it was held that if the loan and mortgage were concur- rent acts it was not a violation of the restraining clause of the statute. Silver Lake Bank r. North, 4 Johns. Ch. 370; Baird . Bank of Washing- ton, 11 Serg. & R. 411. A plankroad company was not authorized to loan money, but if necessary it can legally loan a sum of money to one of its con- tractors to enable him to build a portion of its road. Madison, etc.. Plank Road Co. v. Watertown Plank Road Co., 5 Wis. 173. A corporation was prohibited from dealing in goods, wares mid merchandise. Held, that a loan made, secured by a quantity of cotton, which was to be shipped and sold and the proceeds credited to the debtor on the loan, was not a violation of the charter. Bates r State Bank. 2 Ala. 465. Ho, too, a sale by a hank of a quantity of butter which it had taken in settlement of a debt was deemed no violation of a similar clause in its charter. Sacketts Harbor 400 ULTRA VIRES PRIVATE CORPORATIONS. [271 erly set apart for sale for making capital, to be used by the new corporation in the same manner. In an action against one who had purchased 500 shares of this stock, upon his notes given for the same, his plea was that it was an overissue of the stock of the corporation. This point was ruled against the defendant by the Appellate Court of Missouri, and at the same time the court considered the question whether such an agreement, when ratified by the stockholders of the old company and carried out by delivery of the stock to the new company, was repugnant to the laws of the state of Illinois. The court said : " Our examination of the Illinois decisions has led us to tne opinion that this con- tract or arrangement was not ultra vires under the law of that state. There are numerous cases of the Supreme Court of that state which hold that a corporation may purchase its own stock and violate no duty to its own stockholders. Chetlain v. Ins. Co., 86 111. 220 ; Chicago, etc., Kailroad Co. v. President, 84 111. 145. In the Chetlain case the court held that if A subscribed for ten shares of the capital stock of a corporation, and, having paid two hundred dollars, was willing to receive a certificate for two shares of one hundred dollars each and cancel his subscription for the ten shares, this, could be done, and that the other eight shares would belong to the company, and that it had a right to sell them to whom it pleased. The doctrine of this case would indicate that the agreement to donate the ten thousand shares was invalid, and when ratified by the stockholders of the old company it vested in the new corporation the title to the stock and the com- pany had the right to sell it to whom they pleased. * * There is no principle of law known to us which would release the defendant from his liability to pay these notes. No question of fraud or misrepresentation is urged ; in fact, the record shows that the plan of incorporation, and especially the plan adopted for the sale oT the stock, was devised by the defendant himself. He was an officer and director of. the corporation and took an active part in the management of its business, and he is, therefore, in no position to claim that he was overreached or in any way deceived Bank r. Lewis County Bank, 11 Barb, prohibit a supply of goods to those 213. A glass company, not author- employed in the manufactory, and ized to sell goods generally, sold goods that the corporation might recover for to one in their service, and it was held them. Chester Glass Co. v. Dewey, that the legislature did not intend to 16 Mass. 102." 271] ULTRA VIRES PRIVATE CORPORATIONS. iu the purchase of the stock or in the execution of the notes." 1 In a Kansas case the Supreme Court held that a contract entered into by a town company incorporated " for the purchase of laud, the surveying and platting ot town sites and selling town lots and other lands," in which it was agreed that if a certain party would remove a bank, a barn and a restaurant located elsewhere to tin- town site, the town company would convey to him certain lot.- in the town and pay him the sum of $1,000, tended diiv<-tly to enhance the value of the remaining property of the corporation, and was not necessarily ultra vires." 1 A contractor for construc- tion of a railroad in Wisconsin was stopped from his work with 1 Eggmann r. Blanke, (1890) 40 Mo. App. 818. 'Sherman Center Town Company T. Russell, (1891)46 Kans. 382; a. c., 28 Pac. Rep. 715. Aryuendo, the court said, upon the insist incut that the con- tract was ultra vires: "The corpora- tion may exercise not only the powers expressly enumerated in its charter, if they are authorized by law, but ' may enter into any obligation or contract essential to the exercise of the powers expressly enumerated.' Gen. Stat. of 1889, [ 1167. The company is not re- stricted to the mere purchase and sale of lots, but may doubtless enter into con- tracts which would directly tend to promote the prosperity of the town, and enhance the value of the lots re- maining unsold. To this end it may expend money for the advertising of the property, the making of improve- ments on a part of the same, may con- trad for the erection of school build- ings and other improvements, the di- rect and proximate tendency of which will be to attract people to the town and make the property of the company more desirable and salable. The lo- cation of [this party] with his bank, hi-; liarn and restaurant at tin- town of Sherman Center no doubt tended di- rectly and proximately to build up tin- town and give it prestige in that < -11111- munity, thus enhancing the value of the remaining lots and promoting the legitimate objects of the corporation. In Whetstone P. Ottawa University, 13 Kans. 820, the question arose whether the Ottawa Town Company could donate the property of the cor- poration to the Ottawa University for the purpose of erecting a school build- ing outside of the limits of the town of Ottawa, and more than one-fourth of a mile outside of the limits of the property and the land owned by the town company. Mr. Justice BKKWI-.U, who pronounced the judgment of the court, remarked tlut ' Town-site com- panies arc neither novel nor rare in Kansas. Every county has been the home of several, and the manner of their working, and the means em- ployed to accomplish their purposes, are familiar to us all. Nor is Kansas peculiar in this respect. Every west- ern state is full of them. They are private corporations, organized for the purposes of gain. They take real estate, lay it off in lots and blocks, streets and alleys, induce people to settle and purchase, and by the sale of lots make their profits. * * * If by the donation of one lot tin double the value of the remainder, is not the one lot used directly to accom- plish the legitimate object of the cor- poration ? If by donating one hun- dred lots to the county they can secure 462 ULTRA VIRES PRIVATE CORPORATIONS. [ 271 the company largely in debt to him. He brought action and obtained judgment. Execution had been returned nuUa lona. This company had had a benefit of a grant of land. Another company had, through its sole ownership of the stock and by improper practices, managed to have the whole of the property of the indebted company transferred to itself. The United States Supreme Court upheld the suit of representatives of the judg- ment creditors against this other company to enforce the payment against the transferred property, holding that a sole stockholder in a corporation could not secure the transfer to itself of all the property of the corporation so as to deprive a creditor of the corporation of the payment of his debt. 1 It appeared in a Massachusetts case that a mutual benefit order deposited money with a trust company, which trust company became thereafter unable to repay it. The benefit order assigned the fund to another in terms to secure a promissory note given for a loan, the money obtained by the loan being disbursed in the usual course of its business. The Supreme Judicial Court of that state held that, as the effect of the assignment of the fund was to secure the debt, it was noc ultra vires even if conceded that the benefit order could not legally make a promissory note. Further, the loan, to secure which the assignment of the fund was given, having been authorized at a meeting of the order and the money obtained used for its benefit, equity would not, at the instance of the receiver of the insolvent trust company, the depositary of the fund, forbid its payment to the assignee out of money in his hands on the ground that the officers executing the assign- ment had no authority to do so. 2 the county seat and the erection of It seems to us that this must be the county buildings, are they net further- test: If the direct and proximate ten- ing the very purpose of building up a dency of the improvements sought to town ? * * * The purpose of se- be obtained by the donation is the curing improvements on the town site building up of the town and the en- is not simply that the improvements hanced value of the remaining prop- be there, but that thereby the property erty of the corporation, the donation is the corporation has to sell may be en- not ultra vires.' " hanced in value. And if the lots were ! Angle v. Chicago, St. Paul, Minne- donated to secure the erection of a apolis & Omaha Ry. Co., (1894) 151 hospital or school at a remote place, as U. S. 1. suggested by counsel, there would be * Commonwealth r. Suffolk Trust no resultant benefit to the corporation Co., (Mass. 1894) 37 N. E. Rep. 757. of enhanced value of its unsold lots. . -'72] ULTRA VIRES I'KIVAll. i . .!:!< . RATIONS. . 272. Illustrations of acts ultra vires the corporation. A corporation confined by it> charter t<. one bu-iness cannot law- fully engage in enterprises foreign to tliat bu-ine--. For in.-tance, a railroad corporation, the purposes of which an- .-trictly confined to tin- completion and maintaining of a railroad, cannot lawfully engage in banking. 1 Neither can a corporation engaged in in>ur ing property. 2 While a railroad corporation may adopt an\ venient mean-, proper in themselves, tending directly to the exe- cution of the powers conferred upon it hy its charter, and not amounting to the transaction of any distinct unauthori/ed busi- in--- -, :! it cannot engage in such business as banking, manufactnr- ing, speculating in land, or the like, as a means of raising funds to build or operate its road. 4 A provision in the charter of an in.Mirance corporation authorizing it to receive money on deposit, " and to give acknowledgments for deposits in such manner and form as they may deem convenient and necessary to transact such business," has IKJCII held not to authorize the corporation to issue certificates of deposit to circulate as money, and with the intent that they shall so circulate. 5 A railroad corporation, chartered for the specific purpose of constructing a railroad from one point within the state to the state line, and then to connect with a rail- road corporation of that other state, with no express power to execute bills and notes, is limited to executing such bills or notes to such as may be necessary or proper in carrying through that undertaking. It cannot execute accommodation paper, or paper to aid any undertaking not contemplated by its charter; and such 1 People r. River Raisin & I^ake add to its granted powers by an in- Kric It. R. Co., (1804) 12 Mich. 389. genious device, and obtain by subter- * Blair r. Perpetual Insurance Co., fuge an authority which legislative (1847) 10 Mo. 559. caution withheld from it." In Phila- 3 Clark r. Farrington, 11 Wis. 306. delphia Loan Co. r. Towner, (1889) 13 4 Waldo r. Chicago, St. Paul & Fond Conn. 249, a provision of the charter of du Lac R. R. Co., 14 Wis. 575. the corporation that "nothing therein * Bliss r. Anderson, (1858) 31 Ala. contained should \w construed to au- 612. The court said: "The corpora- thorize the company to discount notes tion may issue its certificates of de- or exercise any banking privileges," posit in any manner and form which was held to prohibit the taking of a will accomplish its business of a de- note for the sum loaned, and the se- pository, but not in such manner anil curing of the interest on that sum in form as will accomplish that and advance, fur the period of the loan. .mother business. If it can so fashion and that there could be no recovery on its certificates of deposit as to procure a note thus discounted. for them a circulation as money, it can ULTRA VIRES PRIVATE CORPORATIONS. ['-"- paper, if executed, would be void in the hands of an assignee. 1 Neither a railroad corporation organized under the laws of, or chartered in Massachusetts, nor a corporation organized under the statutes of that state for the manufacture and sale of musical instruments, has power to guarantee the payment of expenses of a musical festival ; and no action can be maintained upon such a contract of guaranty, though it may be made with the reasonable belief that the holding of such a festival would be of great benefit to the corporations by increasing their proper business. 8 Though corporations createH for the purpose of carrying on a manufactur- ing business have implied power to make negotiable paper for use within the scope of their business, they have no power to become parties to bills or notes for the accommodation of others. 3 It is not within the powers of a manufacturing corporation, limited by its charter in the use of mercantile paper to that necessary for the convenient prosecution of its business, to accept paper drawn by third parties for accommodation. 4 A contract by which a rail- road corporation undertook to grant the exclusive right to con- struct and maintain a telegraph line along its road to a single tel- egraph company, has been held in the United States Circuit Court for the district of "Washington to be ultra vires and void. 5 1 Smead v. Indianapolis, Pittsburgh ! Davis v. Old Colony It. R. Co., & Cleveland R. R. Co., (1858) 11 Ind. (1881) 131 Mass. 258; Davis t. Ameri- 104. In Abbott . Baltimore & Rap- can urgan Co., (1881) 131 Mass. 258. pahannock Steam Packet Co., (1850) 1 3 National Bank of Republic of New Md. Ch. 542, the object of the corpora- York v. Young, Receiver of Joseph tion, as stated in its charter, was " for Dixon Crucible Co., (1886) 41 N. J. the purpose of establishing and con- Eq. 531; s. c., 7 Atl. Rep. 488; citing ducting a line of steamboats and stages 1 Dan. Neg. Inst. 382, 386; Green's or carriages between Baltimore and Brice's Ultra Vires, 255, 272. Fredericksburg, and the several ports 4 Webster v. Howe Machine Co., and places on the Rappahannock, and (1886) 54 Conn. 394; s. c., 8 Atl. Rep. on the rivers and waters of the 482. Chesapeake bay, for the conveyance 6 Pacific Postal Telegraph Cable of passengers and transportation of Co. v. Western Union Telegraph Co., merchandise and other articles." The (1892) 50 Fed. Rep. 493. HANFORD, High Court of Chancery of Mary- D. J., gave as a reason for this ruling land held that it was beyond the "that the laws of the territory of power of this corporation to enter into Washington in force when [the con- an obligation to aid in an improvement, tract] was made, did not authorize a the purpose of which was to open the railway corporation to transfer land Rappahannock river, and render it acquired for railroad purposes by navigable to the basin in or near lease, so as to divest itself of its duties Fredericksburg. and obligations to the public as to the |2T2] ULTRA VIRES PRIVATE CORPORATIONS. The- New York Court of Appeals has held that while a corpora- tion organized under the Manufacturing Act of that state has the general power to bind itself by promissory notes and contracts of indorsement made in the usual course of business, it has no power to indorse notes for the accommodation of the maker for a con- .-idcration paid. 1 The court, in its opinion, said: "It i-i \vt-Il settled that such a power is not incidental to the powers expressly conferred on corporations organized under statutes authorizing the formation of corporations for banking, insuring, manufactur- ing and like business corporations." a A contract by which a street use of such. By the plaintiffs own showing it appears that [the railway company] was incorporated to do a general transportation business by rail, and to be a competitor for interstate .and international commerce. Its fran- chise from tin- state, therefore, made it to a certain extent a public agent endowed with part of the sovereign power of the commonwealth, and a railroad constructed in this state by a corporation orgaui/ed under the laws of the state or its predecessor, the ter- ritory, must necessarily be a highway for public use, in and to which the public have rights limited and regu- lated by law. There is no statute authorizing such a transfer of prop- erty in the right of way and control thereof as the plaintiff now claims was made to it by such contract, and, without express authority conferred by a statute, no transfer of such prop- erty or of the right to control the same, could be made whereby the rights of the public, or a third party, e. g., the Western Union Telegraph Company, could be in any manner abridged." Citing Lakin . Willamette Valley, etc., R. R. Co., 18 Or. 486; s. c., 11 Pac. Rep. 68; Braslin r. Somer- ville Horse R. R. Co., 145 Mass. 64; s ( , 18 N. E. Rep. 65; Palmer v. Railway Co., (Idaho) 16 Pac. K<-p. V,:; ; Railroad Co. . Brown, 17 Wall. 14.-,; Itailroad Co. v. Crane, 118 U. 8. 488, 484; 8. c., 5 Sup. Ct. Rep. 578; 59 Oregon Railroad & Navigation Co. r. Oregonian Co., 180 U. S. 1; 8. c., 9 Sup. Ct. Rep. 409; Van Dresser r. Navi- gation Co., 48 Fwl. K.-I). 208; U. 8. . \\V-t.rn I nion Tel. Co., 50 Fed. U-p. 28. That contracts beyond the power of a corporation to make cannot be made bint ling by a ratification, see Brady r. Mayor, etc.. of New York, (1859) 20 X. 7.819. Case holding a con- tract of sale of the property of a ->rpo nition to a foreign corporation, organ- ized through its procurement, for the purpose of taking its place and its as- sets and carrying on its business ultrn cires: People v. Ballard, (1892) 134 N. Y. 269; s. c., 82 N. E. Rep. 54, re versing People r. Ballard, 56 Hun, 125. 1 National Park Bank of New York v. German- American Mutual Ware- housing & Security Co., (1889) 116 N Y. 281, reversing Same P. Same, 21 J. & S. 367. 1 Citing Central Bank e. Empire Stone Dressing Co., 26 Barb. 23; Bridgeport City Bank r. Empire Stone Dressing Co., 30 Barb. 421; Farmers & Mechanics' Rank r. Empire Stone Dressing Co., 5 Bosw. 275; Morford r. Farmers' Bank of Saratoga, 26 Barb. .M,- Bank of Gcnesee P. Patchin Bank, 13 N. Y. 309; .Ktna National Hank r. Charter Oak Life Ins. Co., 50 Conn. 167; Monument National Bank r. Globe Works. 101 Mass. 57; Davis r. Old Colony R. R. Co., 181 Mass ULTRA VIEES PRIVATE CORPORATIONS. [272 railway corporation transferred the entire control of its road with all its franchises, receiving in return only a fixed rent paid in the form of a dividend to its stockholders, has been held to be ultra vires and void. 1 A firm of commission merchants and members of the Cotton Exchange of New York received from the cashier of a Texas savings bank and trust corporation, orders to pur- chase cotton dealing in futures as it is known on account of customers of the bank. They made such purchases, and there being a loss in the end, brought their action against the Texas corporation for the amount. The New York Court of Appeals held the transaction to be ultra vires the corporation. 2 There Culver v. Reno Real Estate Co., 91 Pa. St. 367; Hall r. Auburn Turnpike Co., 27 Cal. 255. As to a manufacturing corporation discounting a note, see Lawrenceville Cement Co. r. Parker, (1890) 10 N. Y. Supp. 831. 1 Middlesex R. R. Co. *. Boston & Chelsea R. R. Co., (1874) 115 Mass. 347; citing Richardson v. Sibley, 11 Alien, 65. 7 Jemison v. Citizens' Savings Bank of Jefferson, Texas, (1890) 122 N. Y. 135. In the opinion it was said: "Corporations are artificial creations existing by virtue of some statute and organized for the purposes denned in their charters. A person dealing with a corporation is chargeable with notice of its powers and the purposes for which it is formed, and when dealing with its agents or officers is bound to know the extent of their power and authority. A corporation necessarily carries its charter wherever it goes, for that is the law of its existence. It follows that the plaintiffs must have known or are chargeable with knowl- edge of the corporate powers of the defendant and of the extent to which its cashier could bind the corporation. Alexander v. Cauldwell, 83 N. Y. 480; Hoyt v. Thompson, 19 N. Y. 207-222; Relfe r. Rundle, 103 U. 8. 222-226; Davis r. Old Colony R. R. Co., 131 Mass. 258-260; Leonard r. A. Ins. Co., 97 Ind. 299. Savings banks are de- signed to encourage economy and fru- gality among persons of small means and are organized with restrictions and provisions intended to secure depos- itors against loss. Speculative con- tracts entered into for the sale or pur- chase of stock by a savings bank at the stock board or elsewhere, sub- ject to the hazard and contingency of gain or loss, are ultra vires, and a per- version of tne powers conferred by its charter. People, etc., v. M. & T. S. Inst., 92 N. Y. 7-9; Sistare v. Best, 88 N. Y. 527-531. Contracts of corpo- rations are ultra vires when they in- volve adventures or undertakings out- side and not within the scope or power given by their charters. The acts under which they are organized were framed in view of the rights of the public and the interest of the stock- holders. As artificial creations they possess only the powers with which they were endowed. An act may be malum in se or malum prohibitiim, or an act may not be immoral or pro- hibited by any statute, and still it may be in excess of the powers vested in the officers of a corporation, unau- thorized and prejudicial to the stock- holders. In either case the plea of ultra vires should prevail unless it would de- feat justice or accomplish a legal wrong." The court then applied the 272] ULTRA VIRES PRIVATE CORPORATIONS. was a contention in this case that the contract had been exe- rutrd on the part of the plaintiffs, and that the corporation was -t.']|>r. R. R. Co., 101 U. S. 71; Nassau Bank r. Jones, 95 N. Y. 115; Leslie r. Lorillard, 1 10 N. Y. 519. The court said further: " We do not question the rule thus invoked. It has been repeatedly de- clared in other cases, as, for instance, in Parish r. Wheeler, 22 N. Y. 494, in which it was held that a railroad com- pany having purchased and received a steamboat, could be compelled to pay for it, although the power to purchase such boat was not included in its char- ter. But this doctrine has no applica- tion to executory contracts which are sought to be made the foundation of an action, or to contracts that are pro- hibited as against public policy or im- moral. Nassau Bank r. Jones, tupra ; P. C. & 8. L. R. Co. r. K. & H. B. Co., 131 U. S. 871-389. In the case at 468 ULTRA VIRES PRIVATE CORPORATIONS. [ 272 In an Iowa case it was held that it was ultra vires a corpora- tion organized under articles of incorporation which defined its business to be " the general freight and transfer business, and such other business as may not be inconsistent therewith," to become surety on a bond given to another corporation. 1 The court also held that the contract of suretyship being utterly void there was no estoppel of the corporation to plead ultra vires as to the undertaking. 2 bar, the transaction, as we have seen, was not only immoral and in violation of the rights of the stockholders and depositors, but the defendant had re- ceived nothing by virtue of it. The cotton had been purchased by the plaintiffs in their own name, they tak- ing title thereto and holding it upon the defendant's account. It was pur- chased under the rules of the Cotton Exchange of the city of New York, in which the members doing business therein, with other members, act as principals and are liable as such. The most that can be claimed is that they held the cotton, or the contracts there- for, subject to the call or order of the -defendant. There had been no deliv- ery of any cotton or property of any kind, or transfer of any title to such property to the defendant. If the steamboat had never been delivered to the railroad company so as to transfer the title thereto, or if the ten thousand locks had never been delivered to the American Seal Lock Company, very different questions would have been presented in the cases to which we have called attention. We, conse- quently, are of the opinion that under the circumstances of this case, the de- fense of ultra vires is still available to the defendant." 1 Lucas v. White Line Transfer Co., (1886) 70 Iowa, 541; s. c., 30 N. W. Rep. 771. The court, through ROTH- KOCK, J., said: "The simple act of giving security for another is out of the line of the prosecution of any busi- ness. It is a mere accommodation, and it cannot be assumed that the articles gave the officers of defendant any power to jeopardize its capital in any such venture," and quotes as fol- lows: "It is no part of the ordinary business of commercial corporations, and a fortiori still less, of non-com- mercial corporations, to become surety for others. Under ordinary circum- stances, without positive authority in this behalf in the grant of corporate power, all engagements of this descrip- tion are ultra vires, whether in the in- direct form of going on accommodation bills or otherwise becoming liable for the debts of others. Green's Brice Ultra Vires, 252; Madison, etc., Plank Road Co. v. Waterman, etc., Plank Road C.o., 5 Wis. 59." 9 Lucas v. White Line Transfer Co., (1886) 70 Iowa, 541; s. c., 30 N. W. Rep. 771. This holding was reached by the application of the following rules, as stated by ROTHROCK, J., to the case: "(1) Every person dealing with a corporation is charged with knowledge of its powers, as set out in its recorded articles of incorporation. (2) Where a corporation exercises powers not given by its charter, it violates the law of its organization, and may be proceeded against by the state, through its attorney-general, as provided by the statute, and the unani- mous consent of all the stockholders cannot make illegal acts valid. The state has the right to interfere in such case. (3) Where a third party makes 273] ULTBA VIRES PRIVATE CORPORATIONS. 273- Leasing corporation's property and franchises for a term of years. The Indiana Supreme Court has held that a lease of its road by a railway corporation of that state for a long term .f vears, with the privilege of renewal of the same, to another corporation of tin- >ame kind in consideration of the latter with the officers of a corporation an illegal contract beyond the powers of the corporation, as shown by its char- ter, such third party cannot recover, because he acts with knowledge that the officers have exceeded ihi-ir power, and between him and another corpora- tion, or its stockholders, no amount of ratification by those authori/.ed to make the contract will make it valid. (4) Where the officers of a corporation make a contract with third parties in regard to matters apparently within their corporate powers, but which, upon the proof of extrinsic facts (of which such parties had no notice), lie beyond their powers, the corporation must be held, unless it may avoid lia- bility by taking timely steps to pre- vent loss or damage to such third party; for in such cases the third party is inno- cent, and the corporation stockholders less innocent, for having selected offi- cers not worthy of the trust reposed in them. (5) This class of cases may be illustrated by that where the officers of a corporation empowered to build and operate a certain line of railroad. purchased iron to be used for another line without the knowledge of the vendee. So, in case of Humphrey v. Patron's Mercantile Assn., 50 Iowa, 607, the debts of the corporation were, by its articles, limited to a certain amount; but the officers of the association, in dealing with Humphrey, exceeded that amount without his knowledge or means of knowledge, and the corporation was held. Thompson r. Lambert. 44 Iowa. 289, belongs to the same class of cases, with the addition that in the last case the stockholders who ob- to what they termed an ultra cire* contract were charged with knowl- edge of and participation in the act they claimed lobe illegal and were In no condition tc complain. A corpora- tion cannot retain benefits derived from. -in ultra rirm contract ; and at the xiiuc time tn-.it the contract as entirely void, unless, perhaps, in cases where the <>tli<-r party lias assisted willfully in putting it beyond the power of the corporation to return what is re on such contract. (6) Where the cor- poration has permitted its offi<-< r> to engage in ultra rira transactions, the officers commit a wrong or tortious act without the fault of the injured party, the corporation is estopped from tak ing advantage of the ultra tire* char- acter of the original undertaking." As to the doctrine that cliarters not expressly or by implication authoriz- ing an act prohibit it and render such act void, see Safford */. Wyckoff. 1 Hill, 11; Leavitt r. Palmer, 3 Comst. 19; Talmage v. Pell, 8 Seld. 328; Tracy P. Talmage, 14 N. Y. 162, 179; Bissell P. Michigan So., etc., K. H. Co., 22 N. Y. 258, 289; Whitney Arms Co. i>. Barlow, 63 N. Y. 62, 68; Alexander v. Cauldwell. 83 N. Y. 480, 485; Nas- sau Bank v. Jones, 95 N. Y. 1K>. 1JJ; New York Firemen Ins. Co. v. Ely, 5 Conn. 560, 572; Hood v. New York 6 New Haven R. K. Co.. ^ Conn. 502; Elmore r. Naugatuck R. R. Co.. 28 Conn. 457; Mutual Savings Bank r. Meriden Agency Co., 24 Conn. 159; Naugatuck R. R. Co. r. Watcrbury Button Co.. 24 Conn. 468. Contracts held nltrn rira and void: Twiss r. Guaranty Life Assn. of Iowa, (1898) 87 Iowa, 733; 8. c., 55 N. W. Rep. 8, 470 ULTRA VIRES PRIVATE CORPORATIONS. [273 paying the taxes thereon, performing certain contracts theretofore made by the former company and the payment to the former company, or to its use, certain sums of money, was-ultra vires, based upon the doctrine that a charter granted to a railway cor- poration for the purpose of constructing, owning and maintaining a railroad, confers a trust special to the corporation in relation to the purposes of its creation, and hence such a corporation has no power to enter into contracts foreign to those for which it was created, or to delegate its franchises, or to incapacitate itself to discharge its duties to the public by a lease or sale of its road. Agreements of that character, unauthorized by its charter, are inconsistent with the obligations of the corporation to the public, ultra vires and void. 1 The court held that the contract for lease following Lucas v. Transfer Co., 70 Iowa, 542; s. c., 30 N. W. Rep. 771. See on ultra vires Wardner, Bushnell & Glessner Co. v. Jack, 82 Iowa, 435; Carson City Sav. Banke. Elevator Co., 90 Mich. 550; Seymour v. Association, 64 Hun, 632; Richelieu Hotel Co. r. Encampment Co., 140 111. 248; s. c., 29 N. E. Rep. 1044, affirming 41 111. App. 268; Dewey v. Railway Co., 91 Mich. 351; Heims Brewing Co. r. Flannery, 137 111. 309; Buckeye Marble & Freestone Co. r. Harvey, (1892) 92 Tenn. 115; s. c., 20 S W. Rep. 427; As to a corporation with the usual powers, when not prohibited by its articles of incorporation, contracting for the surrender of its stock, see Rollins v. Shaver Wagon & Carriage Co., (1890) 80 Iowa, 380; s. c., 45 N. W. Rep. 1037. When a plea of ultra vires will be held sufficient. Gillespie v. Davidge Fertili/er Co., 66 Hun. 627; s. c., 20 N. Y. Supp. 833. When a contract will not be declared -ultra vires. Nashua & Lowell Railroad Corp. p. Boston & Lowell R. Corp., (1892) 157 Mass. 268; s. c., 31 N. E. Rep. 1060; Odd Fellows Hall Asso- ciation of Portland v. Hegele, (1893) 24 Ore. 16; s. c., 32 Pac. Rep. 679; Welsh r. Ferd Heim Brewing Co., 47 Mo. App. 608; Glass c. Ferd Heim Brewing Co., 47 Mo. App. 639; United Lines Telegraph Co. v. Boston Safe Deposit & Trust Co., 147 U. S. 431; s. c., 13 Sup. Ct. Rep. 396. For il- lustrations of contracts which have been held not to be ultra vires, see Wolf v. Arminus Copper Mine Co., 6 Misc. Rep. 562; s. c., 27 X. Y. Supp. 642, in which Abbot r. Rubber Co., 33 Barb. 578, was distinguished; Ashenbroedel Club r. Finlay, 53 Mo. App. 256. As to ultra vires generally, see Oelbermanu r. New York & N. Ry. Co., 77 Hun, 332; s. c., 29 N. Y. Supp. 545; Pauly v. Coronado Beach Co., 56 Fed. Rep. 428; Denny Hotel Co. v. Schram, 6 Wash. 134. Es- topped to plead ultra vires. Kennedy v. California Sav. Bank, (1894) 101 Cal. 495; s. c., 35 Pac. Rep. 1039: Kadish T. Garden City Equitable Loan & Bldg. Assn., 47 111. App. 602; Smith r. White (Tex. Civ. App.) 25 8. W. Rep. 809; Head v. Cleburne Bldg. & Loan Assn., (Tex. Civ. App.) 25 S. W. Rep. 810; Cameron r,. First Nat. Bank. 4 Tex. Civ. App. 309; s. c. , 23 S. W. Rep. 334; Butte Hardware Co. r. Schwab, (Mont.) 34 Pac. Rep. 24; Magee v. Pacific Improvement Co., 98 Cal. 678; s. c., 33 Pac. Rep. 772. 1 Board of Commissioners of Tippe- canoe Co. c. La Fayette, Muncie & I -: ULTRA V1KKS 1'KIVA 11 OOBPOBATION8. 171 of this road wu- made without authority .f law; that the board of directors and agents of the corporation had no power to make it; and that it was in violation of tin,- rights of the stockholders and in contravention of public policy. 1 Tin- court .-aid. how- : " \\'e do not decide that railroad companies cannot become lessors or lessees of other railroad companie-. or make other eon- tracts with other railroad companies, for the purpose of running their lines in conjunction, facilitating commerce, travel and tran.- portation, or for any of the legitimate purposes for which railroad companies are organized. There is much in the legislation of the state favoring this view, and many decisions of this court sus- taining the advancing enterprise of the country, but all such con- tracts must come within the powers of the agency that makes them, and must not violate the rights of stockholder- or contravene public policy. 3 It was contended in this case that the Indiana statute of February 23, 1853, entitled an "act to authorixe rail- road companies to consolidate, etc.," had removed this disability which these principles of law imposed upon such corporations. The Supreme Court held adversely to the contention. 8 It Bloomington R. R. Co., (1875) 50 Ind. 85. 1 Ibid. ; citing in support of these conclusions: 1 Redf. on Railways, 236, 594. 616, 641, 644, 650; Boston, etc., R. R. Corp. r. Salem, etc., R. R. Co., 2 Gray, 1; Black r. Delaware, etc., Canal Co., 7 C. E. Green (N. J.), 130; Bissell r. Michigan Southern, etc., R. It. Co.. -J2 X. Y. 258; Fall River Iron Works Co. r. Old Colony, etc., R. R. Co., 5 Allen, 221; Great Luxembourg Ry. Co. r. Magnay. 25 Beav. 586; Beman r. Rufford, 1 Sim. (N. S.)550; Bagshaw r. Eastern Union Ry. Co., 2 Macn. & G. 389; Bank of Middlebury r. Edgerton, 30 Vt. 182; Marsh r. Ful- ton Co., 10 Wall. 676; Column r. East- ern Counties Ry. Co., 10 Beav. 1; Township of Pine Grove r. Talrott. 19 Wall. 666; East Anglian Ry. Co. r Eastern Counties Ry. Co., 11 C. B. 775; Uirlmrdson r. Siblcy, 11 Allm. 65; Eidman r. Bowman, 58 HI. 444; Stewart's Appeal, 56 Pa. St. 4KJ; Madison, etc., Plank Road Co. t. Wa- tertown, etc., Plank Road Co., 7 Wis. 59; Eldridge r. Smith, 34 Vt. 484; Per- rine r. Chesapeake, etc., Co., 9 How. 172; Bet! ford R. R. Co. r. Bowser, 48 Pa. St. 29; Pearcer. Madison, etc., R R. Co., 21 How. 441; European, etc., Ry. Co. r. Poor, 59 Me. 277; Wright r. Bundy, 11 Ind. 398; Eaton & Hamilton R. R. Co. r. Hunt, 20 Ind. 457; Board of Comrs., etc., r. Reynolds, 44 Ind. 509; Sparrow r. Evansville, etc., R. R. Co., 7 Ind. 369; Fisher r. Evansville, etc., R. R. Co., 7 Ind. 407; Booe r. Junction R. R. Co., 10 Ind. 93; McCray t. Junction R. R. Co., 9 Ind. :IV<: Sln-l byvillj, etc., Turnpike Co. r. Barms. 42 Ind. 498. "Board of Commivioncr* of Tippe- canoe Co. r. I*a Fayette. Muncie & Bloomington R. R. Co., (1875)50 Ind. 85, 115. Ibid. The court said: "That art is ' to nut liori/r railroad companies to consolidate their stock with the -tork 472 ULTRA VIRES PRIVATE CORPORATIONS. [ 27'> appeared in a case before the United States Supreme Court that a corporation organized under the laws of Pennsylvania as a manufacturing corporation with a certain capital stock, for twenty years, for " the transportation of passengers in railroad cars con- structed and owned by the said company " under certain patents, carried on the business of manufacturing sleeping cars under its patents, and of hiring or letting the cars to railroad companies by written contracts, receiving a revenue from the sale of berths and accommodations to passengers. Seven years afterwards, by special statute, the charter was extended for ninety-nine years, and the corporation was empowered to double its capital stock, and " to enter into contracts with corporations in this or any other state for the leasing or hiring and transfer to them, or any of them, of its railway cars and other personal property." Upon the passage of this statute this corporation entered into a contract with a corporation of another state organized for similar pur- poses, by which it leased and transferred to the latter all its cars, railroad contracts, patent rights and other personal property, moneys, credits and rights of action, for the term of ninety-nine years, except so far as the contracts and patents shall expire sooner ; and covenanted not to " engage in the business of manu- facturing, using or hiring sleeping cars " while the contract should remain in force ; the lessee engaged to pay all the existing debts of railroad companies in this or in an with any such road constructed in an adjoining state, and to connect their adjoining state, for the transportation roads with the roads of said com- of freight and passengers, or for the use panies,' etc. The title nowhere men- of its said road, as to the board of di- tions a lease or a sale. Indeed, the rectors may seem proper.' Even if words ' to connect their roads with the this section could be held to authorize roads of said companies ' would seem the transfer of the use of one road to to exclude such a conclusion. To con- another, the words cannot fairly mean nect one road with another does not the transfer of one division of a road fairly mean to lease it or sell it to to the injury of another division of another. Much less can it mean to the same road, thus putting the two authorize the corporation to sever the divisions in direct antagonism, both trunk of its road, transfer the western in their interest and connection. Al- division, for an unlimited time, to the though the words, ' as to such board of corporation of another state, and sub- directors may seem proper,' express a ordinate its eastern division to the general power, they must be construed western and to a foreign corporation, in reference to the subject-matter to The third section of the act is not which they are applied, and limited strongly relied upon. It enacts that within the powers of the corporation a railroad company 'shall have power and the rights of the stockholders." to make such contracts and agreements I 873 II.TKA. VIKKS PRIVATE f< >I:IMI:.\ i : 473 of the les-or corporation and to pay a fixed sum annually, during the term of ninety-nine years, unle.-s tin- contract was sooner terminated as provided in its terms. The lessor corporation brought tliis action to recover of the lessee corporation a large sum of iiioiirv claimed to be due from it on this contract. The Supreme ( '>urt held the contract to be unlawful and void, because it was ultra vires the corporate powers of the lessor corporation and involved an abandonment of its duty to the public ; also, that the suit was not maintainable nor could there be a recovery by the lessor corporation upon the contract even though the lessee had enjoyed the benefits of the contract. 1 In the United States 1 Central Transportation Co. r. Pull- man's Palace Car Co., (1891) 189 U. 8. 24; s. c., 11 Sup Ct. Hep. 478. Mr. Justice OKAY in the opinion which he delivered for the court quoted from and reviewed the following cases: York & Maryland Railroad r. Winans, 17 How. 30; Pearcc r. Madison & In- dianapolis Kailro.-id. 21 How. 441; Zabriskic r. Cleveland, etc.. Railroad, J:5 1 low. 381; Thomas r. Railroad Co., 101 U. S. 71; Branch r. Jesup. 106 U. 8. 488; Pennsylvania Railroad r. St. Louis, etc., Railroad, 118 U. S. 290; Salt Lake City r. Hollister, 118 U. S. 256; Willa- mette, etc.. Co. r. Bank of British Columbia, 119 U. S. 191; Green Bay & .Minnesota Railroad r. Union Steam- boat Co.. 107 U. S. 98; Pittsburgh, < t< . Railway *>. Keokuk & Hamilton Bridge, 181 U. 8. 871; Oregon Rail- way r. Oregonian Railway, 130 U. 8. 1. Upon a contention that the lessor corporation was on a different footing from railroad corporations and the like, it was said: " The plaintiff * * * was not an ordinary manufacturing corporation, such as might, like a part- nership or an individual engaged in manufactures, sell or lease all its prop- erty to another corporation. Ardesco oil Co. r. North American Oil Com- pany. 66 Pa. St. 875; Tread well r. Salisbury Manuf. Co.. 7 Gray. 893. But the purpose of its corporation, as 60 defined in its charter, and recognized and confirmed by the legislature, ln-im: the transportation of passengers, tilt- plaintiff exercised a public employ- ment, and was charged with the duty of accommodating the public in the line of that employment, exactly >r responding to the duty which a rail- road corporation or a steamboat com- pany as a carrier of passengers owes to the public independently of possess- ing any rights of eminent domain. The public nature of that duty was not affected by the fact that it was to be performed by means of cars con- structed and of patent rights owned by the corporation, and over roads, owned by others. The vl a > nl iff was not a strictly private, but a quasi pub- lic corporation; and it must be so treated as regards the validity of any attempt on its part to absolve itself from the performance of those duties to the public, the performance of which by the corporation itself was the remuneration that it was required by law to make to the public in re- turn for the grant of its franchise. Pickard r. Pullman Southern Car Co., 117 U. 8. 84; York & Maryland Rail- road r. Winans, 17 How. 80, 89; Rail road Co. r. Lockwood. 17 Wall :r>7. Liverpool & Great Western Steam Co 9, Phii-nix Ins. (.. 129 U. S. 897 ' After referring to the express pow- 474 ULTRA VIRES PRIVATE CORPORATIONS. Circuit Court for the northern district of Washington it has been held that a railroad company organized under the laws of that state has no authority to transfer its franchises, except by sale and conveyance or lease made in accordance with the statutes relating to the transfer of titles to such property ; and where by a so-called " traffic agreement," the trustees, without the consent of the minority stockholders, in effect, transferred to another railroad company the entire control and management of the property, for practically the legal lifetime of the corporation, such contract was illegal and void. 1 The Supreme Court of New ers conferred upon the corporation, it was said: " Considering the long term of the indenture, the perishable nature of the property transferred, the large sums to be paid quarterly by the de- fendant by way of compensation, its assumption of the plaintiff's debts and the frank avowal, in the indenture it- self, of the intention of the two cor- porations to prevent competition and to create a monopoly, there can be no doubt that the chief consideration for the sums to be paid by the defendant was the plaintiff's covenant not to en- gage in the business of manufacturing, using or hiring sleeping cars; and that, the real purpose of the transaction was, under the guise of a lease of per- sonal property, to transfer to the de- fendant nearly the whole corporate franchise of the plaintiff, and to con- tinue the plaintiff's existence for the single purpose of receiving compensa- tion for not performing its duties." This case has been followed in Hamil- ton v. Savannah, F. & W. Ry. Co., (1892) 49 Fed. Rep. 412. 'Earle v. Seattle, Lake Shore & Eastern Ry. Co., (1893)56 Fed. Rep. 909. The only authority found in the charter of the company which had thus leased the control of the Wash- ington corporation, was where the con- gross of the United States had author- ized it "to accept to its own use any grant, donation, loan, power, franchise, aid or assistance which may be granted to, or conferred upon said company by the congress of the United States, by the legislature of any state, or by any corporation, person or persons ; and said corporation is authorized to hold and enjoy such grant, donation, loan, power, franchise, aid or assist- ance to its own use for the purpose aforesaid." In the opinion rendered in this case it is said : " The statute referred to does not prescribe the manner whereby purchases or leases of railways may be consummated, otherwise than by the general pro- visions of the several statutes relating to corporations and to conveyances of property. A railroad corporation cannot lawfully transfer its franchise without authority emanating from the power which granted it. And an unauthorized transfer, made in dis- guise, as by a traffic contract, will not, in a judicial proceeding, be treated with greater favor than if the contract expressed plainly the real in- tention of the parties. On the subject of traffic contracts the text of Green's Brice's Ultra Vires (page 427), con- cisely and clearly states the law, as follows : ' Corporations may make all necessary arrangements for cheaply and expeditiously developing or carrying on their particular business; but it is another thing, going beyond this, to enter into contracts, for in- stance, by which the exclusive control or the exclusive right of working the 27-'! ] ULTRA VIRES PRIVATE CORPORATIONS. 1 7." Yortant rights and functions to the other e..r|>oration.' This was a case where a stockholder of a Minnesota corporation had made complaint, in which he alleged that eight of the nine directors of the company owned or controlled a majority of the shares of stock, and were disposed to lea>e and transfer the prop- erty and effects of the company for the term of twenty-five years to a corporation created under the laws of the state of Ne\y Jersey, and, in effect, to transfer its business to that company, for one-half the net profits yielded by it ; and that this was in contravention of its charter, and the laws of the state of line is handed over to other parties, has any governmental sanction wliat- All such arrangements, whatever ever. No consolidation has been their form, however disguised, are attempted, and yet the transaction is ult i-ti ririH and void. This applies of such resemblance to a consolidation with peculiar force in the case of that the legal principles by which the those bodies which have been created validity of proceedings to effect a for what may be conveniently styled consolidation of corporations may bo 'public purposes."' The court con- applied. This idea leads to considera- tinued : "Now, assuming that the tion of the contract rights of individ- section of the charter above quoted ual stockholders, and the rule is that does authorize the Northern Pacific a corporation cannot be consolidated Railroad Company to take the benefit with another if the right to do so wa8 of rights and privileges, and exercise not by the law, or the constituting new powers, granted and conferred by instruments, given at the time of its the state of Washington, the question creation, without the unanimous con- whether the contracts and proceedings sent of its stockholders. The law on by which it lias gained control of the this subject is thus stated in 2 Mor. Seattle, Lake Shore and Eastern Com- Priv. Corp. $ 951 : ' A corporation pany's franchise and business are cannot consolidate with another com- iiltnt vire or not depends upon pany, even pursuant to legislative whether the requirements of the state authority, except with the consent of laws in this regard have been met. all its shareholders. An unauthnri/ed There has been no sale and convey- consolidation may be prevented l.y ance, nor lease, of the railroad prop- any dissenting shareholder, or may be erty, in accordance with the laws of treated as ground for severing hi this state relating to the manner of nection with the company, by a transferring titles to such property, rescission of his subscription.'" A^ the parties have not done what the ' Small r. Minneapolis Electro- statute authorizes to be done. I do Matrix Co., (1890) ION. Y. Supp. 456. not think that the deal In-tween them ULTKA VIRES PRIVATE CORPORATIONS. _ Minnesota, under which it was incorporated. DANIELS, J., for the court, said : " If the facts were satisfactorily established, a case for an injunction would be presented ; for the directors or trustees do not appear to have been invested with that power, either by its charter or the laws of the state in which it exists ; and, in the absence'of explicit authority to transfer its property, effects and business to another company, it cannot be presumed to possess that power. At least, the directors or trustees, having only the power to manage and conduct its affairs under the charter, could legally make no such disposition of its property and affairs ; for, instead of managing and conducting its business, that would be a destruction of its business, and an abdication of their own powers and authority, which could not take place with- out violating the law and their own official obligations ; and that, even a majority owner of the shares of the company would be entitled by action to restrain and prevent." 1 Referring to the admission in the answer of the directors, that a resolution was adopted by the majority of the board, subject to the approval of the shareholders, to execute a lease to the New Jersey corpora- tion of certain important rights and functions of the Minnesota corporation, and the stated intention to extend the leasehold interests or rights no further than was permitted by the laws of Minnesota, it was said : " And it certainly goes no further in its language or fair implication to this extent, which does not trans- cend, but limits itself within the bounds of the law; for the exercise of lawful authority for the promotion of the interests and prosperity of the company is intrusted to the use and employ- ment of its board of directors or trustees ; and when they may, in good faith, be exercised, a case will not be presented for the interposition of a court of equity by injunction." 2 274. Loaning funds of corporation. The power in a cor- poration to loan its funds cannot be implied from the power expressly given it to borrow money, or any implied power it has to borrow ; and if it has no express power given it to loan its funds, it cannot be implied from the declared purposes and objects for which its charter was granted where it is not created for banking purposes, or to conduct some business usual in bank- 1 Citing Abbot v. Rubber Co., 33 * Citing Beveridge . Railroad Co., Barb. 578, 591. 112 N. Y. 1; s. c.. 19 N. E. Rep. 489. 274] I'l.TKA VIKE8 PRIVATE CORPORATIONS. 477 ing; and in case the corporation is not created, as may a\ from its articles of incorporation, f.,r pecuniary profit, this de-du- ration would exclude the power of loaning its funds. 1 Ami where a corporation has no power to loan its funds, a prmi>- sory note and mortgage given as security to the corporation will be void and not enforceable in equity.* An Alabama corporation was incorporated with a capital of $1,000,000, to be paid in in cash and such other money as it might receive in trust, one-half of which capital it was required to invest in bonds or notes secured by mortgage on land within the state of Alabama, and the remaining half of the capital stock, together with the premiums and profits received by it, and the IIKIIU-VS received in trust,, may be invested in stocks, loaned to any <-ii\ , county or company, or be invested in such real or personal securi- ties as it might deem proper. The Supreme Court of Alabama held that the corporation had no power to lend its credit by making bonds to fall due in future, and exchanging such bonds for the bonds of an individual for the same amount. 8 A corpora- tion organized under the laws of California for the purpose of acquiring a certain tract of land, laying it out as a town and sell- ing it in lots, blocks, etc., and acquiring " street railroad or other rights and franchises, telegraph, telephone or other similar fran- chises, and gas and electric light franchises, over the said prop- erty, or any part thereof," subscribed for shares of stock in a manufacturing corporation. Such subscription was held to be ultra vires and void. 4 1 Chambers r. Falkner, (1880) 65 Ala. 8. c., 11 Sup. Ct. Rep. 484, in these 448. words: " The charter of a corporation ' Ibid. read in the light of any general laws 1 Smith v. Alabama Life Insurance which are applicable, is the measure & Trust Co., (1843) 4 Ala. 558. This of its powers, and the enumeration of same corporation was held, under its those powers implies the exclusion of articles of incorporation, to have the all others not fairly incidental. All power to purchase a bill of exchange, contracts made by a corporation be- in Gee v. Alabama Life Ins. & Trust yond the scope of those powers are Co., (1848) 18 Ala. 570. unlawful and void, and no action can ! l'itily v. Coronado Beach Co., be maintained upon them in the court-; (1893) 56 Fed. Hep. 428. The court and this, upon throe distinct grounds: placed its ruling upon the doctrine on -The obligation of every one contract - this subject as summed up by the 8u- ing with a corporation to take notice preme Court of the United States, in of the legal limits of its powers; tin- Central Transportation Co. r. I'ull- interest of the stockholders not to l>e man's Palace Car Co., 189 U. 8. 48; subjected to risks which they have 478 ULTRA VIRES PRIVATE CORPORATIONS. [ 275 275. Investing funds of corporation in stock of others. In a Maine case it appeared that a savings institution subscribed for $50,000 of the capital stock of a manufacturing corporation. Having no money to pay for it, another corporation paid the money to the manufacturing corporation, took the notes of the savings institution for the amount, and had a certificate of stock issued in its name as collateral security for the payment of the notes. The Supreme Court of Judicature of that state held that upon principle, as well as authority, it was not within the authority of the trustees of a savings institution to invest its funds in the stock of a manufacturing corporation, unless expressly authorized so to do by its charter, or the public laws of the state. They placed their decision against the power of the savings bank to enter into this contract upon the broader ground that it was not competent for the trustees of the savings bank to purchase on credit property of any kind, not needed for immediate use or the investment of existing funds ; that such power was not expressly conferred upon it, nor could it be sustained as an incidental power. 1 never undertaken; and, above all, the Earle, 13 Pet. 519; Tombigbee R. R. interest of the public, that the corpo- Co. v. Kneeland, 4 How. 16; Runyan ration sball not transcend the powers v. Coster's Lessee, 14 Pet. 122; Dart- conferred upon it by law." In Riche- mouth College v. Woodward, 4 "Wheat, lieu Hotel Company T. International 518, 636; Hood t. New York & N. H. Military Encampment Co., (1892) 140 Railroad, 22 Conn. 1 and 502; Berry, 111. 248; s. c., 29 N. E. Rep. 1044, a Receiver, v. Yates, 24 Barb. 199 ; subscription by this incorporated Mutual Savings Bank v. Aleriden hotel company to V., a contemplated Agency Co., 24 Conn. 159; Sumner v. corporation for the purpose of estab- Marcy, 3 Woodb. & Min. 105; Pearce lishing this encampment to draw vis- v. Railroad, 21 How. 441. It was sug- itors to the city, etc., was held foreign gested in Franklin Company v. Lewis- to the purposes of the hotel company, ton Institution for Savings, supra, and the doctrine of ultra vires must be that it might be convenient in this way applied to it. to provide in advance for the invest- 1 Franklin Company v. Lewiston In- ment of funds that might afterwards stitution for Savings, (1877) 68 Me. 43. come into the possession of a bank. To The ruling as to the first point was this the court said: "We think the based upon what the court considered creation of debts by corporations or the result of the rules declared in the individuals for no other purpose than following cases bearing upon the to provide a ready way to dispose of powers of corporations, to wit: Beaty v. future acquisitions a proceeding of Lessee of Knowler, 4 Pet. 152; s. c., 1 very questionable convenience ; that McLean, 41 ; Perrine v. Chesapeake & in the great majority of cases it would Delaware Canal Co., 9 How. 172; be likely to prove, as it did in this case, Farnum v. Blackstone Canal Co., 1 very inconvenient. But it is suffi- Sumner, 46 ; Bank of Augusta v. cient answer to say that the law im- 75] ULTRA VIRES PRIVATE CORPORATIONS. 479 It wa> further held in this case that the lender of the money, the corporation plaintiff, having participated in tin- illegal transac- tion, could not claim the privilege- "f a ?> Htittition, having received no licnefit fnun the transaction, was not e-topped to set up the defen.-e of uJti-n f//v.v. 1 In an action brought hy one Ohio cor- poration, an iron company, arain>t another, a railway company, for i^oods sold and delivered to the latter, the defence made was that there had been a contract between the two corporations, by the terms of which the iron company was to >ell to the railway company goods to a certain amount, and to receive in payment thereof so many shares ot stock in. the latter. This involved the question of the authority ot the iron company to take stock in the railway company. Upon this subject the Supreme Court of < )hio stated the law in that state to be as follows : " We think it well settled as a result of the decisions in this state, as well as elsewhere, that an -incorporated company cannot, unless authorized by statute, make a valid subscription to the capital stock of another; that such subscription is ultra mres^ and void. Mr. Morawetz. in stating this to be the law, observes: 'The right of forming a corporation is conferred by the incorporation laws only upon persons acting individually, and not upon associations; moreover, it would, under ordinary circumstances, be a violation of the charter of an existing company to subscribe for shares in a new company and assume the resulting liabilities.' Priv. Corp. 433. There lias been no direct decision upon the question by this court, but such has been the universal holding elsewhere.* These cases all proceed upon the principle that the powers of corporations organized under legislative statutes are such and such only, as those statutes confer, or that may be fairly implied there- from. This doctrine was clearly announced and applied in Straus /. Kagle Ins. Co., 5 Ohio St. 59, and has been tirmly adhered poses no duty upon the trustees of may never be committed to their care, savings banks to provide for the in would be a doctrine as startling as it vestment of future funds or future would be unprecedented." deposits. The whole duty is per- ' Franklin Co. r. I^-wiston Institu- formed when they have provided safe tion for Savings. (1887) 68 Me. 48. investments fortlie fundsalready com- * Citing Railroad Co. r. Railroad milled to their care. Tohold thai they Co.. 81 N. J. Eq. 475; Franklin Co. r. may creale debls binding upon exist I, wistm Savings Inst.. 68 Me. 48; ing deposilors whose money, after all. Railroad C<>. r. Collins. 40 Ga. 582. 480 ULTRA VIRES PRIVATE CORPORATIONS. [ 270 to in this court. Railroad Co. v. Ilinsdale, 45 Ohio St. 556, r>T-"i. No claim is made by the defendant that the iron company had any express statutory authority to use its capital or assets in aid of the construction of a railroad by subscription to its capital stock or otherwise. The only averment as to this, is that it, the iron company, conceived that it would be benefited by the reduc- tion of the price of coal at Cleveland, its place of business, and the market which the construction of the road would afford for its manufactures, and by these considerations was induced to make the subscription. But all this can be of no avail in the face, at least, of the prohibition contained in section 3266 of the Revised Statutes, that, l No corporation shall employ its stock, means, assets or other property, directly or indirectly, for any other pur- pose whatever, than to accomplish the legitimate objects of its creation.' There was then, as we think, no authority whatever in the iron company to make a valid subscription to the capital stock of the railway company * * * .' n 276. Directors of an insurance company raising a guar- anty capital. The directors of a mutual life and fire insurance company, a New Jersey corporation, after conducting its busi- ness for a while, by resolution determined upon and formulated a plan to raise a guaranty capital to the amount of $150,000, to be used for the payment of losses when other means were exhausted. This was done by obligations for money secured by mortgage from its members. Here we have an action on a bill filed to recover on the defendant's mortgage what had been assessed against him. The answer of defendants set up the facts and circumstances under which the mortgage was given, and insisted that the action and all the proceedings of the directors in raising the guaranty capital were illegal, in violation of the charter of the company and against public policy, and, therefore, the company could not enforce the contract made with any of the contributors to the fund. After expressing that his disposi- tion was to enforce this contract on the part of the contributors, upon the question directly raised, Chancellor WILLIAMSON said : " I cannot see how the contract with the contributors to this guaranty fund can be enforced in a court of law or equity, with- out repudiating altogether the principle of the common law, 1 Railway Co. v. Iron Co., (1888) 46 Ohio St. 44, 49, 50. 276] ULTRA VI K I > r i: I VATE CORPORATIONS. 4M which lias been but re-enunciated by our >tattite ^Nixon, 3), that no corporation >hall possess or e .my corporate powers, except such as shall be. exjrely ^ivcn in its charter, or which shall be necessary to the exercise of the powers so enu me r ated ami given. Was it within the scope of the powers of this corporation to provide any other capital or fund as the baM- \ the basis which it was empowered to pursue, than are provided by the charter itself? If it was illegal for them to create such a capital, then a contract which they may have made for its pay- ment cannot be enforced. This corporation was incorporated for the purpose of insuring lives and loss by lire. The charter provides the fund out of which losses are to be paid, and it is this feature in the charter which stamps the character of this cor- poration, and which makes it what its name imports, and what the legislature intended it should be, a mutual company. The cor- porators are mutual insurers, and it is the fund which is made uj> from the premiums which they contribute, and one per cent on the amount for which each one is insured, out of which they are to be indemnified for any losses. They have no right or author- ity, by their charter, to create any other fund for the purpose. If they do, it is in violation of the principle which is to govern their mode of doing the business for which they were incorporated." * 1 Trenton Mutual Life & Fire Insur- corporation incur a loss, and not have ance Co. r. McKelway, (1858) 12 N. J. the available means promptly to Eq. 133, 135, 136. Arffwntlo, the meet it. it would not be illegal for chancellor further said: " It was ad- them to make a loan to meet tin- mitt.- 1. on the argument, that it was exigency. But they cannot, under not within the scope of the powers of pretense of borrowing money, provide this corporation to create any capital a fund for the purpose of pi \in.i; other than that for which the charter credit to the company. The question provides. It was attempted to escape is as to the bona ji entirely for- 61 482 ULTRA VIRES PRIVATE CORPORATIONS. [277 277. Converting " common " into " preferred " stock. In a leading New York case, while the Court of Appeals admit- ted the right of corporations to classify their stock at the outset by issuing some " common " and some " preferred " stock, it \v;i- held that it was not, under the circumstances disclosed, in the power of the corporation involved in this case to convert some of its shares into preferred with a view of raising money from its stockholders, as it was not a " borrowing" of money in its proper sense, but an interference with the vested rights of the stock- holders as originally constituted. 1 A manufacturing corporation eign to its charter? Can this be called a legitimate contract for a loan in the ordinary course of business?" The chancellor then stated the terms of the contract, and, as to the acts of the directors in the matter, said: "They did not make the contract under a mistake, intending to make a mere loan, and supposing that they were legitimately exercising a power to do so. That was not their purpose. They had a different object in view. It is expressed iu their bill of com- plaint, and recorded several times upon their minutes. The bill of com- plaint alleges that the directors con- cluded to enter into this negotiation because, in their opinion, it would prove advantageous to the corporators to provide a guaranty capital as an additional security for the payment of losses. Here, then, is the admission of the company upon the record, that this contract was made for an illegal purpose. The minutes of the corpo- ration show more; they show that this was a device for the purpose of com- plying with the laws of the state of New York, which provides that no insurance company shall transact bus- iness in that state unless such company is possessed of an actual capital of 150,000. The simple question then is presented, could this corporation lawfully adopt any scheme or device by which they could create a capital of $150,000, for the purpose of acquir- ing a credit upon which to transact business? In my judgment, they could not, and any contract entered into for such a purpose is unlawful, and cannot be enforced." 'Kent T. Quicksilver Mining Co., (1879) 78 N. Y. 159. The court, how- ever, would not declare that a cor- poration could never, rightfully, against the dissent of a portion of its stockholders, make some of its stock "preferred." FOLGER, J., speaking for the court, said: "The transaction is not to be looked upon as other than a preference of one class of stockhold- ers to another; as giving to the first class a perpetual, inextinguishable prior right to a portion of the earnings of the company before the other class might have anything therefrom. It was none other than the creation of a 'preferred stock.' Then there arises the query whether there was at that time power in the corporation to dis- tinguish between the stockholders in it, to form them into two classes, and to give to one class rights in the cor- porate property, business and earnings from which the other was shut out. We are not prepared to say that, at the first, the corporation might not have lawfully divided the interest in its capital stock into shares arranged in classes, preferring one class to another in the right it should have in the profits of the business. The charter gave power to make such by-laws as 277] ULTRA VIRES PRIVATE CORPORATION'S. 483 organ i/cd under the laws of New York was organi/cd with a capital .-tuck of 7,500 shares. At a certain time it owed $300,000, and for the purpose of paving it, stockholders repre- een a part of the char- from him or changed as to him wit li- ter. Presbyterian Church p. City of out his prior dereliction or under the 484 ULTRA VIRES PRIVATE CORPORATIONS. [27T amounted to the sum of the indebtedness, and authorized the cor- poration to pay upon shares to be issued and sold in the place of those surrendered ten per cent per annum on the face value of the shares for five years or such portion thereof as could be paid out of the annual net profits of the corporation. The following statement was indorsed upon the certificates for the 3,000 shares to be issued in lieu of those surrendered, to wit : " Issued subject to agreement with stockholders, dated May 22, 1885, on file in conditions above stated. Now it is manifest that any action of a corpora- tion which takes hold of the shares of its capital stock already sold and in the hands of lawful owners and divides them into two classes, one of which is thereby given prior right to a receipt of a fixed sum from the earnings be- fore the other may have any receipt therefrom and is given an equal share afterwards with the other in what earnings may remain destroys the equality of the shares, takes away a right which originally existed in it and materially varies the effect of the certificate of stock. It is said that when a corporation can lawfully buy property or get money on loan, any known assurance may be exacted and given which does not fall within the prohibition, express or implied, of some statute (Curtis v. Leavitt, 15 N. Y. 9, 66, 67); and that is sought to be applied here. But the prohibition to such action as this is found, not in- deed in a statute commonly so called, but in the constitutional provision which forbids the impairment of vested rights save for public purposes and on due compensation. The right which a stockholder gets on the pur- chase of his share and the issue to him of the certificate therefor is such a vested right. It is contended that the power so to do is an incidental and implied power necessary to the use of the other powers of the corporation, and is a legitimate means of investing money and securing the agreed con- sideration therefor. We have already conceded that it is legitimate to bor- row money and to secure the repay- ment of it with a compensation for the use of it. But that is when it is done in such way as to put the burthen upon every share of stock alike, and to enable every share of stock to be relieved therefrom alike, in such way as to preserve the equality of right and privilege and value of the shares, and maintain intact the contract thereto with the stockholder." The court then called attention to the dis- tinguishing points in the cases relied upon to support the views contra to those of the court as follows: ' ' Cita- tions are made to us for the converse of this; but they do not come up sometimes in their facts, sometimes in their declarations to the necessity of the proposition. Either it is where the capital is not limited and it is new shares that may be issued with a preference, and where there is express power to borrow on bond and mort- gage (2 Redf. on Rways. chap. 33, sect. 4; Harrison v. Mex. Rw., 12 Eng. Rep. 793) ; or the amount of the capital has not been reached and such stock is issued therefrom (Hazel- hurst v. Savannah R. R., 43 Ga. 53; Totten v. Tison, 54 Ga. 139); or there was legislative authority (Davis v. Proprietors, 8 Met. 321; Rutland R. R. Co. v. Thrall, 35 Vt. 545); or a re- striction to authorized capital and there was unanimous consent of the stockholders (Prouty v. M. 8. & N. I. 278] ITLTRA VIKES PRIVATE CORPORATIONS. 485 the treasurer's office, entitled to first lien on net profit.- to the amount in such agreement provided. [ Signed.] Edw. L. Wood, Treasurer" The share- M. i.-.< tied were sold at par and the debt paid. On the back of the shares surrendered was printed, " Profits assigned." The certificates representing the shares which were not represented in the signature to the agreement above mentioned were at that time, with properly executed |>ower of attorney for assignment and transfer, in the hands of a creditor of the owner of the shares as collateral security for a loan ; the loan not being paid at maturity the shares were sold regularly to a purchaser, who brought this action against the company to have issued to him a certificate of shares to the amount named in the certificate so purchased, he having refused what was tendered him by the company, a certificate of shares with the words indorsed thereon of " Profits assigned." The New York Court of Appeals held that the purchaser was entitled to an unconditional certificate for these 100 shares upon the same principle as in the last case cited, that the action of the corporation here was an interference with the vested rights of the non-assenting stockholders. 1 278. The effect of laches on the part of complaining stockholders in such cases. In the leading New York case, where the conversion of common stock into preferred was held to have been ultra vires the corporation, the findings of the court on the trial showed that the by-laws empowering the creation R. R., 1 Hun, 663; 43 Qa. 53, supra); necessary for the disposal of the case or there was power to redeem, which (Williston r. M. S. & N. I. R. R. Co., was a transaction in the nature of a 13 Allen, 400); or the issue was author- debt (Westchester, etc.. R. R. Co. r. ized by the articles of association (In Jackson, 77 Pa. 8t. 821); or the opinion re A'D. St. Nav. & Col. Co., 20 L. R. was obiter (Bates r. Androscoggin R. [Eq.] 889) or there was full knowl- R. Co., 49 Me. 491); or it was the case edge on the part of all concerned of a subscription for stock with a con- (Lockhart r. Van Alstyne, 31 Mich. dition for interest until the corpora- 81); or the power in the corporate tion was in operation (Richardson r. body was conceded, and it was denied Vt. & Mass. R. R. Co., 44 Vt. 618); or that it existed in the directors. Me- lt was an action on a subscription Laughlin t. D. & W. R K . b Mich, more favorable to defendant than to 100." other subscribers, and it was held that ' Campbell r. American ZyloniteCo., defendant could not set up the lack of (1890) 12'.* N. V. 455. FOI.LRTT, Ch. equality (Evansville R. R. Co. r. J., very fully discusses the rights of Kvansvi'ilc, 15 Ind. 395); or a solemn stockholders in the opinion rendered determination of this question was not in this case by him for the court. 486 ULTRA VIRES PRIVATE CORPORATIONS. [ 278 and issue of the preferred stock were authorized at a stockholders' meeting regularly called and held and conducted ; that the stock was at once offered for subscription to all of the stockholders ; that a circular informing them thereof was issued by authority and distributed to the stockholders ; that though all of them did not avail themselves of the chance to take it, it was not because the chance was not known. A large number of them did subscribe, and paid money for the privilege to the corporation, and that money went into the assets and business of the company ; certifi- cates for the preferred stock were thereupon issued, and it, as well as the common stock, was dealt in by the public ; saies were made of the two kinds openly at the Stock Exchange at prices for the one larger than for the other, and quoted in the daily public prints ; and from year to year for four years the annual reports of the directors to the stockholders spoke of the two kinds of stock. There was ample knowledge, or means of knowl- edge, on the part of all stockholders of the action of the corpora- tion in the creation of the two kinds of stock ; of the issue of certificates for the preferred stock ; of the entry of that stock into the channels of trade ; of the public dealings in it at the especial marts for the sale of such property, and of the continued recognition of its existence and validity by the company and the public. FOLGER, J., for the Court of Appeals, said : " It is not to be conceived that the owners of the common stock of this corpora- tion did not have actual knowledge that there had been created a stock having ostensibly greater right and value than their own, and that it had gone into the market and was dealt in by the public interested in the validity of it. For the lapse of four years, however, there was no action of the company, or of an individual stockholder, to have a judicial declaration that the company had exceeded its powers in the creation of the stock, and that it was invalid. We think that these facts, most of which are set forth in the findings in two of the cases, warrant the con- clusion of law therein, that the stockholders, by acquiescing in the action of the corporation in making the preferred stock, have ratified and assented thereto, and that the same is binding on them by reason of such assent and ratification." 1 1 Kent V. Quicksilver Mining Co. , a lease of the franchises, etc. , of a (1879) 78 N. Y. 159, 184, 185. As to the railroad corporation to another, see St. effect of laches in seeking to invalidate Louis, Vandalia & Terre Haute R. R. 279] IJIKAVIKES I'KIVATK CORPORATIONS. 487 279. Rules declared by courts as to estoppel of corpo- rations to plead ultra vires. If a contract by a corporation le not in violation of sonic public law, or contrary to pnUio policy, I'teeeini* that only the immediate parties to it. a> tin- corporation itself, or the stockholders, who an- partie- l.\ representation, hold Mich a legal portion in relation to the contract a- to entitle them to raise the question of its validity on account of the alleged want of capacity to make; but if the contract^* in violation of some public law or against public policy, in MIC* sense as to make it void and of no effect to any intent, any person standing in a relation of interest to the subject-matter of the contract, and to be affected by its operation, might undoiil>tedl\ set up and insist on such fatal vice in it, for the purpose of clearing him>e!f from the consequences of its being carried into effect. 1 In a fully con- sidered case upon how far a corporation is estopped to .-et up the invalidity of an ultra vires contract, where fully performed on the part of the plaintiff, and the tanefits of it received hy the defendant as a defense to an action, the view of the I'nited States Supreme Court thereon has Ixjen stated to be as follows : A contract of a corporation which is ultra vires, in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and, therefore, beyond the powers con- ferred upon it by the legislature, is not voidable only, but wholly void, and of no legal effect. The objection to the contract is not merely that the corporation ought not to have made it, but that it could not make it. The contract cannot be ratified by either party, because it could not have been authorized by either. No performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upori it. When a corporation is acting within the general scope of the powers conferred upon it by the legislature the corporation, as well as persons contracting with it, may be estopped to deny that it has complied with the legal formalities which are prerequisites to its existence or to its action, because such requisites might in Co. v. Terrc Haute & Indianapolis H. 65 111. 453; City of Kast St. Ixmis r. 11. Co., (1892) 145 U. S. 893; 8. c., 12 East St. Louis Gaa Light & Coke Co., Sup. Ct. Rep. 953. 98 III. 415. IVorh & S H H. (V r. Vermont & Canada R. R. Co. v. Thompson. lo:i 111 1ST; Millard r. St. Vermont Central R. R. Co., 84 Vt. 2. Francis Xavier Academy, 8 Brmlw. As to estoppel to plead ultra, iirc, sec 841; Thomas e. Citizens' Horse Ry. Chicago Building Society r. Crowell, Co., 104 111. 462. 4S8 ULTRA VIRES PRIVATE CORPORATIONS. [" 279 fact have been complied with. But when the contract is beyond the powers conferred upon it by existing laws, neither the cor- poration, nor the other party to the contract, can be estopped, by assenting to it, or by acting upon it, to show that it was pro- hibited by those laws, * * * A contract ultra vires being unlawful and void, not because it is in itself immoral, but because the corporation, by the law of its creation is incapable of making it, the courts, wkjle refusing to maintain any action upon the unlawful contract, have always striven to do justice between the parties, so far as could be done consistently with adherence to law, by permitting property or money, parted with on the faith of the unlawful contract, to be recovered back, or compensation to be made for it. In such case, however, the action is not main- tained upon the unlawful contract, nor according to its terms ; but on an implied contract of the defendant to return, or, failing to do that, to make compensation for, property or money which it has no right to retain. To maintain such an action is not to affirm, but to disaffirm, the unlawful contract. The fraud and the limits of the rule concerning the remedy, in the case of a contract ultra vires, which has been partly performed, and under which property has passed, can hardly be summed up better than they were by Mr. Justice MILLER, in a passage already quoted, where he said that the rule ' stands upon the broad ground that the contract itself is void, and that nothing which has been done under it, nor the action of the court, can infuse any vitality into it,' and that ' where the parties have so far acted under such a contract that they cannot be restored to their original condition the court inquires if relief can be given independently of the con- tract, or whether it will refuse to interfere as the matter stands.' " * The doctrine seems to be settled by the weight of modern authority that a private corporation cannot avail itself of the defense of ultra 1 Central Transportation Co. r. Pull- be secured by reason of its having had man's Palace Car Co., (1891) 139 U. S. the full benefit of the contract, see 24, 59, 60, 61; s. c., 11 Sup. Ct. Rep. Ward v. Johnson, (1880) 95 111. 215; 478. These remarks of Justice MILLER citing West v. Menard County Agri- are in Pennsylvania Railroad v. St. cultural Board, 82 111. 206; Maher r. Louis, etc., Railroad, 118 U.S. 317. As Chicago, 38 111. 266; Railway Co. t>. to a bank being estopped to interpose McCarthy, 96 U. S. 267; San Antonio the defense of ultra vires to defeat the V. Mehaffy, 96 U. S. 315; Morris R. execution of a trust in favor of its de- R. Co. 0. Railroad Co., 20 N. J. Eq. positors in and lenders to its investment 642. department, by which they were to ,9] ULTRA VIBES PRIVATE Coi:i' 'RATIONS. \vheiv tin- contract ha> been, in good faith, fully j>erformed by tluj other party, and the corporation lias had tin- l>enefit of the contract and the performance. 1 Though a contract of a corpora- tion may be strictly ultra /v/r, yet, if not interfered with i>y the htockliolders or the state, and it In- not of a class of contracts expressly prohibited, and there be reasonable ground to suppose that the agents of the corporation have acted in good faith, objections raised by the corporation itself or by one having no interest in the question, except for purposes of unjust ad vantage, will not IHJ listened to by the courts.* If a contract made by officers of a corporation with third parties apparently within their powers, upon proof of extrinsic facts of which the third party- had no notice, was beyond them, the corporation will l>e held liable unless it take timely steps to prevent loss or damage to the third parties. 8 A corporation will be estopped to take advantage of the ultra vires character of an original undertaking where its officers have been permitted by it to engage in such transactions, and in prosecution of them the officers commit a wrong or torti ous act without the fault of the injured part}'. 4 The benefit* derived from an ultra vires contract cannot be retained by the corporation and the contract treated as entirely void, unless, \ycr- haps, in cases where the other party to the contract has assisted willfully in putting it beyond the power of the corporation to 'Darst r. Gale, (1876)83 111. 136; N. Y. Supp. 909. When an allegation citiiiLT Ex parte Chippendale,4 DeGex, in an answer that the contracts are /- M. & G. 19; Whitney Arms Co. r. Bar- tra rires the corporation is a sufficient low, 63 N. Y. 62; Bradley . Ballard, defense, see Gillespie r. Davidge Fertil- 55 111. 413. izer Co., (1892) 66 Hun, 627; 8. c.. 20 *Noyesr. Rutland & Burlington R. N.Y. Supp. 833. When estoppel to de- R, Co.,27Vt. 110; Rutland & Burling- fend on the ground that act was nltrn ton R. R. Co. t. Proctor, 29 Vt. 93; viret, see Homestead Bank P. Wood, Sturges r. Knapp, 31 Vt. 62. As to (Ct. Cm. PI. N. Y. City. 1892) 20 N. Y. who may or may not set up the do- Supp. 640; s. c., 1 Misc. Rep. 145. I.- fense of ultra riret, see Western Organ toppel of corporations to plead //n Co. t. Reddish. 51 Iowa, 5. r >. As toes- tint. Carson City Savings Bank r. toppel of a stockholder to complain of Carson City Elevator Co., (1892)90 an act ultra nre on the part of the cor- Mich. 550; a. c., 51 N. W. Rep. 641; poration or its officers, see I)es Moines citing Day r. Buggy Co., 57 Midi Gas Co. r. West, 50 Iowa. 16, involv- 151; Steel Works P Bresnahan. f,u inga fraudulent issue of bnmls. 1'ixlrr Midi. 337. what circumstances a stockholder can- * Lucas t. White Line Transfer Co., not object to a plan of reorganization 70 Iowa, 541; s.c., 80 N. W. Rep. 771. of a corporation as ultra rire*, see Hoi- * Ibid. lins P. St. Paul. M. & M. R. Co., (1889)9 02 490 ULTRA VIRES PKI\ AIM [270 return what it received on the contract. 1 The Court of Civil Appeals of Texas has held that where the directors of a corpora- tion, authorized by charter to establish and maintain a hotel, pur- chased competing hotel property and received the benefit of the transaction for two years they would not be heard to allege that the transaction was ultra m'res. 3 A corporation cannot set up the limit of indebtedness fixed in its charter as a defense, where the consideration of the indebtedness has been received by it. 3 In lilce manner it would be estopped from setting up want of authority as a defense as against money advanced to pay indebted- ness in excess of the limit of indebtedness fixed in its charter. 4 It is not beyond the powers of a corporation organized for the purpose of owning ditches for the conveyance and sale of water 1 Ibid. 'Steger v. Davis, (Tex. Ct, App. 1894) 27 S. W. Rep. 1068. The court concluded its opinion in these words: " In the case of Publishing Co, v. Hit- son, 80 Tex. 218; s. c., 14 S. W. Rep. 843, and 16 S. W. Rep. 551, the court says: ' It is a reasonable and ' volun- tary rule ' in its application to agen- cies, that where the principal, with knowledge of the facts, acquiesces in the acts done under an assumed agency he should not be heard subsequently to impeach them upon the ground that they, were done without authority. Kelsey v. Bank, 69 Pa. St. 430. This rule applies to corporations as well as to individuals. An express assent, it is said, is not essential on the part of the stockholders to operate as an equitable estoppel upon them. It may be inferred from the failure to promptly condemn the unauthorized although not illegal act, and to seek ju- dicial redress. Sheldon, etc., Co. r. Eickemeyer Hat Blocking Machine CQ., 90 N. Y. 607, 614.' " See, also, Bond T. Manufacturing Co., 82 Tex. 309; s. c., 18 S. W. Rep. 691; Russell v. Railway Co., 68 Tex. 646; s. c., 5 S. W. Rep. 686; Stafford v. Harris. 82 Tex. 178; s. c., 17 S.W. Rep. 530. Astopri- vate corporations, having received the benefits of a contract beyond their power to make, being estopped to set up that excess of authority to excuse them from discharging their part of the contract, see De Groff r. American Linen Thread Co., (1860) 21 N. Y. 124, Sherman Center Town Company v, Fletcher, 46 Kans. 524; Town Co. v. Morris, 43 Kans. 282; s. c., 23 Pac. Rep. 569; Town Co. T. Swigart, 43 Kans. 292; s. c., 23 Pac. Rep. 569; Tootle v . First National Bank of Port Angeles. (1893) 6 Wash. St. 181; s. c., 83 Pac. Rep. 345; Heims Brewing Co. v. Flannery, (1891) 137 111. 309; Watts-Campbell Co. v. Yuengling, 51 Hun, 302; s. c., 3 N. Y. Supp. 869. The right to object to sucli contracts, or raise the question of ultra vires: Baker v. North Western Guaranty Loan Co., 36 Minn. 185; s. c., 30 N. W. Rep. 464; Starin v. Edson, 112 N. Y. 206; s. c., 19 N. E. Rep. 670. In Main r. Casserly. (1885) 67 Cal. 127, a corporation which had received and retained the consid- eration of a promissory note executed by it was held liable, although the note was executed in pursuance of a con- tract ultra vires. 3 Humphrey t>. Patrons, etc., Associ- ation, 50 Iowa, 607. 4 Ibid. 279] ULTRA VIRES PRIVATE CORPOR AT I -t'.'l to sell and convey all its corporate property, pn>\ ided tin- sale !> made for corporate or lawful purposes, and strangers taking a conveyance of such property have a right to a--iinie, as again-t tin- corporation, that tho sale was for a lawful purpose. And if the validity of such a sale be contested ly the corporation on the ground that it was in ado for an unlawful purpose it would devolve upon the corporation to show that the party making the purchase knew of such unlawful purpose. 1 Even if unlawful for a corporation to make a sale of all its property to another corporation, and receive in payment therefor the stock of the grantee to be distributed among its own stockholders, if such sale is made, and the contract fully executed, the corporation it-elf cannot receive back the property sold or set aside the contract on account of its illegality.* 1 Miners' Ditch Company t. Zeller- second sense, the right of the corpora- bach, (1869) 37 Cal. 543. tion to avail itself of the plea will .!-- *Ibid. SAWTEK, Ch. J., said: "The pend upon the circumstances of tin: term nit ra tires, whether with strict case. The opinions in the cases below propriety or not, is also used in differ- are extracted from freely to show the ent senses. An act is said to be ultra class of circumstances under which tln> vires when it is not within the scope of plea of ultra tires would not be avail- the powers of the corporation to per- able to the corporation, to wit: 1 form it under any circumstances or for r. Michigan Southern & Northern In- any purpose. An actis also sometimes diana I?. R. Cos., 22 N. Y. 262; Mayor said to be ultra tires with reference to "of Norwich r. Norfolk Railway dun- the rights of certain parties, when the pany, 30Eng. L. &Eq. 128; McGregor corporation is not authorized to per- P. Dover & Deal Railway Co., 17 Jur. form it without their consent; or, with 21; 8. c.,16Eng. L. & Eq. 180; Simp- reference to some specific purpose, son v. Denison, 10 Hare, 51; Simpson when it is not authorized to perform it r. Denison, 13 Eng. L. & Eq. 359; for that purpose, although fully within Eastern Counties Railway Co. r. the scope of the general powers of the Hawkcs, 35 Eng. L. & Eq. 9; Edwards corporation, with the consent of the r. Grand Junction Railway Co., 1 Myl. parties interested, or for some other & Cr. 674; Treadwell r. Salisbury purpose. And the rights of strangers Manufacturing Co., 7 Gray, 393. Es- dealing with corporations may vary top pel to plead tiltm vires : Pauly r. according as the act is ultra tires in Pauly, (Cal. 1895) 40 Pac. He p -".'. one or the other of these senses. All Fanners' Loan & Trust Co. r. Toledo. these distinctions must be constantly A. A. & N. M. Ry. Co., (IHU'o >? Fed. borne in mind in considering a ques- Rep. 49; Roy & Co. r. Scott. 1 {art Ivy tion arising out of dealings withacor- & Co.. (Wash. 1895) 89 Pac. Ht-j>. :?! poration. When an act is ultra ri res (stockholders estopped): Cent nil Build in the first sense mentioned it is gen- ing & Loan A-sodation /. Ijunp-on. crally, if not always, void in tl, and (Minn. IS'.I.'M r,-,' N. W. Ut-p. .Y4-1 cuu the corporation may avail itself of thr receiving tin- benefit of a loan r- plea. But when it is ultra tire* in tin- topped.; Ben-irk r. Thomas, (1895) 66 492 ULTRA VIRES PRIVATE CORPORATIONS. [ 280, 281 280. When the doctrine of ultra vires is not applicable. In an action against a corporation to recover money lost upon wagering contracts which the plaintiff had entered into through and with an agent of the corporation, the latter objected to a recovery against it on the ground that it was a corporation author- ized to do a legitimate business, and that, as it could not lawfully authorize its agents to do an illegitimate business, it could not be bound by his acts in the prosecution of it ; that the attempt to confer such authority would be ultra vires, and the attempted ratification of the agent's acts equally so. The Supreme Court of New York, in General Term, through LANDON, J., to this con- tention, said : " The position is untenable. A person, equally with a corporation, has no lawful power to do wrong ; but both have the capacity to act, and the capacity to act amiss inheres in the capacity to act at all. Given the power and capacity to do right, the actor may nevertheless do wrong. Unless the actor is wholly irresponsible, he must answer for his wrong action, partly in justice to those injured thereby, and partly as a deterrent to its like repetition by himself and others. If the agents of a railroad corporation take my timber or iron against my consent, and con- vert it into a bridge, to the use of the corporation, the corpora- tion must either restore my property or pay me for it. Here the defendant corporation has obtained the plaintiff's money. It was obtained by means of wager contracts. Confessing that it has the money, the defendant practically argues that, because it could not thus obtain it within its lawful powers, it does not really have it. Pretending to disclaim the transactions by which it obtained the money, it practically argues that its pretended disclaimer gives it title to keep the money. But, in truth, it cannot perfect its dis- claimer of the transaction without surrendering its fruits ; it can- not retain the money without adopting its agent's method of obtaining it ; it cannot insist upon a defense so long as it refuses to qualify itself to interpose it. The doctrine of ultra vires is no wise applicable to the case." * 281. Rules declared by courts as to estoppel of parties to contracts with corporations to plead ultra vires. One Fed. Rep. 104 (corporation estopped); ' Peck v. Doran Wright Co. (Lim- Miller r. Washington Southern Ry. ited), (1890) 10 N. Y. Supp. 401. Co., (Wash. 1895) 39 Pac. Rep. 673 (corporation estopped). 281] ULTRA VIRES PRIVATE CORPORATIONS. who lias ivrrivnl from a corporation the full consideration of his agreement to pay money cannot avail himself of the objection that the contract is ultra vires. 1 As corporations are created l>y public acts of the legislature, and all their powers, duties and obli- gations are declared and clearly defined by public law, parties dcnling with them must take notice of those powers and the limi- tations upon them at their peril, and will not be allowed to plead ignorance of those powers and limitations in avoidance of the defense of ultra vires? The defense that a corporation had no power under its charter to discount notes is not open in an action by the corporation against the maker upon a note discounted by the corporation for him at his instance. 3 Where a corporation indorses notes for another, and is compelled to pay them, in the absence of an express prohibition against such indorsements by the corporation, he for whose benefit the indorsement was made tan- not invoke the plea of ultra vires as a defense against the enforce- ment of a chattel nwrtgage to secure the corporation against its liability upon the notes. 4 The defense cannot be made, in an Chicago & Atlantic Ry. Co. v. ing by the state against the corporation, Derkes, (1885) 103 Ind. 520. and not in a collateral proceeding by 'Franklin Company t>. Lewiston another, except when the charter <>f Institution for Savings, (1877) 68 Me. the corporation not only specifies, and, 48; citing Pearce r. Madison & Ind. therefore, limits it to the business in Railroad, 21 How. 441; Andrews T. which it may engage, but, by express Insurance Co., 87 Me. 256. Parties terms, or by a fair implication from its receiving benefit of contract cannot in- terms, invalidates transactions outside sist that contract was ultra vires. Shelby of its legitimate corporate business. r Chicago & Eastern Illinois R. R. Mclndoe t>. St. Louis, 10 Mo. .'.77. Co., (1892) 143 111. 385; s. C..82N. E. Chambers c. St. Louis, 29 Mo. 548; Rep. 488, affirming 42 111. App. 339. Pacific R. R Co. t. Seely, 45 Mo. -JPJ; St. Joseph Fire & Marine Insurance Land r. Coffman, 50 Mo. 243. Since Co. t?. Hauck, (1880) 71 Mo, 465. Matthews r. Skinker, supra, was de- 4 St. Louis Drug Co. r. Robinson, cided announcing a different doctrine, (1881) 10 Mo. App. 587 ; affirmed in in the following cases this court re- 8t. Louis Drug Co. r. Robinson, (1883) turned to the doctrine of the earlier Ml Mo. 18, in which case the Supreme cases : A. & P. R. R. Co. c. St. Louis, Court said : " Conceding that [the cor- 66 Mo. 228; St. Jog. Fire & M. Ins. poration had no authority to indorse Co. r. Hauck, 71 Mo. 465; Thornton notes for the accommodation of others] r. National Ex. Hunk. 71 Mo. *2'2\ ; it is sufficient on this point to say that Union Nat. Rank r. Hunt. 76 M in a line of decisions of this court un- The judgment of this court in Mat- broken, except in the case of .Matt he\vs thews F. Skinker, titpra, was on ap- r. Skinker, 62 Mo. 329, it has been peal reversed by the Supreme Court held that the question of ultra rir<* of the United States, and the doctrine can only be raised in a direct proceed- then announced by that court is in 494 ULTRA VIRES PRIVATE CORPORATIONS. [281 action by a corporation upon a contract made by it with the defendant, that the corporation, in making the contract, has exceeded the power conferred by its charter or the law under which it is formed. 1 The vendor to a corporation having power to purchase real estate, but prohibited by its charter from making purchases for other than a prescribed purpose, having made a deed to the corporation, cannot have the conveyance set aside and his contract rescinded on the ground that the corporation, in taking the conveyance, did so for a purpose other than that pre- scribed in its charter, and had exceeded its power. 2 The question whether, in such a case as this, the corporation has exceeded its powers, is one between the state and the corporation, with which a vendor, as a grantor simply of land to the corporation, has no concern. 3 An assignee of railroad stock, who had neither regis- tered his stock nor obtained recognition as a stockholder, it has been held in a federal court, cannot bring suit in behalf of him- harmony with that which before had government for that purpose, and it been uniformly, and has since been cannot be had in a collateral way by repeatedly, declared by this court." individuals. Grand Gulf Bank v. See, also, Franklin Ave. Ger. Sav. Archer, 8 Smedes & M. 151, 173; Inst. r. Board of Education, (1882) 75 Wade v. American Colonization So- Mo. 408; First National Bank v. Gil- ciety, 7 Smedes & M. 663; Nevitt v. lilan, (1880) 72 Mo. 77. It has been Bank of Port Gibson, 6 Smedes & M. held in Brown r. Donnell, (1860) 49 513: Chester Glass Co. v. Dewey,-16 Me. 421, an action against the maker Mass. 102; Moss V. Rossie L. M. Co., 5 by the indorsee of a note given to an Hill, 140; The Banks t. Poitiaux, 3 insurance company and by the cor- Rand. 142, 146; Vidal v. Girard's Exrs. , poration transferred in payment of 2 How. 191; Fleckner v. U. S. Bank, 8 bank stock purchased by it, the maker Wheat. 355; Natoma W. & M. Co. t>. of the note could not controvert the Clarkin, 14 Cal. 552. rights of the corporation to purchase "Hough v. Cook Land Co., (1874) the stock. 73 111. 23. 1 Union Water Co. v. Murphy's Flat 3 Ibid. : citing Banks v. Poitiaux, 3 Fluming Co., (1863) 22 Cal. 621. It Rand. 141; Barrow v. N. & C. T. was said by the court : "In numerous Co., 9 Humph. 304: Chambers n. St. cases it has been held that a contract Louis, 29 Mo. 576; Attorney-General made by a corporation which is not u. Tudor Ice Co., 104 Mass. 239; Whit- authorized by its charter is not to be man Mining Co. v. Baker, 3 Nev. 391; held void, and that a defendant sued Hayward v. Davidson,. 41 Ind. 212. thereon cannot refuse payment; but That the state alone can raise objec- the legislature may inquire into any tion to an ultra vires act, see Alexander violation of the charter, or the govern- v. Tolleston Club of Chicago, (1884) ment may institute suit for that pur- 110 111. 65; Barnes v. Suddard, 117 pose. The investigation must be in 111. 237; People's Gas, etc., Co. v. a direct proceeding instituted by the Chicago Gas, etc., Co., 20 Bradw. 473. - 1 ) ULTRA VIKES 1'KIVATl. ' >KI'< >i:.\ 1 self and other .-tockholders to restrain the action of the officers of tin- corporation from acts alleged to be -ulti-n //'/ecnre a loan, the owner of this out.-tandini: equity cannot, in an action to enforce it, set up that the aet of the corporation in taking the note was ultra vires. 9 A homestead loan association made a loan of money to two of its members for the use of a brewing company, the latter giving its deed of trust to the association to secure the loan. There was no fraud in the loan and nothing to mislead the parties in whose names the loan was made. The Illinois Supreme Court held that as the brewing company could not avoid its deed of trust under the plea of ultra vires, the parties to whom the loan was made were also estop jx;d from availing of the defense, and that the deed of trust might be foreclosed as against them and other creditor- of the brewing company having notice of the rights of the loan iation. 8 It is no defense to a note given by one not a mem- 1 Brown r. Duluth, M. & N. Ry. other words, the transactions were at ('<>. (1898) 58 Fed. Rep. 889. See most ultra rire*, in the commonly un Heath r. Railway Co., 8 Blatchf. 347, derstood sense of these words, and 892, 410; Ramsey r. Erie Ry. Co., 7 nothing more. As said in Whitney Abb. Pr. (N. S.) 156; Hersey r. Arms Co. r. Barlow, 63 N. Y. 62, citeil /.ie, 24 Me. 9. with approval by this court in Darstr. 'Taylor c. Callaway, (Tex. Civ. Gale, 83 111. 141, ' the acts were not App. 1894) 27 S. W. Rep. 934. See, immoral in themselves or forbidden by upon the question of estoppel to deny any statute, neither mnln in e or mala the power of a corporation to do an prohibits, so as to make the contract rt. IJorol r. Manufacturing Co., 82 illegal and incapable of being the Tex. 309; s. c., 18 8. W. Rep. 691, foundation of an action. Such a con- and authorities there cited, Bank r. tract as the law will not recognize or Matthews, 98 U. S. 621; Smith r. enforce, but applying the maxim eo White, (Tex. Civ. App.) 25 8.W. Rep. facto illicit^ nonorit uraetio, leaves the 809; Keys 0. Association, (Tex. Civ. parties as it found them.' It is also App.) 25 8. W. Rep. 808. said in that case: ' When acts of cor- ;| Kadish r. Garden City Equitable porations are spoken of as nltr,i (,/-,. Loan & Building Association, (1894) it is not intended that they are unlaw- 151 111. 581. The court said: "There fill or even such as the corporation is * * * no prohibition in the stat cannot perform, but merely those ute against corporations becoming which are not within the j>ower con- members of homestead loan associa- ferretl upon tin- corporation by the art tions for the purpose of borrowing of its creation, and are in violation of money; neither is there any prohibi- the trust reposed in the managing tion therein againat loaning money for board by tin- stockholders, that tho other than building purposes. In affaire shall be managed and the funds 496 ULTRA VIRES PRIVATE CORPORATIONS. [ 281 her of a building association for money loaned him that the cor- poration exceeded its powers in loaning the money for which the note was given. 1 In a Michigan case, a manufacturing corpora- tion, outside of the purposes for which it was incorporated, con- tracted with a party for a stated quantity of a manufactured article at a certain price, and then made a contract with another to manufacture the same and deliver it to him at such a price as left a profit to the corporation. This contract was deemed an ultra vires contract, as being a contract purely for a speculative pur- pose, and the manufacturer bringing an action against the corpo- ration on a quantum meruit for goods delivered under the con- tract, the corporation sought to recoup for damages by reason of non-performance of the contract. The Supreme Court held that the plaintiff was not estopped from claiming that the contract was ultra vires? The court further held that there being noth- applied solely for carrying out the ob- ception was ultra vires. And the ject for which the corporation was power on the part of such a corpora- created. * * * It is now very well tion to enter into contracts of specula- settled that a corporation cannot avail tion being withheld on reasons of pub- itself of the defense of ultra tires lie policy for the protection of share- when the contract has been in good holders and the general good of the faith performed by the other party, community, the act neither of one and the corporation has had the full party nor of both in entering into it benefit of the performance of the con- can work an estoppel agiiinst setting tract. * * * The same rule holds up the invalidity. A rule of law es- e converse. If the other party has tablished for the public good cannot had the benefit of the contract fully be thus defeated. A corporation can- performed by the corporation he will not, by the mere act of individuals, be not be heard to object that the contract given a power which the state, for and performance were not within the general reasons, has withheld from it. legitimate powers of the corporation.'" Pennsylvania, etc., Nav. Co. v. Dan- See Benefit Association v. Blue, 120 111. dridge, 8 Gill & J. (Md.) 248, 31ft. 128; Bradley v. Ballard, 55 111. 415; 2 Parties may also be estopped in some Beach on Priv. Corp. 425 et seq., cases from disputing the validity of a for a full discussion of the subject; corporate contract when it has been Carson City Sav. Bank?. Elevator Co., fully performed on one side, and when 90 Mich. 550; Holmes & Griggs Co. v. nothing short of enforcement will do Metal Co., 127 N. Y. 252; 8. c., 24 Am. justice. To quote the language of St. Rep. 448. COMSTOCK, Ch. J., in Parish r. Wheeler, 1 Poock v. Lafayette Building Asso- 22 N. Y. 494, 508, ' the executed deal- ciation, (1880) 71 Ind. 357. ings of corporations must be allowed * Day v. Spiral Springs Buggy Co., to stand for and against both the par- (1885) 57 Mich. 146. COOLEY, Ch. J., ties when the plainest rules of good said: " [The parties to this contract] faith so require.' But this is not such must, therefore, be supposed to have a case. The contract has only been understood that the contract in its in- performed in part. The defendant 282] ULTRA VIRES PRIVATE CORPORATIONS. 497 ing of mi immoral nature in this contract, flu- plaintif* was entitled to recover the value of her goods delivered on the contract to tin- corporation upon a quantum merit / 't .' If a corporation had no power to purchase a note and mortgage upon which it brings suit that fact should be pleaded as a defense. 2 Where one lias made a contract with a corporation which is ultra //'// *, and has received the benefit of it, neither he nor those claiming under him are estopped from setting up the invalidity of the contract in defense of a suit to enforce it. 8 282. Financial arrangements contrary to public policy - rules governing proceedings on the part of the state, etc. In proceedings on the part of the state to dissolve a corpora- tion on account of its illegal or unwarranted acts, the state, as prosecutor, must show on the part of the corporation accused some sin against the law of its being which has produced or (ends to produce injury to the public. The transgression must not be merely formal or incidental, but material and serious, and such as to harm and menace the public welfare. When the transgression threatens the welfare of the people, they may summon the lias received a portion of the property Thomas P. Railroad Co., 101 U. S. 71; bargained for, and we may justly as- In re Cork & Y. Ky. Co., L. H., 4 Ch. sume that what has been received has App. 748; In re National, etc. , Society, passed into the hands of [the vendee L. R., 5 Ch. App. 309. of the corporation] and been paid for. * Thomson r. Madison Building & so that the defendant will lose nothing Aid Association, (1885) 103 Ind. but the anticipated profits on the re- * Chambers r. Falkncr, (1880) 65 mainder if the contract is not enforced Ala. 448. In Marion Savings Bank r. in its favor. Those profits it had no Dunkin, 54 Ala. 471, Justice > right at any time to count upon, and of the Alabama Supreme Court has in contemplation of law there can be said: "A party dealing with a cor- no injustice in depriving it of profits poratiou, in a matter not within the which the law would not permit it to purview of its delegated powers, does bargain for. No valid ground for es- not estop himself from setting up in toppel is, therefore, found to exist in defense the want of authority in the the case." corporation to make the contract * * *. 1 Day v. Spiral Springs Buggy Co., In such case the doctrine of estoppel (1885)57 Mich. 146. The ruling the cannot be held to apply without cloth- court considered sustained by Pratt r. ing cor|K>rutions with the ability to in- Short, 79 N. Y. 487; Northwestern crease their powers indefinitely by Union Packet Co. r. Shaw, 87 WIs. sheer usurpation. Such contracts on 655, and Harriman r. Baptist Church, the part of a corporation are nHrarirex 63 Oa. 186, and cited as cases < -..nMder- and void, and no right of action can ing the principle involved. Whitney spring out of them." Arms Co. v. Barlow, 63 N. Y. 62; 63 498 ULTRA VIRES PRIVATE CORPORATIONS. [ 282 offender to answer for the abuse of its franchise or the violation of its corporate duty. These are the rules declared by the Court of Appeals of New York when considering the people's case against a corporation organized under the statutes of that state for the formation of manufacturing corporations which had surrendered its stock under an agreement with other similar cor- porations for the purpose of forming a " trust." 1 By the agree- ment entered into by the corporation immediately involved in the case with the others concerned, a " board," as it was called, was formed. The signers agreed to transfer all their shares of stock " to the names of the board as trustees, to be held by them and their successors as members of the board strictly as private tenants." This board, it was declared, " shall hold the stock trans- ferred to it with all the rights and powers incident to stockhold- ers in the several corporations." It was also authorized to trans- fer " to such persons as it may be desired to constitute trustees or directors or other officers of corporations so many of the shares as may be necessary for that purpose." The agreement provided that certificates should be issued by the " board " to the contract- ing parties in specified proportions in lieu of the capital stock ; that each of the parties should maintain a separate organization and carry on and conduct its own business, paying over the profits to the board, " the aggregate or such amount as shall be desig- nated for dividends." to be pronortionally distributed by the board to the holders of the certificates. The board was prohib- ited from taking any action " which shall create liability by it or by its members," but there was a provision that the funds neces- sary to enable the board to make payments as specified " may be raised by mortgage to be made by the corporations, or any, either or all of them, upon their property." The number and amount of shares to be issued by the board was fixed with a proviso that they " may from time to time be increased or diminished by deeds executed by a majority in value of the certificate holders." Defendant's stock was transferred and certificates issued to its stockholders as provided for. The board elected officers and board of trustees of defendant, having transferred to each of them a share of the stock to enable him to hold the office. The effect of this transaction, as far as concerned defendant, was stated by the court to be " to divest it of the essential and vital 1 People r. North River Sugar Refining Conipauj', (1890) 121 N. Y. 583. -2] ULTRA VIBES PRIVATE CORPORATIONS. 499 clement.- of its f ran cl list? by placing them in trust; to accept from the state the gift of corporate life only to disregard the conditions upon which it was given ; to receive its powers and privileges merely to put them in pawn, and to give away to an :.oiisible "board its entire independence and self-control. Wlien it had passed into the hands of the trust only a shell of a corporation was left standing, as a seeming obedience to the law, but with its internal structure destroyed or removed. Its stock- holders, retaining their benefici:il interest, have separated from it their voting power and so parted with the contract which the charter gave them and the state required them to exercise. It has a board of directors nominally and formally in office, but qualified by shares which they do not own, and owing their offi- cial life to the board which can end their power at any moment of disobedience. It can make no dividends, whatever may be its net earnings, and must incumber its property at the command of its master and for purposes wholly foreign to its own corporate interests and duties." " In all these respects," said the court, " it has wasted and perverted the privileges conferred by the charter, abused its powers and proved unfaithful to its duties. But graver still is the illegal action substituted for the conduct which the state had a right to expect and require. It has helped to create an anomalous trust, which is, in substance and effect, a partnership of twenty separate corporations. The state permits in many ways an aggregation of capital, but, mindful of the pos- sible dangers to the people overbalancing the benefits, keeps upon it a restraining hand, and maintains over it a prudent supervision where such aggregation depends upon its permission and grows out of its corporate grants. It is a violation of law for corporations to enter into a partnership." 1 Referring later in their opinion to this trust formed by the several corporations, having a capital stock double the value of the fair aggregate value of the rights and franchises of the companies absorbed at the outset and capable of an elastic and irresponsible increase, the court said : "And here, I think, we gain a definite view of the injurious tendencies developed by its organization and operation and of the public interests which are menaced by its action. As corporate grants' are always assumed to have been made for the 1 Ibid. ; citing N. Y. & 8. C. Co. t. Meredith, 1 Wall. 29; Whittenton F. Bank, 7 Wend. 412; Clearwater r. Mills r. Upton. 10 Gray, 596. 500 ULTRA VIRES PRIVATE CORPORATIONS. [ 282 public benefit, and conduct which destroys their normal func- tions and maims and cripples their separate activity and takes away their free and independent action, must so far disappoint the purpose of their creation- as to affect unfavorably the public interest, and that to a much greater extent when beyond their own several aggregations of capital they compact them all into one combination, which stands outside of the hand of the state, which dominates the range of an entire industry and puts upon the market a capital stock, proudly defiant of actual values, and capable of an unlimited expansion." 1 If the business of a cor- poration is threatened with competition, it is not illegal or immoral if it can persuade its competitor to abandon an enter- prise in which both cannot succeed upon the basis of some proper consideration therefor. 3 In an Ohio case the Supreme Court said : " Where all or a majority of the stockholders comprising a corporation do an act which is designed to affect the property and business of the company, and which, through the control their numbers give them over the selection and conduct of the corporate agencies, does affect the property and business of the company in the same manner as if it had been a formal resolution 1 People V. North River Sugar Re- fore, the provisions of agreements in. fining Co., (1890), 121 N. Y. 582, restraint of competition tend beyond holding that the corporation had vio- measures for self-protection and lated its charter and failed in the per- threaten the public good in a dis- formance of ito corporate duties, tinctly appreciable manner, they and in respects so material and im- should not be sustained. The appre- portant as to justify a judgment of hension of danger to the public inter- dissolution. In Leslie v. Lorillard, ests, however, should rest on evident (1888) 110 N. Y. 519, 533, the New grounds, and courts should refrain York Court of Appeals said: " Corpo- from the exercise of their equitable rations are great engines for the pro- powers in interfering with and re- motion of the public convenience and straining the conduct of the affairs of for the development of public wealth, individuals or of corporations, unless and so long as they are conducted for their conduct, in some tangible form, the purposes for which organized, threatens the welfare of the public." they are a public benefit; but if all See on this subject Shepaug Voting were to engage without supervision in Trust Cases, (1890) 60 Conn. 553; s. c., subjects of enterprise foreign to their 24 Atl. Rep. 32. charters, or if permitted unrestrainedly 8 Oakes T. Cattaraugus "Water Com- to control and monopolize the avenues pany, (1894) 143 N. Y. 430; s. c., 38 tc that industry in which they are N. E. Rep. 461; 62 N. Y. St. Rcpr. engaged, they become a public menace, 445. See, also, Leslie v. Lorillard, against which public policy and stat- (1888) 110 N. Y. 519. utes design protection. When, there- 282] ULTRA VIBES PRIVATE CORPORATIONS. 501 of its board of directors; and the act so done is ultra ran the corporation and against public policy, and was done by them in their individual rapacity for the purpose of concealing their real purpose and object, the act should be regarded as the act of the corporation, and, to prevent the alm.-e !' corporate power, may be challenged as such by the state in a proceeding in quo warranto." 1 THAYKR, J., in the United Starrs Circuit Court for the eastern district of Missouri, refused an injunction to restrain a Missouri corporation from violating an agreement it had entered into not to engage in the business for which it was organ i/ed for a period of twenty-five years upon the ground that the agree- ment was void. He referred to the trust agreement which had been signed by this and other corporations in the same line of Im.Miiess, its various provisions, and held that this corporation ded its powers in signing and becoming a party tj the trust agreement. 2 These are rules declared by the New Jersey Court of Chancery : The corporate acts of directors, if they are within the powers of the corporation, and in furtherance of its purposes are not unlawful or against good morals and are done in good faith and in the exercise of an honest judgment, cannot be questioned by individual stockholders in judicial proceed- ings. Contracts made by corporations, which appear to be designed to promote their legitimate and profitable operation, will be presumed by the courts, as a general rule, to lie within 'State ex rel. r. Standard Oil Cora- issue negotiable securities without pany, (1892) 49 Ohio St. 187. limit, and to declare dividends thereon. 'In American Preservers' Trust . In all these respects, I must conclude Taylor Munufir. Co., (1891) 46 Fed. that the defendant corporation, by Rep. 152, it WHS said by the court: executing the trust agreement, under- " By [signing and becoming a party took to exercise powers to which it to this agreement defendant] united, could lay no reasonable claim by with the other corporations and indi- virtue of the law under which it is viduuLs who signed the agreement, in organized, and from which all of it- creating a partnership or joint-stock powers are derived." Citing People r. concern, and in furtherance of that North River Sugar Refining Co., (1890) enterprise it undertook to appoint 121 N. Y. 582; B, c., 24 N K. Hi p. agents to manage the concern in its 834; Mallory r. Hanaur Oil Works, In-half, and to vest such agents with (1888) 86 Tenn. 598; 8. c., 8 8. W. K p authority to buy and lease property in 896; State r. Nebraska Distilling Co., all parts of the United States, to (1890) 29 Neb. 700; 8. c.. 46 N. W. obtain and exercise control over Ifc -p. I'M; Whittenton Mills P. Upton, other corporations by arquirinir their 10 Gray, 596. stock, and with power like\\ ; ^. r. 502 ULTRA VIRES PRIVATE CORPORATIONS. [ 282 the limits of their power, and if the validity of the contracts be assailed, the assailant will be required to assume the burden of demonstrating their invalidity. Corporations organized under the general law of New Jersey are vested with the powers conferred by the general act, and those contemplated by the certificate, and such incidental powers, with respect of the general and special powers, as are necessary in the sense of convenient, reasonable and proper. While the general act permits incorporation for " any lawful business or purpose whatsoever," and the law gives all necessary powers thereto, it does not recognize as embraced therein powers to do those things which would deprive the cor- poration of its ability to carry out the objects for which it was formed, or discharge any duties which it might under its charter owe to the public, or which are contrary to the policy of the law. 1 The doctrine of ultra vires ought to be reasonably, and not unreasonably, understood and upheld, and whatever may be fairly regarded as incidental to and consequential upon those things which are authorized by the charter of a corporation ought not, unless expressly prohibited, to be held by judicial construction to be ultra vires? Contracts by a corporation which impose an unreasonable restraint upon the exercise of its business are void, but contracts in reasonable restraint of its business are valid. The test to be applied in determining the reasonableness of the restraint imposed by the contract is to consider whether it is only such as is necessary to afford a fair protection to the interest of the cor- poration in favor of which it is given, and not so large as to interfere with the interest of the public. 3 The Illinois Supreme Court, in the Chicago Gas Trust case, declared these rules as to corporations : Corporations can only exercise such powers as may be conferred by the legislative body creating them, either in > express terms or by necessary implication, and the implied powers are presumed to exist to enable such bodies to carry out the express powers granted, and to accomplish the purposes of their 1 Ellerman v. Chicago Junction Rail- number of years, nor in the place ways & Union Stock Yards Company, where they were located or within 200 (1891) 49 N. J. Eq. 2-17. miles thereof, was not unreasonable, 2 Ibid. and not an illegal restraint of trade. 3 Ibid. ; in which case, under the test For illustration of contract between stated in the text, the chancellor held corporations not contrary to public that a covenant by parties selling the policy, see Live Stock Assn. of New plant and business of stock yards, not York . Levy, (1886) 54 N. Y. Super, to engage iu the business for a certain Ct. 32. 282] ULTRA VI KKS PRIVATE CORPORATIONS. creation.' An incidental jo\ver I.-. ..m- tljat is directly and immediately appropriate to the execution of tin- .-pecitir jN.wers granted, ami not one that has a slight or remote relation to it. 3 The- court held that the (Mi Tru-t Company, U'ing a Corporation formed under tin- (Jcneral Incorporation Law of that state for the purpose' of erecting and o|M-ratinggas works and the manufacture and sale of gas, had no power to purchase and hold i shares of stock in other gas companies a- incident to the purpose for which it was formed, even though such power was specified ilk its articles of incorporation. This corporation was incorporated under the general law for two purpo-e,. The>c. were expressed in its articles of association in the-e word- : First, for the purpose of erecting and operating -ji- work- for the manufacture and sale of gas in Chicago and other places in this state; and, second, "to purchase and hold or >ell tin- capital stock, or purchase or lease, or operate the property, plant, good will, rights and franchises of any gas works or gas company or companies, or any electric company or companies, in Chicago ..r elsewhere, etc." It sought to exercise the powers claimed tinder the second clause only, and for that purpose bought a majority of the shares of all the gas companies in Chicago, In-ing four in number, whereby it might have the control of all the gas com- panies in the. city and thus destroy competition and monopolize the gas business. The Supreme Court held that the corporation so formed was not for a lawful purpose and that all acts done by it toward the accomplishment of such object were illegal and void. 3 A stockholder, in a suit which he is only permitted to prosecute in behalf of the corporation and for its benefit, cannot raise the question whether or not the defendant corporation in the suit could acquire and lawfully exercise all the powers declared in its certificate of incorporation, especially whether it could lawfully own the stock of another corporation. Such a question can only be presented for judicial determination by the attorney-genera] on behalf of the state. 4 1 Citing C.. P. & 8. W. R. R Co. r. Co., 22 Conn. 1; Franklin Co. r. Lewis- Marseilles, 84 111. 643; Chicago Gas ton Savings Institution, 68 Me. 43. Uirht Co. t. People's Gas Light Co., 'People rx rd. I'mtoly r. Chi> 121 111 530. Gas Trust ( ,. . ,issii ,;{,, \\\ o^. ,. , 'People ex rel. Peabody r. Cliiciu"> -'v! N K It. -p : Gus Trust Co., (1889)180 111. 2W: s. r.. MVillou-l.by 9. t lii<-:ir<> Junction 2-J N. E. Rep. 798; citing on the lust Railways & t'nion St\ BANKS A J'D BANKING. 505 a bank may take as security a crop of cotton, and ship the same to a factor, t In- sold to reimburse the loan. 1 A liank, author- ized by its charter to deal in bills of e.vbanp- and discount notes, made negotiable, and payable at the bank, with two or more good and sufficient Miretio, may, under this power, undertake to col- lect bills of exchange in other places. 3 Under the National J 'an king Association Act, the powers which national banks may e\< -ivi.-e are limited to those expressly granted and those neces- sarily incidental. 8 They would have no absolute right to retain bonds coming into their possession by purchase, under contracts which they were without legal authority to make. 4 National banks may exercise all such incidental powers as may be neces- sary for discounting and negotiating promissory notes, drafts, bills (if exchange, etc., which they are authorized to do. 5 It is not beyond the powers of a national bank to purchase a draft tent by sums borrowed at a rate of in- rows and those at which he lends is i-iv>t below that charged by the banks, the source of his profit.' Gilbert on Edin. Ktn-y. 224, tit. Banks; Lawson's Banking. 52. It can scarcely be said, Jli-t. of Banking, 419. The commit- in view of these precedents and authori- tee appointed by the House of Lords ties, that borrowing money, even to be in England, in 182(5, to inquire into the used as capital, is not within the range Irish and Scotch systems of banking, of the business of banking. The reported that it was 'proved by evi- position, therefore, that the acts of the dence and by the documents that the banking company in issuing the paper bunks of Scotland, whether chartered in question were ultra vire* cannot be joint-stock companies or private estab- sustained on the ground that borrow - lisluiicnts, have, for more than a cen- ing is no part of legitimate banking, tury, exhibited a stability which the but must rest on that branch of the committee believe unexampled in the argument which is drawn from the history of banking.' Lawson's Hist, terms of the General Blinking Law of liank ing, 434. The country bank- itself. It is a question, not of appro- ers of England also allow interest on priatc bankfng, but of corporate the balances of money in their hands, power." McCulloch's Notes to Smith's Wealth ' Deloach r. Jones. 18 La. 447. of Nations, 489, title, Money, Edin. ' Branch Bank at Montgomery v. ed.; Lawson's Hist, of Banking, 273. Knox, (1840) 1 Ala. 148. As to the Another writer, speaking of the prac- power of banks to issue post notes, tice of borrowing by the Scotch hanks, see Campbell P. Mississippi Union says: 'This is in fart a part of the Bank, 6 How. (Miss.) 625. proper business of a bank. A blinker * Logan Bank r. Townscnd, 139 U. is a dealer in capital, an intermediate S. 67. party between the borrower and the * Ibid. lender; he borrows of one party and 'Shinkle r. First National Bank of lends to another, and the difference Ripley, (1872) 22 Ohio SL 516. between the terms at which he bor- 64 506 BANKS AND BANKING. [ with a bill of lading attached. 1 The discount of notes by a cor- poration authorized by statute to invest its capital in notes and to purchase and hold securities in payment of the debts due to it is not ultra vires? A banking institution, having power to lend deposits on the public stock of the state or the United States on bond and mortgages, or " upon any other securities which should be deemed, by the board of directors, ample," has been held in >t to be limited to the securities mentioned, and empowered to dis- count commercial paper. 3 A national bank, having coin in pledge, may sell and assign its special property therein.* A bank, to save itself from loss, under its general powers, may take an assignment of an account due its debtor. 5 A national bank is authorized to buy the checks of individuals or other banks, when payable to bearer or to order. 6 A bank may transfer a good title to checks received, as cash, from a depositor, and so credited to his account, in payment of a debt, and the transferee may recover upon them against the drawers. 7 A bank, with which an owner of a bond and mortgage had agreed to convert it into money for the benefit of the bank, and upon its assignment for that purpose, had guaranteed its collection, was held bound by the guaranty, although the bond was not assigned to the bank, and reassigned by it. 8 A national bank may take, hold and enforce a chattel mortgage for a previously contracted debt. 9 It is within the powers conferred by congress upon national bank- ing associations to receive from its customers United States bonds of one class to be converted into bonds of another class. 10 A bank, without an express undertaking on its part, will not be bound, by law, to protect from forfeiture, stock deposited with it as security for a debt, by payment of installments in arrear. 11 The Minnesota Supreme Court has held that there is no reason 1 Union National Bank v. Rowan, 23 7 Metropolitan National Bank >\ 8. C. 342. Loyd, (1881) 25 Hun, 101. 8 Bright v. Banking Co., 3 Penny- 8 Talman r. Rochester City Bank, packer (Pa.), 478. (1854) 18 Barb. 123. 'Detroit Savings Bank v. Truesdail, 'Spafford v. First National Bank 38 Mich. 430. of Tama City, 37 Iowa, 181. 4 Merchants' Bank v. State Bank, 10 w Leach v. Hale, (1870) 31 Iowa, Wall. 604. 69. 5 Bank of North America r. Tarn- " Railroad Bank v. Douglas, 2 Speer blyn, (1879) 7 Mo. App. 571. (S. C.), 329. 6 Rochester Bank r. Harris, (1871) 108 Mass. 514. 284] BANKS AND liANKINO. ."."7 why :i national bank may not, for convenience and a proper pur- pose, hold and own notes and mortgagee through the medium of a trustee. 1 284. The guaranty of commercial paper by a bank. The Supreme Court of Nebraska has lately held tliut while a national bank may not lend its credit for the accommodation o f others, still it may guarantee the payment of commercial jtajM-r as incidental to the exercise of its power to buy and sell the same.* The Nebraska court accepted as the proper statement of the law upon this subject the following declaration by Mr. Justice SWAYNE, speaking for the United States Supreme Court, in a leading case before that court : " The National Bank Act, 8 gives every bank created under it the riirht to exercise by its board of directors, or duly authorized agents, all such incidental power* aa shall be necessary to carry on the business of banking, by dis- counting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt, by receiving deposits, etc. Nothing in the act explains or qualifies the terms italicized. To hand over with an indorsement and guaranty is one of the com- monest modes of transferring the securities named. Undoubt- edly a bank might indorse ' waiving demand and notice,' and would be bound accordingly. A guaranty is a less onerous and stringent contract than that created by such an indorsement. We see no reason to doubt that, under the circumstances of this case, it was competent for the defendant to give the guaranty here in question. It is to be presumed the vice-president had rightfully the power he assumed to exercise, and the defendant is estopped to deny it. Where one of two innocent parties must suffer by the wrongful act of a third, he who gave the power to do the wrong must bear the burden of the consequence. The doctrine of ultra vires has no application in cases like this. Merchants' Bank v. State Bank, 10 Wall. 604. All the parties engaged in the transaction, and the privies, were agents of the defendant. If there were any defects of authority on their part, the retention and enjoyment of the proceeds of the transaction by their principal constituted an acquiescence as effectual as First National Bank of Memphis Hastings. (1S94)40 Nek .VI ft. c.. 5S . Kidd, 20 Minn. 284. N \V. i;, p Thomas P. City National liunk of ' Kev. St. U. S. $5186. 508 BANKS AND BANKING. [ 285 would have been the most formal words. These facts conclude the defendant from resisting the demand of the plaintiff. * * * A different result would be a reproach to our jurisprudence." 1 285. Acts ultra vires a bank. A bank discounting a note, knowing the intention of the party offering it to be that the pro- ceeds of the discounting should be applied to the discharge of a particular note held by the bank, cannot apply the proceeds to the discharge of any other note. 2 A bank cannot bind itself by an accommodation indorsement. 8 National banks have no legal power to guarantee a contract between other persons for the delivery of building materials. 4 The power of a national bank to give a guaranty against liability or loss to sureties on paper discounted by it, when the effect of such guaranty would be to make the paper that ot one party only, secured by mortgages on real estate, has been questioned in a Michigan case. 5 A national bank cannot act as broker for the sale of state bonds on commis- sion. 6 A national bank has. no power to sell railroad bonds for a customer on commission. 7 A bank has no authority to become surety on the bond of a public officer. 8 A bank will not be jus- tified in refusing to reassign collateral which it holds for the payment of certain notes, because the pledgee may be indebted to it upon an entirely distinct cause of action. 9 A bank cannot apply the proceeds of a note tendered to it for discount to the* 1 People's Bank v. Manufacturers' paper held by the defendant was can- National Bank, 101 U. S. 181, in celed to the same amount, which case the facts were that one 2 Bank of Alexandria t>. Saunders, 2 Pickett made his notes for 50,000, Cranch Cir. Ct. 183. payable to his own order, indorsed 8 Bank of Genesee v. Patchin Bank, them, and delivered them to the 13 N. Y. 309. national bank to be negotiated to the 4 Norton v. Deny National Bank, 61 plaintiff. The vice-president of the N. H. 589. national bank, with the knowledge * First National Bank v. Bennett, 33 and consent of the president and Mich. 520. cashier, but without any authority 6 Smith n. Bank, 1 Walk. (Pa.) 318. from the board of directors, or from 7 Weckler v. First National Bank of a majority of them as individuals, Hagerstown, 42 Md. 581. transmitted the notes to the plaintiff, 8 Miners' Bank Estate, 13 W. N. C. with a written guaranty signed by (Pa.) 370. himself. The plaintiffs account was 9 McIntiret>. Blakeley, (Pa.) 12 Atl. debited with 50,000 on account of Rep. 325. the notes. At the same time Pickett's * 286] BANKS AND BANK payment of the maker's indorsement on another note without his consent. 1 In an action of the owner of a lot which had U-en assessed by a city for benefits and afterwards sold upon a judg- ment, and a certificate of sale given to the city, which it a-.-ii:ii-'l to another party, who in turn assigned it to a national hunk, against the city and bank to determine their adverse claim*, the plaintiff made the point that the hank, being a national bank, had no authority to purchase the certificate. The Supreme Court of Minnesota considered it well settled that no one but the govern- ment .could raise that question.* The United States Circuit Court for the eastern district of Washington, in an action upon a note against a national bank as guarantor, has held that United States Revised Statutes, section 5202, providing that national banks shall not contract liabilities in excess of their paid-up capital stock, except upon notes of circulation, accounts for deposits, etc., did nt intend that such items of liability should be excluded in determin- ing whether the indebtedness of a bank exceeded its paid-up capital stock at the time it incurred a liability as guarantor. And that in an action against the bank and its receiver on such a note as here- sued on, the defendants might avail themselves of the defen.-e that the note was executed in violation of the section of the Revised Statutes above mentioned, as the note being void as to the bank, it was not estopped to set up the defense in question.* 286. Taking mortgage on and purchase of real estate. A national bank cannot take a mortgage upon real estate as a security for a debt concurrently created, or for future advances. 4 It is competent for a national bank to purchase a note in favor of a third party, and thereby acquire incidentally a mortgage on 1 Parry r. Highley, 8 Pa. Co. Ct. 4 Kansas Valley National Bunk r. Rep. 584. Rowell, (1873) 2 Dill. 871. As to the * Ilennessy t>. City of St. Paul, (1893) lack of power of a national bank to 51 Minn. 219; s. c., 55 N. W. Rep. loan its money on real estate security, 1123; citing Merchants' National Bank see Matthews c. Skinkcr. d^M r,_> M,,. r. Hanson, 83 Minn. 40; 8. c., 21 N. 829; Warner r. iVWitt County W. Rep. 849; National Bank r. Mat- National Bank, 4 Brail w. (111.) 305; thews, 98 U. 8. 621; National Bank . Winton r. Little, 94 Pa. St. 64, over- Whitney, 103 U. 8. 99; Fortier P. New ruling Foul.-r r. Scully. 72 Pa. St. Origins Bank, 112 U. 8. 451; s. c., 5 456, and Woods r. People's Bank, sj Sup. Ct. Rep. 234. Pa. St. 57: National Hank r. Matthews, 1 Weber r. Spokane Nat. Bank, 98 U. 8. 621; National Bank r. (1892) 50 Fed. Rep. 735. Whitney, 103 U. 8. 99; Fortier . New 510 BANKS AND BANKING. [ 286 land which may have been given to secure it. 1 Where several debts due a national bank are consolidated into one, and a new note given, the bank would not be acting ultra vires in taking a mort- gage on real estate to secure the consolidated note. 2 A national bank extended the time of payment of indebtedness secured by a mortgage on real estate at a usurious rate of interest, and took for it notes and a mortgage, made by the debtor to a third per- son, the notes being indorsed by the latter. The Supreme Court of Ohio held that the usury only avoided the interest, and that to the extent the debt was valid, the mortgage was on bona fide security, and that the bank, by becoming the owner of the notes, acquired the equity in the mortgage. 3 A mortgage upon real estate given to an officer of a national bank, at the time of a loan by the bank, to secure its payment, being, in effect, the same as if made to the bank, has been held to be void and not enforceable by the courts, under the prohibition in the National Banking Law, of loans of money on real estate security. 4 The prohibition in the law against national banks taking security for loans on real estate, does not, however, extend to mortgages made in good faith by way of security for debts previously contracted, and banks may take the assignment of notes, secured by trust deed on real estate, as collateral security for pre-existing debts due the banks. 5 A national banking association may avail itself of a security on real estate given to one personally liable on a loan made by the association.' The Minnesota Supreme Court has Orleans National Bank, 112 U. S. 439. gage shall be taken on real estate ex- For an illustration of a note and mort- cept by way of security for debts gage on real property which it was in previously contracted, must be under- the power of a national banking stood to forbid absolutely such association to take, see Ornn . associations making loans upon Merchants' National Bank, (1876) 16 security afforded by mortgages on real Kans. 341. estate." The court cited as sanction- 1 Oldham v. Bank, 85 N. C. 240. ing its views : Fowler v. Scully, 72 'Ibid. Pa. St. 456; First National Bank v. 3 Allen t>. First National Bank National Bank, 92 U. S. 122; Matthews Xenia, (1872) 23 Ohio St. 97. v. Skinker, 62 Mo. 329. 4 Fridley v. Bowen. (1877) 87 111. s Worcester National Bank v. 151. The court said : " The provision Cheeney, (1878) 87 111. 602; Gaar v. [of the National Banking Law] declar- First National Bank of Centralia, 20 ing upon what security such associa- Bradw. (111.) 611. tions may make current loans, viz. : 6 First National Bank v. Haire, 36 Upon ' personal security,' and the Iowa, 443. As to a national bank's subsequent inhibition that no mort- right to take title to real estate in dis- "'VJ BANKS AXI) IIANKIM.. 511 held that, in tla- absence of ailirmativc evidence of some contra- vention of tin- National I Jan king A <.<-iat ion Act, a national hank mi * to a contract made by it to secure free entrance of light and air into its l>ank- itig house. 2 Where a national bank discounts a note secured by I ot mi-t on real estate, the security passes to the bank and may be enforced by it. 8 Speculation in real estate, by national banks, under the pretense of obtaining satisfaction of a previous debt, is forbidden by law. Such a bank, however, may acquire title to real estate, even though incumlicred, if it is honestly done, for the purpose of securing a debt due to it. This may be done by taking a conveyance directly or by sale under process of law.' Thus, where a firm of merchants were indebted to a bank upon drafts drawn upon them and accepted, discounted by the bank, in its regular course of business, to a certain amount, and secured by the transfer of a note of a third party for a 1 sum, this note secured by a deed of trust upon real estate sub- ject to other liens, and the third party made a deed of the proj>- erty to the bank in payment of the sum due from him, the Iwnk ing to discharge the other liens upon the same, the transac- tion was held not to be forbidden by the law regulating such banks. 5 A mortgage upon real property taken by a national banking association as security will not l>e void. A judgment of ouster and dissolution in a proper proceeding is the punishment for taking such a mortgage. Private j>ersons cannot question the validity of the act. 8 A national bank may purchase rait charge. of indebtedness previously 'Trustees of First Preabyterian contracted to it, see Turner r. First Church in Newark r. National State National Bank, (1H81) 78 Ind. 19. As Hank of Newark, (X. J. 18M) 29 All. to a mortgage given to a national Hep. 320. ttaiik and assigned to a third party 'Thornton r. National Exchange being good, BCP I^acey r. Central Hank. (1879) 71 Mo. 221. National Bank. 4 Neb. 179. As to Mapea *. Soott. -*s 111. Btt. foreclosure of a mortgage by a 'Ibid. national bank, see Scofleld r. State * First National Hank r. Klmore. 59 National Bank. 9 Neb. 828. Iowa, Ml; StreeU-r r. First National 'First National Bank of Memphis Bank. &S Iowa. 177. A* to the power r. K ii lil, 20 Minn. 284. of a national bank to purchase real 512 BANKS AND BANKING. [ 287 estate at a judicial sale to satisfy a judgment and decree rendered in a proceeding to foreclose a mortgage on land on which the hank held a second mortgage lien, and to which foreclosure pro- ceeding it was made a party. 1 These hanks have authority to hold and convey such real estate as they may purchase at sales under judgments, decrees or mortgages held by them to secure debts due them. 2 The title of a national bank to land which was mortgaged to it, and purchased at judgment sale, would not be invalidated as to the mortgaged property, by the fact that at the sale it purchased other property which it may not have been authorized to acquire. 3 287. Purchasing notes. The Court of Appeals of Mary- land has held that under the National Banking Association Act a bank formed under it has no authority to use its funds in pur- chasing notes and can acquire no title to notes by the purchase of them. 4 The ruling of the Minnesota Supreme Court on this subject has been that the purchase of promissory notes by a bank authorized simply to discount notes was ultra vires and that the purchase would confer no title. 5 In a later case this same court held that national banks have no power to deal in promissory notes, as choses in action, for the purpose of private gain and profit alone, and limited their power to acquire title to such notes estate necessary to secure a debt to it, 8 Farmers & Mechanics' Bank v. although in excess of the debt, see Baldwin, 23 Minn. 198. The court Upton n. South Reading Bank, (1876) said: "The power to carry on the 120 Mass. 153. business of banking by discounting 1 Heath . Second National Bank, notes, bills and other evidences of (1880) 70 Ind. 106. debt, is only an authority to loan 1 Wherry v. Hale, (1882) 77 Mo. 20. money thereon, with the right to de- As to a national bank purchasing real duct the legal rate of interest in ad- estate in satisfaction of a debt due it, vance. This right can be fully see Libby v. Union National Bank, 99 enjoyed without the possession of the 111. 622. unrestricted power of buying and 3 Reynolds r. Crawfordsville Bank, dealing in such securities as choses in 112 U. S. 405. As to a national bank, action and personal property, lawfully holding a mortgage on real Though, as argued by plaintiff, the estate, purchasing a prior mortgage bank acquires a title to discount paper, on the same land to protect its inter- and, hence, may, in a certain sense, be est, see Holmes t. Boyd, (1883) 90 Ind. said to have purchased it, yet it is a 332. purchase by discount, which is per- 4 Lazear . National Union Bank of mitted, and does not involve the exer- Maryland, at Baltimore, (1879) 52 Md. cise of a power of purchase in any 78. other way than by discount." 287] l:\NKs AM) |;.\.NK1N... 513 to discounting them. 1 In an Ohio ea>e it was held that the power -riven to the corporation hy a ftutute of the t*tate of New York ''to carry on the business of banking by di>eounting bill>, notes and other evidences of debt," was not a power to Imv promi.-sory notes but to loan money upon the paper dr-. riU-.j. and that a transaction of that character was within the usury laws of that state. 2 Under the power given savings in>titution.-> to dis- count negotiable notes in Kansas, they have been held to have the power of purchasing such notes. 8 In a comparatively late 'First National Bunk of Rochester e. Pierson, 24 Minn. 140. Bank r. Baker, 15 Ohio St. 68. In Fleckner r. Bank, 8 Wheat. 888, it appeared that the plaintiff purchased from another bank a note which had been passed to it through several parties from the original holder. The bank was forbidden to deal in any thinir, except bills of exchange, gold or silver, or take more than six per cent upon its loans or discounts. It was claimed by defendant that the purchase of the note was ultra rirt-s, but the court held that it was not, and that such purchase was but a dis- count. STOHY, J., speaking for the court, says: " But in what manner is the hank to loan? What is it to dis- count? Has it not a right t-> take an evidence of debt which arises from the loan? If it is to discount, must there not be some chose in action, t r written evidence of a debt, payable at a future time, which is to be the sub- ject of the discount? Nothing can be clearer than that by the language of the commercial world, and the settled practice of banks, a discount by a bank means ex ' termini, a deduction or drawback made upon its advances or loans of money upon negotiable paper or other evidence of debt, pay- able at a future day, which are trans- ferred to the bank." In the case of Smith r. Bank. 20 Ohio St. Ml. tin- defense was that the bank (a national bank) purchased the paper of the 65 payees, and that it had no authority to make such purchase. L*iK>n this question, the court says: " It doe* not state that the purchnse wan made at a usurious rate of discount, but it avers that under the act of congress to provide a national currency, under which the bank was incorporate 1. it had no authority to purchase the bill. It seems to be the idea of counsel mak ing the objection thnt negotiable paper, perfect and available in the hands of the holder, is not the suhjeet of purchase by a national bank ut any rate of di-scount. This view we think entirely erroneous. We see nothing in the act of congress, nor in reason, why a borrower may not obtain the discount, by a bank, of one of the ex- isting notes and bills of othcre. of which he is the holder, as well as of his own paper, made directly to the bank. It is true that as between nat- ural persons, the purchase of such paper, when made in gau, is not sub- ject to the usury laws, but it is other- wise as to a bank. In the business of banking, the purchasing and discount- ing of paper is only 'a mode of loan- ing money.' " * I 'ape r. Capitol Bank of Topeka. (1378) ',><> Kans. -tin Hi speaking for the court, said: "The power granted is the naked \ discounting, and the term 'discount ing* includes purchase a* well an loan. * To discount' signifies the act of buy- 514 BANKS AND BANKING. [ case an action by a bank organized under the laws of New Hamp- shire, engaged in doing a general banking business, upon a note, the Supreme Court of Missouri sustained the power of the bank under its charter, nothing appearing to the contrary therefrom, to buy outright the notes sued on ; at the same time they held that it had no right to purchase them at a greater rate of discount than the rate of interest it might lawfully charge for the loan of that money. 1 In a recent Massachusetts case, an action by a national bank against the indorser of a promissory note, to whose order the note was payable, its right to recover was denied on the ground that it had no title to the note. It was argued that under the statutes of the United States national banks could not buy or sell promissory notes, and that, inasmuch as the bank obtained the note by purchase, it had no right to hold or collect it. KNOWLTON, J., speaking for the Supreme Court of Judicature, declared the law, as they considered it upon these contentions, as follows : *' On the question whether a national bank can buy promissory notes in the market as a natural person can, there is a conflict of authority. Its power to do so, if it has any, is con- ferred by the United States Revised Statutes, section 1536 (13 ing a bill of exchange or promissory could not under its charter o deal in note for a less sum than that which, promissory notes as to become the upon its face, is payable. It is, also, purchaser thereof. But its charter, undeniably clear that the term 'dis- the court says, 'restrains the bank count,' when used in a general sense, generally from dealing or trading is equally applicable to either business except in bills of exchange, gold or or accommodation paper, and is appro- silver, or in the sale of goods pledged priately applied, either to loans or for money lent or which shall be the sales by way of discount, when a sum proceed of laud.' It will be observed is counted off or taken from the face that the decision in this case is based or amount of the paper at the time altogether upon the restrictions in the money is advanced upon it, plaintiff's charter, which was be- whether that sum is taken for interest fore the court, and incorporated in upon a loan, or as the price agreed the bill of exceptions. No such re- upon a sale." See, also, Tracy v. Tal- strictions are shown to have been mage, 18 Barb. 462; Bank v. Sher- placed upon plaintiff's powers as a burne, 14 111. App. 566. banking institution." That a national 1 Salmon Falls Bank v. Leyser, (Mo. bank cannot rescind a contract of pur- 1893) 22 S. W. Rep. 504. The court chase of a note on the ground that it distinguished Bank v. Simpson, 1 Mo. had no power to purchase and recover 184, in these words: " It is true that it back the money paid for it, see Attle- is held by this court in [that case] that borough Bank v. Rogers, (1878) 125 the plaintiff, a corporation created un- Mass. 339. der the laws of the st:it? of Illinois, 2S7| MA.NKS AM. I5ANKIN... 515 IT. S. Sts. at Large, 101), \vhich authorizes national banks to dis- count ami negotiate iromiory notes, draft*, lulls of \<-liange and other evidences of debt,' etc. It has sometimes been held that the right to discount and negotiate notes, etc., goes no further than to authorize the taking of them in return for a loan of money made on the strength of the promises contained in tin-in. 1 By other courts it has been held that the right to 'dis- count and negotiate' includes the right to buy.* If we assume, in favor of the defendant, that national banks are not authorized under the law to go into the market and buy promissory notes from those who are selling them only as a commodity, tlu-re are several reasons why this defense cannot prevail. In the lir-t place, if such a purchase is ultra vires, it is an ordinary contract ; it is not made penal nor expressly forbidden, and the maker or indorser cannot defend on the ground that the bank has obtained no title. The violation of law can be availed of only in proceed- ings against a national bank in the interest of the public to deprive it of its charter. This has been decided by the Supreme Court of the United States. 3 Secondly, the evidence in this case would well warrant, if not require, a finding by the court that the transaction was a discounting of a note for the defendant within the meaning of the statute. The note was in the hands of the indorser's agent, who consulted the indorser al>out the rate of interest to be allowed before giving the note to the plaintiff. The plaintiffs money was paid to indorser, less the agent's com- mission. The transaction would have been no different in sub- stance if the defendant, who held the note as indorser, had carried it to the plaintiffs [plaintiff ?] bank and had there made in per- son the contract which he made through the agent. If ho had done that the transaction clearly would have been a negotiation of a loan and a discounting of a promissory note. 4 Thirdly, it 1 Lazear r. National Union Bank, 52 Porter, 125 Mass. 333; Atlas National Md. 78, 124; Farmers & Mechanics' Bank r. Savery, 127 Maw. 75, 77. Bank r. Baldwin, 28 Minn. 198; First 'Citing National Bank r Matthews. National Bank r. Piereon, 24 Minn. 98 U. S. 621. and cases cited; National 140; Niagara County Bank r. Baker, Bank r. Whitney. 108 U. 8. 99; Mer- 15 Ohio St. 69. chants' National Bunk r. Hanson, 88 1 Citing Smith r. Exchange Bank, 26 Minn. 40; Slater Woolen Co. e Lamb. Ohio St. 141; Pape r. Capitol Bank of 143 Mass. 420. Topeka, 20 Runs. 440. See, also, First * Citing Lazear v. National Union National Bank r. Harris, 108 Mass. Bank, 52 Md. 124; Farmers A Mr 514, 516; National Pemberton Bank r. chanics' Bank r. Baldwin, 88 Minn. 516 BANKS AND BANKING. [ 28S lias been held in this commonwealth, in analogy with the above- cited decisions of the Supreme Court of the United States, but on somewhat different grounds, that, even if a national bank does not get the legal title to a promissory note bought in the market, it may maintain a suit as the holder, and the maker and indorsers cannot be relieved from their contracts to pay the amount promised in the writing." l 288. Purchasing stock of corporations. A national bank, by way of compromising a claim alleged to be due, and for the purpose of averting an apprehended loss on account of such claim, has the right to acquire stock to be again turned into money, but has no right to purchase or acquire such stock either for speculation or investment. 2 Such a bank not being expressly prohibited from becoming a stockholder in another corporation, may take shares in another corporation as collateral security for a loan made by it, or in satisfaction for a loan for which the stock may have been pledged to it as security. 3 The United States Supreme Court has also held that stocks of other corporations may be taken by a national bank with a view to sell them at a profit in adjusting and compromising claims growing out of legit- imate banking transactions. 4 The Nebraska Supreme Court, in a recent case involving the power of a bank to purchase the stock of an insurance corporation through its cashier, has, after a review of leading cases bearing upon the subject of corporations purchasing or acquiring stock in others, summed up the law as follows : " It is doubtless true that the bank could legally take the stock of another corporation as security for a debt previously contracted. Possibly it might make a loan on the strength of the stock as security at the time. On this point the authorities are not in harmony, and as it is not material here we do not decide it. An emergency might arise when a bank's board of directors would be justified in taking stock of another corporation in settle- ment, or adjustment, or compromise of a doubtful claim or debt, 198; First National Bank . Pierson, * First National Bank of Charlotte 24 Minn. 140. v. National Exchange Bank of Balti- 1 Prescott National Bank v. Butler, more, 39 Md. 600. (1893) 157 Mass. 548, 549, 550; citing 3 Kennedy v. California Savings Atlas National Bank v. Savery, 127 Bank, (1894) 101 Cal. 495. Mass. 75, 77 ; National Pemberton 4 First National Bank . National Bank v. Porter, 125 Mass. 333. Exchange Bank, 92 U. 8. 122. 288] HANKS AND UANKIN',. 517 acting in the honest belief that only by so doing could a loss to the bank be averted. N.un- of these reasons, how. existed in the case at bar, or if they did the record In-fore us does not disclose them. The cashier had no authority to bind the hank by buying the insurance company's stock. The board of directors had no authority to authorize him to do so; and if the cashier bought such stock in behalf of the bank the directors had no authority to ratify the purchase and thus bind the lank. * * * We conclude, then, that the powers of a directory of a bank in dealing with and in investing the funds of the stockhold- ers are limited to the purposes for which the bank was incor- porated and the purposes necessarily incidental thereto in the suc- cessful conduct of its legitimate business." 1 Unless necessary to prevent loss on a debt previously contracted in good faith, a national bank can make no valid loan or discount in security of its own stock. 2 And the placing by one bank of its funds on permanent deposit with another would be a loan within that pro- vision of the National Banking Association Act which prohibit* such loans. 3 A national bank, purchasing its own stock to pro- tect itself against loss upon a debt, being bound to sell the stock within six months, may sell on credit and take the purchaser's note, with the stock sold as collateral, to secure it, provided it be done in good faith. 4 Where money has been borrowed of a bank, and the borrower has given as security certificates of his shares of the bank's stock, he would not be entitled to recover, when, on non-payment of this loan, the bank had sold the stock and applied the proceeds to his credit. 5 The opinion of the court, a brief one, rendered by Mr. Justice FIELD, stated the law in such case to be 1 Bank of Commerce r. Hart, (1898) Central R. R. Co. r. Pennsylvania R. 87 Neb. 197, 205. 206. The cases R. Co.. 81 N. J. Eq. 475; Sumnerr. referred to by the Nebraska court were Marcy. 8 Woodb. & M. 105; Ccntiml Mechanics & Workingmen's Mutual R. R. Co. r. Collins, 40 Oa. 582; Haiel Savings Bank & Building Association hurst r. Savannah. O. & N. A. R. II. . Meriden Agency Company, 24 Co.. 43 Oa. 18 : People r Chicago Ota Conn. 159; Franklin Co. t>. Lewiston Trust Co., ISO III. 268. Institution for Savings, 68 Me. 48; Bank r. Uuier, 11 Wall. 869. Nassau Bank r. Jones. 95 N. Y. 115. Ibid. As to the luck of power in one corpora * Union National Bank . Hunt, tion to buy stock of another, see Mil- (1882) 76 Mo. 4!. bank v . New York, L. E. & W. R. R. National Bank of Xcnia t. Stewart, Co., 64 How. Pr. 20-29; Franklin Bank 107 U. 8. 676. . Commercial Bank, 86 Ohio St. 855; 518 BANKS AND BANKING. [ 288 as follows : " Section 5201 of the Revised Statutes declares that ' no association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be neces- sary to prevent loss upon a debt previously contracted in good faith ; and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale ; or, in default thereof, a receiver may be appointed to close up the business of the association.' While this section, in terms, prohibits a banking association from making a loan upon the security of shares of its own stock, it imposes no penalty either upon the bank or borrower, if a loan upon such security be made. If, therefore, the prohibition can be urged against the validity of the transaction by any one except the government, it can only be done before the contract is executed, while the security is still subsisting in the hands of the bank. It can then, if at all, be invoked to restrain or defeat the enforcement of the security. When the contract has been executed, the security sold, and the proceeds applied to the payment of the debt, the courts will not interfere with the matter. Both bank and borrower are in such case equally the subjects of legal censure, and they will be left by the courts where they have placed themselves. There is another view of this case. The deceased authorized the bank, in a certain contingency, to sell the shares. Supposing it was unlaw- ful for the bank to take those shares as security for a loan, it was not unlawful to authorize the bank to sell them when the contin- gency occurred. The shares being sold pursuant to the authority, the proceeds would be in the bank as his property. The admin- istrators, indeed, affirm the validity of that sale by suing for the proceeds. As against the deceased, however, the money loaned was an offset to the proceeding. In either view the administra- tors cannot recover." 1 The Illinois Supreme Court has held, in a late case, that it was no defense in an action to recover a loan from a national bank that the bank had purchased shares of its stock which were pledged for the loan in violation of the law relating to national banking associations, where the purchase of the stock was consummated before the loan was obtained, and the lender had no knowledge of how the stock was acquired by the 1 Ibid. ."-9, 290] BANKS AM. HANK: bank. 1 A national hank which had received the stock of u saving hank, and still retained it, and lial received dividend- <.n the stock, has been held t.. he t>t,.p|.ed f r ,,m denying its liability for its proportion of tin- indebtedness of tin- >a\ ings hank con- tracted during the time of its ownership of stock therein. 1 289. Increase of capital stock. The comptroller of cur rency is clothed with power to assent to an increase of the capital stock of a national hank less than that originally voted l.y its directors but eqnal to the amount actually suh-crilK-d and paid for by the stockholden under the original vote. 8 The capital of a national banking association having become impaired hv reason of past due and suspended claims, should its stockholder!, to avoid a threatened assessment by the comptroller of currency upon the stock to make good the deficiency, lawfully reduce the capital stock in an amount equal to the deficiency, a stockholder cannot, in case the suspended claims he subsequently realized \\\n\ and carried into the account as assets, compel the bank to distribute a share of the money so realized in proportion to the amount of -lock surrendered by him. 4 The validity of the proceedings for an increase of the stock of a national bank cannot be questioned hy a stockholder who, with the knowledge of ite insolvent condition and of all material facts, may have subscribed for increased stock to same amount as his original stock, and amount of proposed increase was afterwards reduced, in an action to annul his sub- scription and payment. 5 290. Loans. "Where a state bank has been organized into a national bank under the national law, and the national Iwink had taken from the state bank, among the discounted note*, one for a larger amount than the national bank was authorized to loan t" ;i single borrower, the Supreme Court of Ohio held that such note or any note subsequently given in renewal of it was not to IN regarded within the meaning of the national act as given for 1 Chemical Nat. Bank of Chicago P. 4 McCann r. Kiret National Bank. City Bank of Portage. (111. 1885)40 N. (18H7) 113 Intl. 3.VI. K. Hep. 328. Delano r. Butler. 11* I S W * Kennedy r. California Savings Pacific National Bank r. Kiiion. 141 Bank, (1894) 101 Cal. I'.c.. U. S. 327 ; Thayer r. Butl-r. 141 U.S. Aspinwall r. Butler, 138 U. S. 234; Butler c. Eaton. 141 I S. 140. 595. 520 BANKS AND BANKING. [ 290 money borrowed of the national bank. 1 In an action by a national bank for money loaned, the defendant cannot set up as a bar that the loans exceeded in amount one-tenth part of the capi- tal stock of the bank. 2 The security taken by a national bank for loans will not be invalidated by the fact that the loans may be in violation of the act of congress which prohibits the lending of more than one-tenth of its paid-up capital to one person. 3 Should a bank accept a renewal note from the agent of the principal for an amount greater than is actually due, with fraudulent intent, it will vitiate the whole, and the bank cannot recover upon it. If it be a mistake, the bank may recover the amount actually due. 4 Should the maker of a note conspire with the president or other officer of a bank to defraud it, and on the faith of the note the bank parts with its money, the bank can recover it from the 1 Allen v. First National Bank, Xe- the benefit of either party to the illegal nia, (1872) 23 Ohio St. 97. contract, but altogether upon grounds 8 Gold Mining Co. . National Bank, of public policy. In O'Hare P. The (1877) 96 U. 8. 640. Mr. Justice Second National Bank of Titusville, 77 HUNT, speaking for the court, said: Pa. St. 96, the question was made " After obtaining and holding to upon the statute we are considering, its own use the money, can the and it was objected that the bank mining company be allowed to inter- could not recover the amount of the pose the plea that the bank had no loan in excess of the proportion spec- right to loan the money ? In Harris r. ified. The court held that the section Runnels, 12 How. 79, where the de- of the statute referred to was intended fendant sued upon a note set up the as a rule for the government of the illegality of its consideration, it was bank, and that the loan was not void, held that the whole statute then in See, also, Pangborn v. Westlake, 36 question must be examined to discover Iowa, 546; Viniug et al. v. Bricker, 14 whether it intended to prevent courts Ohio St. 331. We do not think that of justice from enforcing contracts in public policy requires, or that congress relation to the act prohibited; and that intended, that an excess of loans be- when a statute prohibited an act or yond the proportion specified, should annexes a penalty for its commission, enable the borrower to avoid the pay- it does not follow that the unlawful- ment of the money actually received ness of the act was meant to avoid a by him. This would be to injure the contract made in contravention of it. interest of creditors, stockholders, and A statute provided that slaves should all who have an interest in the safety not be brought into the state without and prosperity of the bank." See, a previous certificate signed by two also, Farmers' Bank v. Burchard, 33 freeholders. Slaves were brought in Vt. 346. without such certificate and sold, and 3 Stephens v. Bank, 88 Pa. St. 157. the purchaser was held liable for the 4 Bates v. Short, 3 Pennypacker (Pa), purchase money. Mr. Justice WAYNE 495. said that the rule v.-as allowed not for '1 I HANKS AND liA.NKINo. 521 maker. 1 Where money is paid h yon to di-count u note," etc., and guaranteeing its goodness and payment. On the credit of this guaranty the bank discounted the note. The Supreme Court held that an action on the guaranty lay in the, name of the bank counting upon a promise to the bank.* 291. Dividends on bank shares. The board of director* of a hank have discretionary power to declare dividends and the amount of same, and a very strong case must l>e presented to induce a court to interfere. 4 Where the articles of association of u bank provided that there should be a semi-annual dividend, and vested all the powers and privileges of the mcml>crs of the asso- ciation in a board of directors, the Court of Chancery of New- York held that it was competent for the board to determine in any year not to declare a dividend, and that a shareholder could not maintain a bill to restrain the collection of the securities ho had given the association in consideration of his shares, because they had determined to forego a dividend in that year. 3 A divi- dend declared and paid, and credited on a call for payment of tho stock subscriptions by a banking association, having nearly a third of its capital locked up in a suspended and uncertain debt, though it was believed there would be no ultimate loss, has been held to be illegal as against the creditors of the association.* It has IHHJII held that a dividend declared by a bank could not be made pay- able in bills of county banks, solvent, but quoted IHJ!OW |>ar in the city of New York. 7 A stockholder in a bank is not entitled to interest from the bank, either on ordinary dividends declared 1 Tagg r. Tennessee National Bank, * Ely r. Sprague. (1840) Clark.-. (1872) 9 Heisk. (Tenn.) 479. 851. Thin! National Bank r. Allen, Sagory r. Duhoi*. (1848) 8 8mlf. (1875) 59 Mo. 810. Ch. 466. 1 Woodstock Bank r. Downer, 27 ' Eule r. Chittenango Bank, (1881) Vt. 482. 34 N. Y. 548. 4 State r. Bank of I/ouisiana, 6 I*a. 746. 66 522 BANKS AND BANKING. [ L'iM on his shares or on money due him from a reduction by the bank of its capital stock, for a period during which the bank may U- prevented from paying him the same by attachments of his stock- in suits pending in court between him and other parties, although the money thus belonging to him may be during such time mingled by the bank with its general assets, the bank being ready and willing to pay over the same but for the attachments, and having on hand all the time a balance of money sufficient for the purpose. 1 A national bank in Texas having declared a dividend, providing in its resolution that the cashier should not pay such dividend to the stockholders until the respective indebtedness of each stockholder should first be paid out of his portion of such dividend, and one of its stockholders being indebted as guaran- tor and otherwise of certain notes held by the bank, his dividend was applied to the payment of the same. He brought his action against the bank for his dividend. The court specially held that the bank could not set off against such dividend the amount of notes guaranteed by such stockholder, where the original makers had not been exhausted, and no effort had been made by the 1 Mustard v. Unio* 1 Nat. Bank, (Me. for the owner of them than ordinary 1893) 29 Atl. Rep. 977. PETERS, Ch. deposits or dividends. All uncalled- J., said: " The [stockholder] contends for deposits and dividends held by any that the bank, as to these funds, did bank, or at any rate the bulk of them, not stand in the condition of an ordi- become mingled in the moneys and in- nary debtor, but became a stockholder vestments of the bank, and that is one or trustee for the owner of them; and source of its legitimate business profits, that, having received the profits and * * * The cases in Massachusetts, benefits of the funds, it is liable for in- where this same question has repeat- terest on the same. We do not feel edly arisen, are adverse to the plaintiff's satisfied to apply the rule invoked by claim. Oriental Bank v. Tremont the plaintiff. There was no promise Ins. Co., 4 Met. 1; Huntress r. Bur- of interest in any way, and no disposi- bank, 111 Mass. 213; Smith r. Flan- tiou to withhold the funds, except for ders, 129 Mass. 322. And we do not. self -protect! on. There was more perceive that our own cases favor the money at all times on hand and unem- claim. In Norris r. Hall, 18 Me. 332, ployed than the sum due the plaintiff the debt in the trustees' hands was on in readiness for appropriation on the its face running upon interest. Blod- debt. It would be an unheard of gett T. Gardiner, 45 Me. 542, w;is a claim to charge a bank with a liability similar case. And in Abbott r. Stinch- to pay interest on deposits or declared field, 71 Me. 213, the trustee, an nttor- dividends when there is no promise to ney at law, had collected funds for his do so nor any fault on the part of the client, and deposited them in a savings bank. And the funds in question bank upon interest for his client's were in no more favorable condition benefit." 2'.' iini A.M. i. ASKING. bunk to collect the notes fnmi them, atil they were riot hhown t.. l>e iiiM.lvent or beyond tlio jurisdiction of tin- court ; and in owe tin- maker <>f a note was insolvent and in tin- jn-nitcntiary or non- roident, protest and notice or suit at the first term were not necessary to hold the indorser, but the debts became an original liability of the indorser. 1 292. Lien of banks on moneys and securities of its customers. A bank has a lien on all moneys and securities of a customer corning into its possession in the regular course of business for any balance due it on general account. 2 A linker's lien does not extend to all securities happening to l>e in his hand- f- .r any purpose. 3 A bank has no general lien on securities deposited with it by a customer as collateral fora particular debt. 4 The lien of a bank resting upon the presumption of credit extended on faith of securities in possession or expectancy, will not arise in reference to securities in possession of the bank under circurnstanc. where there is a particular mode of dealing, inconsistent with such lien. 5 By the law merchant a banker has a general lien on all securities deposited with him by a customer for his general 1 First Nat. Bank of Texarkana r. Tex. 489; a. c., 6 8. \V. Rep. 802; 1 De Morse, (Tex. 1894) 26 S. W. Rep. Morse ou Banks, 324; Id. $$327; jfcw- 417. The Texas Civil Court of Ap- mark on Bank Dep. 22, 117; Hank r. peals, upon the general principles of Hughes, 17 Wend. 94; Fegley r. law involved in the ease, said: "A McDonald, 89 Pa. St. 128; Bnnk r. bank, in its dealings with its custom- Henninger, 105 Pa. St. 498; Bank ers, has a right to pay a debt due to it r. Peck, 127 Mass. 800. Mr. Mora^ out of money in tin? possession of such in his excellent work on Bunks and bank to the general credit of such cus- Banking (Vol. 2. 699e), say*: ' But tomers, whether derived from divi- the bank has a lien upon dividends; dends or any other source. Traders' or, more properly, it may set off divi- Nat. Bank of San Antonio r. Cresson, dcnds ace-ruing upon the shares of a 75 Tex. 298; 8. c., 12 8. W. Rep. 819, stockholder against indebtedness of a and authorities there cited; Nashville stockholder to the bunk, forthedlri- Trust Co. 9. Fourth Nat. Bank, dend is a simple debt owing from the (Trim.) 18 S. W. Rep. 822; Hagar t>. corporation to the stockholder. HifMT Bank, 68 Me. 509; Morse on Banks, r. Bank. 8 Me. 509.'" 84; New-mark on Bank Dep, 22; * In re TallasseeManufacturii Id. 117. There is a general rule, 64 Ala. 567. subject to some exceptions, that a * Petric r. Myers. (Sup. (X N. Y. bank has a lien on all moneys and Spl. Term. 177) 54 How. Pr. funds of a depositor in its possession 4 (irunt r. Taylor. 35 N. Y. Super to secure any balance due the luink by ft. 888. such depositor. Bank r. Weems. 69 4 Revues r. Dumont. 180 t*. S. JW. ;">24 BANKS AND BANKING. [ 292 balance, unless there be an express contract, or circumstances that show an implied contract inconsistent with such lien, and of this courts will take judicial notice. 1 The doctrine of hankers' liens is not the law of Pennsylvania. 2 A banker's lien does not extend to trust funds which his debtor, acting as an agent, has deposited in the name of a third person. 3 A banker has, upon a security pledged for a specific sum, a lien for that amount only, and he cannot, by reason of a banker's general lien on securities in his hands, extend it to cover other advances, unless by special agree- ment. 4 If there have been for a long time mutual dealings and an account current between two banks, in which they have mutu- ally credited each other with proceeds of all paper remitted for collection when received, and charged all costs of protests, post- age, etc., and transmitted their respective accounts regularly from one to the other, and settled them as the accounts of the respective banks ; and upon the face of the paper transmitted it has always appeared to be the property of the banks respectively remitted on their own account, and balances have been generally allowed to remain until reduced by proceeds of such bills so transmitted from one to the other, in usual course of business, either of the banks would have a lien upon paper thus transmitted for a general balance of account, no matter who might be the real owner of the paper. 5 Where a bank paid an insolvent depositor's note, which it had indorsed, and which had been dnly protested for non- payment, and was afterwards garnished for deposits in its hands belonging to such depositor, the Texas Civil Court of Appeals held that the bank had the right to retain out of the deposit due the maker sufficient to secure it against loss, and was responsible only for the balance remaining in its hands after the payment by it of the depositor's note for which it had obligated itself by its indorsement. 6 It was held in a case in a federal court that the United States Revised Statutes, section 5242, which invalidates 1 Wyman v. Colorado National Bank, ! Falkland r. St. Nicholas National (1879) 5 Colo. 30; citing Brandao v. Bank of New York, (1881) 84 N. Y. Barnett, 3 Man., G. & S. 530. As to 145. banker's lien upon securities belong- * Duncan r. Brennan, (1881) 83 N. Y ing to his customers for balances due 487. from them, see Cornwell v. Kinney, 1 6 Rathbone T. Sanders, (1857) 9 Ind. Handy (Ohio), 496. 217. 'Spring & Axle Co.'s Appeal, 111 6 Rosenberg T. First Nat. Bank of Pa. St. 291. Texarkana, (Tex. Civ. App. 1894) 27 293] HANK- AM. IIVVKIN... all transfers of the notes, lx>nds or bilU <>f exchange of a national bank, after the commission of an act of insolvency, with a view to the preference of one creditor over another, does not prohibit ;i hunk which has in good faith accepted the draft of a national bank the day before the tatter's insolvency, and afterwards paid the. -aim -. from applying the proceeds of collections made by it on pajn-r in its hands belonging to the insolvent bank to the payment of tin- draft since its lien on such collections runs from the date of accept ance. 1 The United States Circuit Court for the southern di-triet of New York has held that the same statute did not prevent the retention of a balance standing to the credit of an insolvent national bank with a correspondent bank on the day of ite failure, which balance had been pledged for the purpose of securing loans made to the insolvent bank by the correspondent bank. 1 293. Lien of a bank on shares of stockholders for their debts to the bank. The Delaware court has sustained the validity of a by-law made by the directors of a l>ank that no stockholder should have the right to transfer his stock while indebted to the bank, and such by-law held to give the bank a lien on the stock for the debts of the holder thereof. 8 "NVh. bank issues stock transferable on its face there is no lien upon it 8. W. Rep. 897; citing Burrow r. Conant t. Seneca County Bank, 1 Ohio Zapp, 69 Tex. 474; s. c., 6 S. W. St. 298. As to whether a by-law of a llcp. 788; Traders' Nat. Bank of Stin bank can create a general lien on the Antonio t. Cresson, 75 Tex. 298; 8. c., shares of a stockholder for any debt due 12 8. W. Rep. 819. the bank from the stockholder, so as to 1 In re Armstrong, (1890) 41 Fed. affect the creditors of the stockhoKN r. Rep. 881. see Nesmith r. Washington Bunk. Bell P. Hanover National Bank, (1828) Pick. (Mass.) 824. As (1893) 57 Fed. Rep. 821 ; citing Bank r. bank having a lien upon the sto. ; Colby, 21 WalL 618. LACOMBE, stockholder who inay have diel Circuit Judge, said further : " Neither ing notes due and to become du< the subsequent insolvency of the bank able to the bunk, for the amount i.f the nor the appointment of the receiver indebtedness, see Downer r. Zancavillc destroyed the lien of defendant, Bank. (1*88) Wright (Ohio. HI & nor its right to dispose of tin- pledge to the lien, given by it I to satisfy the debt thus secured." bank on the stork held \>\ Scott P. Armstrong, 146 U. 8. 499; s. having a priority over a c-laim of the C., 18 Sup. Ct. Rep. 1 is United State*, see Brent r. Bank <.f * McDowell r. Bank of W. & B., 1 Washington. 10 Pet. 596. A* U. th Htirr. (Del.) 27. As to lien on stock effect of a charter or by-laws of a bank for debt of the stockholder, see I5:mk prohibiting the transfer of shares of iti of Holly Springs P. Pinson, 58 Miss. 421; stock until all the debu of the rtock- 520 BANKS AND BANKING. [ 29f> for any debt the stockholders owe the bank. 1 A bank may hold a cash dividend as pledged for the debt of its shareholders to the bank. 2 A bank has been held not to have a specific lien upon the dividends of one of its stockholders in consequence of its right to prevent the transfer of his stock until his debt to the bank should be paid. 8 A bank has no lien on the stock of one indebted to it in preference to other creditors. A Us pendens would give preference to such creditors. 4 A bank may waive the privilege given it by its charter of preventing the transfer of its stock by any stockholder whose debt to the bank is actually due, until pay- ment of the debt. 5 The provision in such articles of incorpora- tion that " no shares shall be transferable unless the shareholder previously discharge all debts due him by the association," has been held to include not only matured debts but also liabilities miniatured. 6 This lien attaches when the bank is asked to trans- fer the legal title. Where one becomes the owner of stock sub- ject to this provision in the articles of which he has knowledge, and has omitted to give the bank notice of his ownership, thus enabling it to have credit on the faith of the assignor of the stock being a stockholder, he will have no superior equity to that of the bank. 7 A provision in the articles of association of a bank that no shareholder should transfer his shares, or receive a dividend thereon, who should owe the bank a debt then due, unless by con- sent, etc. ; and another giving authority whenever such a debt should be past due to sell the stock and apply the proceeds to pay the debt, have been held to create a lien upon the stock in favor of the bank for the debts of the stockholder. The court also held that the debts of a partnership of which the stockholder was a member, were his debts within the rule. 8 In case a bank release for a time its lien given it by its charter, upon the stock of a shareholder for debts due by the latter to the bank, and holder to the bank are paid, see Union 4 Dana v. Brown, (1829) 1 J. J. Bank v. Laird, 2 Wheat. 390. That a Marsh. (Ky.) 304. bank may waive its right, under the 6 Hodges r. Planters' Bank, 7 G. & last provision, see National Bank r. J. (Md.) 306. Watsontown Bank, 105 U. S. 217. * Leggett v. Bank of Sing Sing, 1 Fitzhugh v. Bank of Shepherds- (1862) 24 N. Y. 283. ville. (1825) 3 Mon. (Ky.) 128. 7 Ibid. Hagar r. Union National Bank, 63 8 Arnold v. Suffolk Bank, (1857) 27 Me. 509. Barb. 424. 3 Brent r. Bank of Washington, 2 Cranch Cir. Ct. 517. . 294] HANK- AND IIANKIN.,. .",-_', c. take more interest than that fixed by their charters. 4 Banking laws limit the right of a bank to take inter- est. Reserving or taking interest in excels of that limit, make* the transaction usurious, and the general usury law applie- to it. 1 The taking of interest in advance upon loans made by a bank is within the well-established rules of banking. Hut after a note given to it has become payable, and in no manner taken up and renewed, a bank cannot lawfully take upon it a rate of interest ev-cding the rate allowed by law. 6 Where a bank discount- ;t note payable directly to itself, it will not be usury to take the inter est in advance for the time the note has to run, this l>eing the 11 -a ire of banks. 7 Discount means, ejf m termini, a deduction or drawback made upon advances or loans of money upon negoti- able paper or other evidences of debt payable at a future time, which are transferred to a bank. 8 The rate of interest on loans 1 Bank of America r. McNeil, (1877) Ticonic Bank r. Johnson. 31 Me. 10 Bush (Ky.), 56. 414. * Farmers' Bank rif Maryland r. ' Union Bank r. Corcoran, 5 Cranch lull- hart, 6 (Jill (Md.). 55. That a na- Cir. Ct. 513. tionnl bank cannot create or hold, by * First National Bank r. Sherburnc. its articles of association or by-laws, a 14 Bradw. (III.) 566. As to what la a lien on its stock to secure the indebt- discount, see Fleckm-r r. Bank. 8 cducss of stockholders to it, see Sec- Wheat. 338; Bank r. Johnson. 104 I", ond National Bank of Louisville r. 8. 271; Tracy r. Talmagc. 18 Barb. National State Bank of New Jersey, 456; Niagara County Bank r. Baker. < 1M74) 10 Bush (Ky.), 875. 15 Ohio St. 68; I^JH- r. Bank. 30 Kaon. 1 Bank of J/juisiana r. Sterling, 2 440; Bank r. Shcrbunie, 14 III. App. La. 62; Clinton County r. Kernan. 10 566; First Nat. Bank r. National K\ K'l) (La.) 174. change Bank. 02 t*. S. 122. A to in 4 Bank of Louisiana r. Stansbury, 8 terest, see (tiithrie r. Rdd. 107 IV St. La. 261. 251; Barnet r. Bank. 96 U. S. 555; Naali * Rock River liank r. Sherwood. 10 r. Bnnk. 68 N. Y. 896; Bank r Car|*-n Wfe. 280; Durkee r. City Bank. 18 ter. 52 N. J. Law. 185; *. r . 19 All Wis. 216; Brower r. Haight, 18 Wls. Rep. 181: Bank r. SUuftYr. I 102. Rep 1K7; Bank r. Child*. 188 528 BANKS AND BANKING. [ 294 or discounts being limited in the charter of a bank, it cannot stipulate for a higher rate in consideration of its forbearance to sue. 1 It is not usurious in a bank to receive interest in advance on notes discounted by it. 2 Requiring and taking exchange in New York by a bank upon a note intended to be, and actually paid, in Wisconsin, in addition to ten per cent interest, has been held to be usury. 8 The taking of exchange, in addition to ten per cent in discounting a draft, was, however, held to be law- ful, if not intended to evade the usury laws. 4 A national bank may take the rate of interest allowed to natural persons generally by the law of the state where it is located, and a higher rate where state banks of issue can take it. 5 National banks are sub- ject to the penalty against usury imposed by the federal law and not to that imposed by state law. 6 Usurious interest paid a national bank on renewing a series of notes cannot, in an action by the bank on the last of the notes, be pleaded as a satisfaction of the debt. 7 The rule in Yermont is to treat the receiving by a bank of interest upon loans or discounts exceeding the rate prescribed by the laws of that state, as having the effect only to render the contracts void as to the excess of interest taken. 8 Interest alleged to be usurious, having been paid to a national bank, the usurious interest cannot afterwards be pleaded as a payment in an action 248; Alves v. Bank, 3 Browne Nat. being a violation of its charter, see Bank Cas. 452; c. f., Smith v. Bank, State v. Boatmen's Savings Institution, 26 Ohio St. 141; Bank v. Littell, 47 N. (1871) 48 Mo. 189. J. Law, 233. In N. Y. State Loan & * Duncan v. Maryland Savings Insti- Trust Co. v. Helmer, 77 K Y. 64, 68, tution, 10 G. & J. (Md.) 299. buying notes or advancing money 3 Durkee v. City Bank, 13 Wis. 216. on notes is distinguished from " dis- 4 Central Bank v. St. John, 17 Wis. counting." Lester v. Bank of Mo- 157. bile, 7 Ala. 490; Branch Bank at 6 Tiffany v. National Bank of Mis- Mobile v. Strother, 15 Ala. 51 ; Kitchen souri, 18 Wall. 409. See. also, Na- r. Branch Bank at Mobile, 14 Ala. 233; tional Bank v. Johnson, 104 U. 8. 271. Branch Bank at Montgomery v. Har- 6 Barker v. Rochester National rison, 1 Ala. 9. As to interest and Bank, 59 N. H. 310. usury on the part of a bank, and the 7 Dricsbach v. National Bank, 104 effect of penalties, see Atlantic State U. S. 52; Barnet v. National Bank, 98 Bank of Brooklyn v. Savery, (1880) 82 U. S. 555. See, also, as to the rem- N. Y. 291 ; Nash n . White's Bank of edy under the national law being ex- Buffalo, (1877) 68 N. Y. 396. . elusive, Stephens v. Monongahela 1 Exchange Co. . Boyce, 3 Rob. Bank, 111 U. S. 197. (La.) 307. As to the reservation of in- 8 Bank of Middlebury v. Bingham, terest in the way of discounts exceed- 33 Vt. 621. ing the rate of interest allowed a bank 294] BANKS AND HAN KOTO. H8 by the assignee of the hank. 1 Tin- demand and receipt h\ national hank of usurious interest from indorxer* u]xiii not. counted by it, the payments of which notes may lie guaranteed to the hank by a third party in a written guaranty, will not avoid the contract of guaranty between such third party and the hank. ' In Pennsylvania a national bank cannot take nmn- than six per cent upon the discount of a note, without showing that the state banks of issue are allowed to do so. 8 Where a charter of a bank provided " that said corporation shall not take more tlian at the rate of six per centum on its loans or discounts," a note on which in discounting the bank had reserved a rate of interest greater than six per cent, was held to be void for want of jwwer in the bank to make such a contract. 4 National hanks are Mihjcct oniy to the penalties prescribed by the United S king Association Act for taking usury. 5 Where usurious interest has been previously received by a national bank in the course of renewals of a series of notes, terminating in a note on which an action may be brought, the usurious interest cannot be pl by way of set-off or payment. The only remedy open to the party aggrieved is that prescribed by the act of congress a separate action for double the interest paid by him. 6 A national bank located in Kansas, charging and receiving interest at the rate of eighteen per cent per annum, was held liable under the National Banking Act to pay back twice the amount of interest thus received. 7 The person paying such interest having 1 Child* t. Alexander, 22 8. C. * Lazear r. National Union Bank of 185. That the laws of the state irapos- Maryland.at Baltimore.* 1N?9).W Md.?8. ing penalties for taking usury do not * Rank r. Gruber. 91 Pa. St. 877; apply to national banks, see Central Bank r. Blrt/.. 2 Ponnypacki-r(Pa.).170. Bank t>. Pratt, (1874) 115 Mass. 589; * Bank of Chillicothe r. Swaynr, Davis r. Randall, (1874) 115 Mass. (1838) 8 Ohio, 257. 547. As to the provisions of the Na- * Merchant* & Farnu-nt 1 National tional Banking Act with reference t Bank of Charlotte r. Myrra. 74 N. 01 forfeiture for taking usurious Interest, 514. As to a staU- court not having see Central Bank r. Pratt, (1874) 115 jurisdiction of a bill to recover usury Mass. 539; Davis r. Randall, (1874) paid to a national bank, set? Hani! 115 Mass. 547. As to the power to . Cleveland National Bank. (1801) 8 deduct interest from the amount of Lea (Tenn.). 40; Farmer* & Mechanics' the loan and in advance, see Maine Bank r. Dm ring. 91 U. 8. It. Brink v. Butts, (1812)0 UjUft. 40; Agri- Oldhain r Brink. .'<) cultural Bank t>. Bissell, (1882) 13 ' Crocker r. National Bank of Cfc* Pick. (Mass.) 586. topa, (1878) 4 DHL 868. 67 530 BANKS AND BANKING. [ 29-i gone into bankruptcy, the court held that the right of action for recovery of the penalty imposed by the act of congress passed to his assignee in bankruptcy. 1 The amount of the recovery was twice the full amount of interest paid, and was not limited to twice the excess of interest paid over the legal rate. 2 The Indiana Supreme Court has held that a note given to a national bank was not void, either as to the maker or surety, from the fact that the bank knowingly reserved and received usurious interest. 3 They also held that where an illegal rate of interest had been paid in advance, in an action on the debt by a national bank, the illegal interest could not be recouped. 4 In Indiana a national bank is entitled to charge and receive interest at the rate of ten per cent, to which may be added current rate of exchange for sight drafts, when bona fide made. In an action by a national bank on an evidence of debt, payable to it or its use, where it has unlawfully received illegal interest, the entire interest that the debt carries with it, or which has been agreed to be paid, will be forfeited, and no recovery can be had for interest unpaid. 6 The one who has paid the illegal interest may recover back double the illegal amount of interest he may have paid in an action for debt. 7 Where the assignment of error is the admission of certain evidence touching the consideration of a note discounted by a bank, the question whether the bank exceeded its powers by taking more than legal interest cannot be raised on error. 8 The Supreme Court of Colorado, in a very recent case, have accepted the con- i Ibid. Nolan, 7 How. (Miss.) 508 ; Grand 5 Ibid. Gulf v. Archer, 8 Smedes & Marsh. 8 Wiley T. Starbuck, (1878) 44 Ind. (Miss.) 151; Chambliss r. Robertson, 298. 1 Cushman (Miss.), 302; Planters' 4 Ibid. Bank v. Snodgrass, 4 How. (Miss.) s Ibid. 573; Forniquet v. West Feliciana R. "Ibid. R. Co., 6 How. (Miss.) 116; Killings- 7 Ibid. In La Dow r>. First Nat. worth v. Commercial Bank of Rodney, Bank of New London, 51 Ohio St. 9 Smedes & Marsh. (Miss.) 628; Knox 234, it was held that a national bank r. Bank of United States, 4 Cushman located in that state might, since the (Miss.), 655; State v. Commercial Bank repeal of the statutes fixing the rate of Manchester, 4 George (Miss.). 474; of interest for banks of issue, reserve Bailey r. Murphy, Walker (Mich.). and charge interest at the rate of 424 ; Farmers & Traders' Bank r. eight per cent. Shunk T. Bank, 22 Harrison, 57 Mo. 503; Lyon v. State Ohio St. 508, distinguished. As to Bank, 1 Stew. (Ala.) 442. interest and usury taken by banks, see 8 Murmh r. Branch Bank at Deca- Commercial Bank of Manchester t. tur, 20 Ala. 392. 294] BANKS AM. HANKING. 581 elusions of the courts of certain states that national banks may charge as high a rate of interest as is allowed to either individual",, or lianks of issue in the various states of their organization ; that in all states where there is a statute fixing a rate of interest, the only limitation upon this right must be found in the statute it.^-lf. The restriction contained in the National Hanking Act, which for- bade national banks to charge more than seven per cent interest only, l>ecarne operative in the absence of state legislation on the subject. Wherever the state legislature has acted, the general grant of power to banks to charge whatever rate might be reserved bv either citizens or banks of issue became operative. Under thin construction thay said : " Banks in Colorado are placed on pre- cisely the same footing as individuals. The legislative act on the subject fixed a rate, to wit, eight per cent, and further provided another rate of interest, which is determined by the agreement of the parties. That the legislature has failed to say the rate shall not exceed twelve per cent per annum, or five per cent per month, does 'not destroy the legal effect of the enactment, nor restrict its operations to other banks or citizens generally, nor make the case one where no rate of interest is named, whereby the federal limitation becomes operative. In common with these other courts, which have reached a similar conclusion, we hold that national banks in Colorado stand on the same footing in the matter of interest that other banks and individuals occupy." 1 1 Rockwell r. Farmers' Nat. Bank tional Banking Act, adjudged this of Longmont, (Colo. 1894) 30 Puc. admissible where a counterclaim was Rep. 905. The argument and reason- a proper method of defense, the ques- ing of the court, speaking through tion was settled adversely to the claim BISSJOM,. P. J., so fully explains the by the Supreme Court of the United leading decisions of the courts, fed- States. That court decided that, in eral and state, and is so exhaustive of suits upon notes where illegal interval the whole subject that it is deemed was reserved, u defense baaed upon worthy of a place in these notes, the reservation of the illegal interest It was said: "In reality the only ques- would simply limit the recovery to the tion involved is as to the right of a principal sum duo. Btirnet r. Bank. 9H national hank in Colorado to reserve U. S. 555; Priesbach r. Bank. 104 U. and receive, whether by way of loan 8. 53. The sole remaining inquiry or discount, a greater rate of interest concerns the recover)* of the thirty than seven por cent. In no event one dollars included in the judgment could the sums paid by way of inter- by way of interest, according to the est, even though illegal, be applied to tenor of the note. The statute* in the reduction of the principal sum Colorado concerning interest have been due on the note. Though some states, in force ever since it was a state. The in the litigations arising on the Na- act has always provided a specific rale 532 BANKS AND BANKING. [294 The United States Circuit Court of Appeals for the third circuit has held that the purchase of accepted drafts by a national bank from the holder without his indorsement at a greater reduction than lawful interest on their face value, was a discounting of those drafts, within the meaning of Revised Statutes United of interest, which is now eight per cent, but the act regulating the mat- ter has likewise contained a section permitting parties to stipulate for any rate of interest and authorizing the recovery of the stipulated interest. The National Banking Act, as amended in 1864 ( 5197, 5198, U. S. Stats.), in general provides that such bank- ing associations may reserve and receive any rate of interest allowed by the law of the state wherein the bank is organized. There was some con- trariety of opinion among the state courts as to the extent of the power conferred by these two sections and concerning the proper construction of the clause granting the banks the right to charge interest in those states where one rate was prescribed for banks of issue and another for persons gen- erally. This matter has likewise been settled by the Supreme Court of the United States, which has held that the banks may charge either rate at their pleasure, selecting, if they choose, the maximum. Tiffany v. Bank, 18 Wall. 409. None of these Supreme Court decisions, however, touch the matter in issue, which is, are national banks in states having a statute upon the subject of interest which fixes a rate, but likewise contains a provision au- thorizing parties to stipulate as they may choose respecting this matter, authorized to contract like other citi- zens living within the sovereignty? This question has not been settled. The statute respecting national banks has been in force for upwards of thirty years, and considerable litiga- tion has arisen on this particular ques- tion. The suits have taken various forms, and the query has been pre- sented by way of defense to prevent the recovery of the stipulated interest, and likewise in actions brought to recover the penalty of twice the inter- est where the rate has been manifestly illegal. Nevertheless, it remains true that the question as here presented has never reached the Supreme Court of the United States. The case relied on by the appellant, and which at first blush would seem to sustain his con- tention, is Bank c. Johnson, 104 U. S. 271. This case went up on writ of error to the Court of 'Appeals of the state of New York, and the federal tribunal took jurisdiction because of the question involved. In support of our position that this case is not decis- ive of the present controversy, and in reality does not touch the principles under discussion, it is needful to state what that case is, the point at issue, and other questions determined. This was a penal action against the bank, brought originally by Johnson in the Supreme Court of New York to re- cover twice the interest alleged to have been reserved and received by the corporation in the business done by the parties. Johnson insisted that the bank was subject to the penalties and liable to the provisions of the stat- ute respecting usury and interest in the state of New York, which, in gen- eral, provided that all usurious loans should be absolutely void and the lender could recover neither principal nor interest. On the other hand, the bank insisted that, according to the terms of the transaction, it was one entirely analogous to the discount of paper by the bank where the note waa 294] BANKS AND BANKING. States, section 5197, which prohibit- national hanks from taking intrivst on any loan or di>count made hy them at a greater rate than is allowed l.y tin- laws of the >tat- when- they are Mtuated; also, that the acceptor of drafts so purchased mii;ht defend tin- recovery of intetv-t thereon l.y the hank, under made by A. to the order of 1J.. who indorsed and sold it to the bunk. It must be remembered that these two propositions are dependent upon two considerations. That respecting usury is dependent upon positive statute; that respecting the law of discount is a judicial declaration of the law, and is not a creature of legislative enact- ment. For more than half a century it has been the law of New York that, in the matter of discount, bauks were not amenable to the usury statute. It may seem like a judicial evasion of the law, but in that mercantile community it has never been changed, the courts holding in a case of that description there lire two contracts resulting from the facts the first, an executed con- tract concluded by the indorsement and delivery of the paper, whereby the title passes to the holder; the other, an executory agreement be- tween the indorser and the indorsee, operative on the default of the maker. Of course the two contracts are some- what different in their limitations, since in the one case the bank recovers from the maker the amount of the note and the interest, and, in the other, the sum loaned, which is treated as the consideration of the executory agree- ment. Both these questions were resolved by the Court of Appeals in the negative, and their conclusion was affirmed by the Supreme Court. It was decided that state statutes respect- ing usury were not applicable to the national banks, excepting in so far as they might be examined to ascertain what rate of interest the national banks were entitled to reserve. The scope of the Banking Act and the ri.irlu of the general government to establish the system, delegate the power granted and impose restrictions on the bunks organized under it were fully considered in the case of Bank . Deariug, 91 U. S. 9. It was there decided that these banks were part of the instruments adopted to aid in the administration of the govern im-nt in one of its most important depart- ments. The corollary was that the states could exercise no control over them, nor in any wise a ffeet their oper- ations, except in so far as power might be granted by the act itself. This principle compelled the court to conclude that the usury laws in New York, save in the particular referred to, neither controlled nor in any wise affected Johnson's right of recovery. It was equally plain and so held by the court that the law declared in New York respecting the discount of paper had neither force nor applica- tion to the question at issue. In the first place it was not a matter of posi- tive statute respecting the subject of interest, but was simply a judicial determination by the courts of New York that the discount of paper un- der the circumstances suggested did not come within the pun-Jew of the usury statute. Since the statute* of the state could only be resorted to for the purpose of ascertain- ing what rate of interest national banks might charge, manifestly the decisions of the appellate courts of that state respecting the matter of e applied to the for- feited interest, hut must IK- credited ,,n the fa<-e vuli. tin- drafts. 1 The limitation of two year*, within which an action, under the provisions of section .M'."\ K- tute- United States, may Ixvcommenced for the recovery from a national bank of twice the amount of money paid to it, dates from the actual payment of interest, and not from the reservation of it from the original loan by way of di.-e.mnt. 1 legislation which made the matter uf interest between two definite limits a subject of convention. This distinc- tion does not seem of very much con- sequence in the solution of the in quiry." " If it be true that, in a state where interest may be the subject of an agreeemeut, the bank may reserve- whatever the parties agree upon up to a maximum, then all statutes reserv- ing the right of agreement of parties, whether they name a maximum or not, must be equally effectual for the pur- poses of a grant of power. The defi- nite question under consideration has been expressly settled against the ap- pellant in three different states. Na- tional Bank of Jefferson r. Bruhn, 64 Tex. 571; Hinds r. Marmolejo, GO Cal. 229; Bank P. Stover, 60 Cal. 387; Guild v. Bank, (8. D.) 57 N. W. Hep. 499." 1 Danforth t. National State Bank of Elizabeth, (1891)48 Fed. Rep. 271. 1 Smith r. First Nat. Bank of Crete, (Neb. 1894) 60 N. W. Rep. 866, fol- lowing Bank r. Smith. 86 Neb. 199; 8. c., 54 N. W. Rep. 254; followed in Lanhuin v. First Nat. Bank of Crete, (Neb. 1894) GO N. W. Rep. 1041. The court referred to the few ruses bearing upon the subject in these words: "In Duncan r. Bank, 1 Thorn p. Nat. Bank Coses, 860; H. c., Fed. Cas. No. 4,135. KBTCHAM. J.. instructed the jury as follows: "From the origin of the loan from the retaining of the first discount, through all the renewals, up to the time of final payment of the principal, or up to the time of mt to that lime he may make this election. When payment is actually made, and if, as in these cases, judgment is en- tered for the face amount of the notes or full amount of the loan, or payment is taken in full without any reduction by taking out the excessive interest, the cause of action is complete. The original loans in these cases were more than two years before these actions were brought, but the payment of one of the Millingcr notes was made, and the judgments on all the Duncan & Bros.' notes were entered, nenr the time of bringing the suits, less than two years before. The payment and the judgment concluded the transac- tion, and determined their character to be usurious. Till that time it was un- determined, and the statute did not begin to run." " In the case of Bank r Davin, reported in Fed. Ca 10,088. is found the opinion <>f nds were originally sold by the bunkers to the owner- and left .with them for safe-keeping. An uh.-conding cashier \ the bankers had stolen the bonds, and the owners brought this action to recover the value of the bonds of the bunker-. The Tinted States Supreme Court held that when bond-, originally deposited with the bankers for safe-keeping, were, by agreement of the bailors and bailees, made a standing security for the pay- ment of loans to be made by the bank to the owners of the bonds, the bailees became bound to give such care to them as a prudent owner would extend to his own property of a similar kind. 1 1 Preston r. Prather, (1891) 137 U. 8. 604, affirming the judgment in favor of the plaintiff rendered in Prather r. Kriui, 29 Fed. Rep. 498. The court referred to the following cases in sup- port of their judgment, to wit: "In * * * Third National Bank r. Boyd, 44 Md. 47, it appeared that a firm * * * a large customer of [the bank] [on a certain date] was indebted to it in about five thousand dollars. Subsequently, the senior member of the firm, pursuant to an agreement be- tween him and the president of the bank, deposited with the bank certain bonds and stocks as collateral security for the payment of all obligations of himself and of the firm then existing or that might be incurred thereafter, with the understanding that the right to sell the collaterals in satisfaction of such obligations was vested in the of- ficers of the bank. Some of the bonds \\ITC subsequently withdrawn and others deposited in their places. While these collaterals were with the bank the firm kept a deposit account, hav- ing an average of about four thousand dollars, and from time to time, as it needed, obtained on the security of the collaterals discounts ranging from 68 three to fifteen thousand dollars. The firm was not indebted to the bank sub- sequently to July, 1872, when it paid its last indebtedness; the bonds, how- ever, were not then withdrawn, but left in the bank under the original agreement. In August, 1872, the bank was entered by burglars and certain of the bonds were stolen. In an action by the senior partner against the bank to recover the value of the l>onds stolen it was held: ' First, that the contract entered into by the bank was not a mere gratuitous bailment. * * * Third, that the original contract of bailment being valid and binding, the obligation of the bank for the safo cus- tody of the deposit did not cease when the plaintiffs debt had been paid. Fourth, that the defendant was* respon- sible if the bonds were stolen in con- sequence of its failure to exercise such care and diligence in their custody and keeping as at tin- time banks of com- mon prudence in like situation and business usually In-stowed in the cu* tody and keeping of similar property belonging to themselves; that the can 1 and diligence ought to have been mob as was properly adapted t<> the preser- vation and protection of the property. 538 BANKS AND BANKING. [ 296 296. The rights of a bank as to securities pledged to it. In this case it appeared that an agent, in pursuance of his prin- cipal's instructions, loaned money on pledges of personal property for which property he took warehousing receipts in his name as " agent." He then pledged these warehousing receipts to a bank to secure his individual debts to the bank, the latter having knowledge of the business relations between this agent and his principal and the operations in which they were engaged. The bank afterwards sold the goods represented by these warehousing receipts and applied the money to the payment of the debts of the agent who had pledged them to it. This action was brought by the owner, the principal of the pledger, for the recovery of their value from the bank. The United States Circuit Court for the district of Maryland held that the knowledge above referred to, together with the use of the word " agent " on the receipts, was sufficient to put the bank upon inquiry, and it was liable to the principal for the amount realized by it from the sale of the goods. 1 The bank contended that the agent having and should have been proportioned to and made no examination of the secu- the consequences likely to arise from rities, and exercised no care or dili- auy imprudence on the part of the de- gence in regard to them; also, that the fendant. Fifth, that the proper meas- president had been in the habit of ab- ure of damages was the market value stracting securities and using them in of the bonds at the time they were his private business, most of them be- stolen. Whether due care and dili- ing returned when called for; and that gence have been exercised by a bank the manager, who had knowledge of in the custody of bonds deposited with this habit, did not take any means to it as collateral security, is a question prevent it, nor did he notify the trus- of fact exclusively within the province tees. It was held that the bank was of the jury to decide.' In * * * chargeable with negligence, and that Cutting v. Marlor, 78 N. Y. 454, it ap- the defendant was entitled to counter- peared that the defendant, as collateral claim the value of the securities; that security for a loan made to him by a the bailment was for the material beue- bank, delivered to it certain securities, fit of the parties; that the bailee wag which were taken and converted by bound, for the protection of the prop- the president to his own use. In an erty, to exercise ordinary care, and was action by the receiver of the bank to liable for negligence affecting the recover the amount loaned, it was safety of the collaterals, distinguishing found that the trustees of the bank the case from the liability of a gra- left the entire management of its busi- tuitious bailee, which arises only ness with the president and assistant, where there has been gross negligence styled manager; that they received the on his part." statements of the president without ' Thurber t. Cecil National Bank, question or examination; that they had (1892) 52 Fed. Rep. 513. See as an- no meetings pursuant to the by-laws, thority for this rule National Bank . 29fi] BANKS AND UANK: . :: authority to sell and tho provisions of certain statutes of Mar\ l;md relieved it from liability. The court held that the fact th.-it the agent had authority to sell dif such indebtedness, the interest thereon, and the expenses of Insurance Co., 104 U S. 54; Duncan ' Ibid. In support of thrae rule* Me t>. Jaudon, 15 Wall. 165; Warner r. Allen r. St. LouU Bank. which it held. WALLACE, J., of the I'nitcd State- Circuit Court for the southern district of New York, held that the >tatute was directed to preference, not to the giving of a security when a debt is created ; and if the transaction be free from fraud in fact, and is intended merely to adequately protect a loan made at the time, the creditor can retain property transferred to secure such a loan until the debt is paid, though the debtor w insolvent, and the creditor has reason at the time to believe that to IK.- tin- by him to [the brokers], and after they money which they might hare de- had been subsequently taken by the posited to meet the checks. More- [bank] in good faith, neither he, nor over, it has been held repeatedly by his executors can set up the statute to this court that when- the provi-i destroy the debt. This construction the National IJankinir Act prohibit CIT of the statute iu question is strength- tain acts by banks or their offlccrx. oned by the subsequent enactment, without imposing any penalty or for- making it a criminal offense in an feiture applicable to particular trans- ollici-r, clerk or agent of a national actions which have been executed, bank to violate the provisions of the their validity can be questioned only act. [Rev. Stats. U. S. 5208, to by the United States, and not by wit : Act July 12. 1882, 13, c. private parties. National Bank r. 288; 22 Stats, at Large, 166.] This Matthews, 98 U. S. 621; National shows that congress only intended to Bank r. Whitney, 108 U. S. 99, impose, as penalties for over certifying National Bank of X-nia r. Stewart, checks, a forfeiture of the franchises 107 U. S. 070. The bonds in question of the bank and a punishment of the came into the possession of the [hank] delinquent officer or clerk, and did before it certified the clu-cks. They not intend to invalidate commercial were not pledged to it under any transactions connected with forbidden agreement or knowledge; on its part. certifications. As the [bank] was or in fact on the jwrt of [the broken], bound to make good the checks to the that subsequent certificate* would bo holders of them, because the act made. Tin- certificate* were tnad [heretofore referred to] declares that after the pledge anil created a debt of the checks shall be good and valid [the broken ]. which artme after tin- obligations against the [bank], it fol- pledge. The agreement [at the tim lows that [the brokers] were bound to of depositing the collateral*] applii-1 make good the amounts to the [bank], and became operative simuluncoualy It necessarily results that the | bank j. with the certification*, but indcpeod in paying the checks, was as much ently of them, as a legal pn>|KiUun. entitled to resort to the securities In Logan County Bank r. Townsrnd. which [the brokers] had put into its 139 U. S. 67, 77, decided in March. hands, as it would have been to apply 1891, after the present cae was dc- 544 BANKS AND BANKING. [296 fact. 1 In the same case the correspondent bank insisted that it acquired a banker's lien upon the securities for the amount of any balance upon its general account with the insolvent bank which remained unpaid. But the court held that a banker's lien for the amount of the balance of its general account does not exist when the securities have been deposited with the bank for a special purpose or for the payment of a particular loan. 2 dded by the Court of Appeals of New York, this court approved the decision in National Bank v. Whitney, 103 U. S. 99, and said that a disregard by a national bank of the provisions of the act of congress forbidding it to take a mortgage to secure an indebtedness then existing, as well as future ad- vances, could not be taken advantage of by the debtor, but ' only laid the institution open to proceedings by the government for exercising powers not conferred by law.' " 1 Armstrong p. Chemical National Bank, (1890) 41 Fed. Rep. 234. It was said by the court: ' ' The naked fact that the Fidelity Bank was insolvent at the time it sent the securities to the de- fendant does not imply that the trans- fer of the securities was made in con- templation of insolvency, or with a view of a preference of the defendant over its other creditors. Although, in the light of subsequent events, the Fidelity Bank was insolvent, it may be that its insolvency was not sus- pected by its officers. So far as ap- pears no act of insolvency had been committed. A bank is not in con- templation of insolvency until the fact becomes reasonably apparent to its officers that it will presently be un- able to meet its obligations, and will be obliged to suspend its ordinary ob- ligations. Roberts v. Hill, 24 Fed. Rep. 571. Until this condition of affairs exists, certainly a national bank- ing association does not violate the statute by pledging its securities to a reasonable amount to raise money needed to meet an unexpected run. The best managed institutions are liable to such contingencies, and the right to use their assets in an honest attempt to bridge over such a crisis is indispensable to their safety. Obvi- ously the exercise of this right would be impracticable if the pledge becomes void whenever the attempt of the bank to rescue itself from failure be- comes unsuccessful." 4 Armstrong v. Chemical National Bank, (1890) 41 Fed. Rep. 234. WAL- LACE, J., said : " It is familiar law that a banker has a lien upon all funds and securities in his possession, de- posited with him in the usual course of business by a customer to facilitate the financial transactions contemplated between them, which extends to the payment of any balance on general account. The lien arises from the im- plied understanding of the parties that credit is to be given in the course of dealings between them by the banker to the customer upon the faith of the securities. It is equally familiar law that the lien does not exist when the securities have been deposited for a special purpose, or for the payment of a particular loan; and where they are delivered specifically to protect the banker in a particular transaction, or series of transactions, he has no lien upon them for any other purpose, and cannot assert one for any other in- debtedness whether arising upon general account or otherwise. This doctrine has recently been reiterated and applied by the Supreme Court in Reynes v. Dumont, 130 U. S. 354; s. c., 9 Sup. Ct. Rep. 486. That was a case 297, 298] BANKS AND BAXKIWO. ji 297. Personal guaranty of a bank by stockholders and directors. The Tuin-d St.-itrs Circuit Court of Apj>cal* for tin- fifth circuit has held that a personal guaranty fiv-ii by stock- holders and directors of a bank to another lank in consider of "loans, discounts or other advances to be made," for tin- repayment of any indebtedness thus created, imposed a liability on the guarantors when acted on by the guarantee, though no notice of acceptance of the guaranty was given, the contract showing a personal interest of the guarantors in the advances, constituting a consideration moving to them. 1 298. Misrepresentations by a bank as to solvency of a customer. A state bank having loaned large sums of money to a manufacturing corporation upon representations made t- it by a national bank through its cashier as to the good standing, etc., of the corporation, which were not repaid to the bank by reason of the insolvency of the corporation, brought its action against the national bank to recover damages for what it alleged in which securities consisting of two case] liad resulted, either in conse- hundred and seventy-live thousand qucnce of a subsequent express con- dollars of municipal bonds had been tract, or in consequence of any iro- left by one banking firm with another plication from the nature of the Iran* for a period of two years and a half, action, in giving the defendant a lien during which large transactions on for the antecedent indebtedness of the general account took place between [insolvent] bank, it is extremely them; various loans were made to the doubtful whether the transaction could former by the latter upon an express be upheld. The cases of Bank r. pledge of the bonds, and the former, at Colby, 21 Wall. 009, and Bank r. the request of the latter, had also ob- Butler, 129 U. 8. 228; . r.. 9 Sup. Ct. tained various loans of other bankers Hep. 281, take a view of the statute by pledging so many of the bonds as which suggests that no preference CM was necessary in the particular trans- be obtained by one creditor of a na- action. The court found as a fact that tional hank over another, after the the bonds were left with the banking bank has become insolvent, whether firm originally as collateral for a par- obtained with the consent of or by ticular loan; that there was no express adversary proceedings against the understanding between the two hank- bank and whether the creditor has or ing firms that they were to stand as a has not any reason to suppose the security for general transactions, and bank to be insolvent at the time " that the.loans subsequently made upon ' Dond r. National Park Bank of them were specific loans accompanied New York, (1898) 54 ;-. 846 by an express pledge, and held that See Davis r. Wells, 104 T. 9. 159. for these circumstances were inconsistent a review of the precedents in with the existence of a general Hen. case and a statement of their doctrin. If the sending of the securities [in this 69 546 BANKS AND BANKING. [ 298 were fraudulent misrepresentations as to the standing, etc., of the corporation. Different defenses were made by the bank to this suit. Among others, it contended that neither the bank itself nor its cashier had power to make such representations as were made concerning the standing or credit of the corporation. The United States Circuit Court for the district of Oregon held that the national bank was liable for fraudulent representations made by it through its cashier to the other bank as to the financial responsibility of its customer. 1 There was a contention in this case, the letter containing the misrepresentations as to the credit of the corporation seeking loans being signed simply by the cashier of the national bank sued, that the action upon the repre- sentation was barred by the Statute of Frauds. The provision in the Code of Oregon, in substance a reproduction of Lord TEN- TERDEN'S act (9 Geo. IY, chap. 14, 6), was as follows : " No evidence is admissible to charge a person upon representation as to the credit, skill or character of a third party unless such repre- sentation or a memorandum thereof be in writing and either sub- scribed by or in the handwriting of the party to be charged." Under this contention arose the question whether the letter as written and signed by the cashier of the national bank was the 1 Nevada Bank of San Francisco v. case the doctrine of ultra tire* has no Portland Nat. Bank, (1893) 59 Fed. application. Corporations are liable Rep. 338. GILBERT, Circuit Judge, for the acts of their servants while en- said: "The defendants contend that gaged in the business of their employ - the defendant bank, which is a na- ment in the same manner and to the tional bank, had not the power to as- same extent that individuals are liable sume a liability for its own error or under like circumstances.' In Bank mistake in certifying to the financial T. Graham, 100 U. S. 699, 702, the standing of a customer seeking credit court said: 'An action may be main- at another bank. It must be conceded tained against a corporation for its ma- that it had not the power to assume licious or negligent torts, however such liability ex contracts, but in the foreign they may be to the object of case of a tort committed by the bank its creation, or beyond its granted or its officers a different principle is powers. It may be sued for assault applied. In such a case it is the rule and battery, for fraud and deceit, for that the corporation is liable for the false imprisonment, for malicious negligence or other tort of its agents prosecution, for nuisance and for and servants, even when performing libel.' " The same doctrine is applied acts that are ultra fires. In the case in the cases of Railroad Co. r. Derby, of Merchants' Bank v. State Bank, 10 14 How. 468; Railroad Co. . Quigley, Wall. 604, the court said: 'Corpora- 21 How. 202; Ettinge. Bank, 11 Wheat, tions are liable for every wrong of 59; Bissell r. Railroad Co., 22 N. Y. which they are guilty, and in such 258. 2D8] BANKS AND BANKING. M7 Irtu-rof tlu- hank and the within tin- inuiiniiig of this statut.-. the signature of tlic bank Tin- court lu-ld that it wag. 1 1 Nevada Bunk of Sun Francisco t>. Portland N:it. Bank, (1893) 5'J F.-.l. Kcp. 388. GILBERT, Circuit Judge, art/Ht-ndo, said: " It is argued that the signature of the cashier of the drfrml- ant bunk, attached to the letters, is not the signature of the bank. The Eng- lish case of Swift r. Jewsbury, L. H., 9 Q. 15 :U)l,dccided in 1874, is relied upon as giving that interpretation to the stat- ute. In that case a letter had been writ- ten to the manager of a bank, request- ing his opinion of the standing of one who was seeking credit. The answer was signed M. B. Goddard, Manager.' The banking company had no knowl- edge that such letter liad been written, and gave the manager no express au- thority to write the same. The com- pany was not a corporation. It was a copartnership, with certain privileges conferred by statute. It could sue and be sued only in the name of one of its public officers, and its members could not be made liable in respect to trans- actions with the company until a judg- ment had first been obtained against the company through one of its public officers. The decision of the Court of Qiiren's Bench was that the signature of Goddard, the manager, was in fact and law the signature of the banking company; but upon appeal to the Court of Exchequer, Lord COLKRIDOK was of the opinion that the signature to the document upon which the bank was sought to be held liable was not signed by the party to be charged, and did not come within the terms of the statute. Instead of basing the decis- ion upon that view of the law, how- ever, he held that the decision of the Queen's Bench should be reversed upon the ground that upon the language of the correspondence there was no inten- tion to consult the bank, but rather the manager thereof; and that the rep- resentation was made by Goddard him* self of matters as to which he was pledging his personal knowledge only. Upon this ground the decision wan concurred in by the remainder of the court. No American case to found which covers the point in question, but the tendency of tin- drrUion* in the states in which Lord TKXTERDKS'H act has been adopted has been to modify the protection which the statute afford* to fraud by enforcing a strict construe- tion of its provisions. Bush r. Sprague. 51 Mich. 41; B. c., 16 N \V Rep. 222; Hodgin r. Bryant, 114 Ind. 401: s. C..16N. E. Rep. 815. A corporation can sign instruments in writing only by an officer or officer* empowered so to do. In the usual course of the corporation's business the act of signing is not the act of an agent but the act of the corporation itself. While formal documents are usually signed by the president and secretary, and further authenticated by the corporate seal, the corpora- tion may, nevertheless. em|H>wer any officer to execute dec-da or other instruments in writing. In bank- ing corporations, most instruments in writing issued or indorsed by the bank are signed by the cashier. The letters of the bank, in iu usual correspond^ dcnce about business arc often, if not generally, signed by him. In Morse on Banks and Bunking (g 188) Ik is said that it is the special duty of the cashier to conduct the corre*ponil iu-c of the bank. The name of the drfi-tul ant bank stands at the head of both letters referred to in the complaint, and both arc signed by the cashier, and his official title is appended. The ques tion is not free from doubt, but I am inclined to the view that in a document of this kind, written under the rircum stances detailed in the complaint, tin signature of the cashier is the signa- ture of the bank." CHAPTEK X. OFFICERS OF BANKS. 299. Directors their powers and duty. 300. Jurisdiction of state courts in cases of directors of national banks violating their duty. 301. Jurisdiction of courts of equity in such cases. 302. Statutory liability of direct- ore of national banks actions to enforce it rules. 303. President his power and duty. 304. President's acts binding on bank illustrations. 305. President's acts not binding on bank illustrations. 306. When a bank is not charge- able with constructive notice and knowledge of its president. 307. Cashier his power and duty. 308. Cashier's liability for his acts, 309. Knowledge of its cashier not imputable to bank illus- trations. 310. Rules as to ratification of a cashier's act by the bank. 311. Act of cashier binding on bank. 312. Promise by cashier to pay draft of a customer to be drawn at a future day not binding on the bank. 313. Estoppel of a bank to deny the validity of an act of its cashier iu drawing drafts on its correspondent and fraudulently indorsing them. 314. Teller and bookkeeper their powers and duties. 299. Directors their powers and duty. Directors of a bank may authorize one of their number to assign anj securities belonging to the corporation. 1 The directors of a bank have authority to settle with its cashier, where his accounts exhibit a deficiency in the funds ; and, if the directors be guilty of fraudu- lent conduct in the settlement made with him, the settlement would still be valid, where the cashier is not shown also to be guilty of fraud. 2 But if the cashier be guilty of fraud in con- nection with the settlement, the bank will not be concluded by it. 3 Directors of a bank have no authority, to allow overdrafts. 4 The giving of compensation to a director by the board of direct- 1 Northampton Bank (1874) 11 Mass. 288. 8 Frankfort Bank V. Johnson, 24 Me. 490. 8 Ibid. 4 Market Street Bank v. Stumpe, v. Pepoon, of the directors of a bank, see Harper v. Calhoun, 7 How. (Miss.) 203; State ID. Commercial Bank of Manchester, 6 Smedes & Marsh. (Miss.) 218; Com- mercial Bank of Manchester?;. Bonner,. 13 Smedes & Marsh. (Miss.) 649. (1876) 2 Mo. App. 545. As to powers 200] OFFICERS OF BANKS. ! ore of a bank for extra services, though unlawful, will not expoao the directors to liability if clone in good faith and with tin- purest intention to benefit the bunk. 1 A director of a bank receiving his compensation provided by law as a director cannot contract with the board of direct. >r> while he ct.Mtiuues a member fr com- pensation for extra services. 8 But a board of directors of a bank may compensate a member of the board for services rendered to the bank prior to his membership. 8 Where a director of a bank has received money by order of its board of directors, which U unauthorized by law, it may be recovered by the bank as to much received to its use. 4 A bank will be affected with the knowledge of one of its directors, who acts for it in discounting a note, that the note was procured by fraud. 5 Where the director having knowledge of the character of negotiable paper dis- counted by a bank simply recommends its discount, the bank will not be charged with his knowledge if the director does not con- trol its discretion or discount the paj>er himself as an officer or agent of the bank.' The directors of banks are bound to con- stant activity and thorough acquaintance with the daily course of affairs and dealings of the institution. They are bound, in the absence, illness or negligence of the cashier, to perform any duty which Ixilongs to him, and it is their duty to see that the duty w performed. They are bound in law to know the securities of the bank, its bilks payable and bills receivable, maturity of its paper 1 Godbold r. Branch Bank at Mobile, * Security Bank P. Cushman, (1877) 11 Ala. 191. 121 Mass. 490. Under what circum- * Branch Bank at Mobile r. Collins, stances a bank would not be affected (1845) 7 Ala. 95; Branch Bunk at Mo- by the knowledge of one of ita direct- bile v. Scott, (1845) 7 Ala. 107. An or- ore in discounting a note, ace Wash* der of a board of directors allowing ingUjn Bank r. Lewis. (1839) 22 lick, a compensation of $1,000 cash to the (MBit.) 24. When notice to a director members of the board constituting the of facts affecting pnpcr offered for din- real estate committee, has been held to count is notice to the bank, we Clerks' be illegal and void in Branch Bank Savings Bunk r. Thomas. (1876) 8 Mo. at Mobile r. Collins. (1845) 7 Ala. App. 867. As to a notice to a bank 95; Brunch Bank at Mobile r. Scott, director, or knowledge obuin-l >y (1845) 7 Ala. 107. him while not engaged either officially Branch Bank at Mobile r. Collins, or as an agent or attorney in the busi- (1845) 7 Ala. 95; Branch Bank at Mo- ness of the bank, being inoperative as bile r. Scott, (1845) 7 Ala. 107. a notice to Uie bank, aee FViirfleld 8aT- 4 Branch Bank at Mobile r. Collins, ings Bank r. Chn- 7 .' M 288. (1845) 7 Ala. 95; Branch Bank at Mo- Shaw r. (lark, 49 Mich. 884. Scott. (1845) 7 Al'i. 107. 550 OFFICERS OF BANKS. [ 200 and who are the parties. And, in the x absence of the cashier, they are bound to due diligence in perfecting the liability of all indorsers upon the paper of the bank. 1 The doctrine, that the directors of a bank are conclusively presumed to know the finan- cial condition of the bank, its general business and its receipts and expenditures as shown by its regular books, is for the protec- tion of third parties dealing with the bank and of the bank against the prejudicial action of any director, and cannot be invoked to uphold a wrong appropriation of moneys by the cashier or other officer, which appropriation may be made and also entered upon the books of the bank without the actual knowl- edge of the directors. 2 The sacrifice of the corporate property by officers of a bank for the purpose of passing a crisis in its affairs, can only be justified when the object is to protect the rights of the creditors and do equal justice to all the stockholders of the corporation. The act must not be for the exclusive bene- fit of a particular individual, especially if it be one to whom the management of the funds of the bank has been intrusted. 8 Where the obligations for loans held by a bank against its direct- ors exceeded the limit prescribed by law, and the cashier to reduce them procured notes to be made and indorsed for his accommodation, and had them substituted and absolutely exchanged for notes indorsed by a director and discounted by the bank for his accommodation, the Supreme Court of New York held that the transaction, being in good faith and not a mere shift to present a temporary appearance of soundness, was legal and the new notes valid. 4 Directors of a bank under the Maine statutes are liable to a creditor of the bank suffering certain losses grow- ing out of the official mismanagement of the directors. These directors are personally responsible for the official mismanage- ment only which may have occurred during the year for which they were to have been chosen and during which they have acted. 1 Lane v . Bank of West Tennessee, the bank, see United Society of Shak- 9 Heisk. (Tenn.) 419; Moses v. Ocoee ers v. Underwood, (1873) 9 Bush (Ky.), Bank, 1 Lea (Tenn.), 398. 616. * First National Bank v. Drake, 3 Gillet . Moody, 3 N. Y. 479. (1883) 29 Kans. 311. As to the dili- 4 Seneca County Bank v. Neass, gence required of directors of a bank (1848) 5 Denio, 329. As to loans of in acquiring knowledge of its business, bank funds to directors, see Bank and what negligence would render Commissioners r. Bank of Buffalo, them liable for special deposits lost by (1837) 6 Paige Ch. 497. 9] OFFICERS OF BANKS. .'..', I They are personally answerable fur ordinary neglect in their o.") 2 OFFICERS OF BANKS. [ 290 executive officer should have been left to control the business of the bank absolutely and without supervision, or that the statute furnishes a justification for the pursuit of that course. Its lan- guage does enable individual directors to say that they were guilty of no violation of a duty directly devolved upon them. Whether they were responsible for any neglect of the board as such, or in failing to obtain proper action on its part is another question. Indeed, it is frankly stated by counsel that ' although special provisions of the statute are quoted and relied upon, these do not create the cause of action, but merely furnish the standard of duty and the evidence of wrong-doing,' and section 556 of Morawetz on Corporations is cited, which is to the effect that ' the liability of directors for damages caused by acts expressly prohibited by the company's charter or act of incorporation is not created by force of the statutory prohibition. The performance of acts which are illegal or prohibited by law may subject the corporation to a forfeiture of its franchises, and the directors to criminal liability, but this would not render them civilly liable for damages. The liability of directors to the corporation for damages caused by unauthorized acts rests upon the common-law rule which renders every agent liable who violates his authority to the Damage of his principal. A statutory prohibition is material under these circumstances merely as indicating an express restriction placed upon the powers delegated to the directors when the corporation was formed.' It is perhaps unneces- sary to attempt to define with precision the degree of care and prudence which directors must exercise in the performance of their duties. The degree of care required depends upon the sub- ject to which it is to be applied, and each case has to be deter- mined in view of all the circumstances. They are not insurers of the fidelity of the agents whom they have appointed, who are not their agents, but the agents of the corporation, and they can- not be held responsible for losses resulting from the wrongful acts or omissions of other directors or agents, unless the loss is a consequence of their own neglect of duty, either for failure to supervise the business with attention or in neglecting to use proper care in the appointment of agents. Morawetz, 551 et seq., and cases. Bank directors are often styled trustees, but not in any technical sense. The relation between the corporation and them is rather that of principal and agent, certainly so far as OFFICEKS OF BANKS. 55fl creditors arc concerned, between whom and the corporation tin; relation is that of contract ami not of tnM. Uut, undoubtedly, under circumstances, they may In* treated a- occupying the position of trustees to cetitui que trust" After referring to the cases cited below, 1 the majority of the court applied, through the chief justice, these principles to the particular acts of par- ticular ones of the directors charged in the bill with neglect and relieved them from liability as cliarged. 2 Four of the justices, however, dissented as to the acts of several of the directors. 1 ' Percy r. Millandon. 8 Muit. (N. 8.) (La.) 68; Bperiug's Appeal, 71 Pa. St. 11; Citizens' B'lilding Association . Coriell. 34 N. J. Eq. 383; Hodges r. New England Screw Co., 1 R. I. 812; Wakeman r. Dalley. 51 N. Y. 27. 1 Briggs r. Spauldiug, (1891) 141 U. S. 132. s Ibid. Mr. Justice HAHLAN, speak- ing for himself and GRAY, BRKWKR and BROWN, JJ., in the dissenting opinion, presented their conclusions in these words : " We are of opinion that when the act of congress declared that the affairs of a national banking associ- ation shall be 'managed' by its direct- ors, and that the directors should take an oath to 'diligently and honestly ad- minister' them, it was not intended that they should abdicate their func- tions and leave its management and the administration of its affairs entirely to executive officers. True, the bank may act by 'duly authorized officers or agents,' in respect to matters of cur- rent business and detail that may l>e properly intrusted to them by the di- rectors. But. certainly, congress never contemplated that the duty of direct- ore to manage and to administer the affairs of a national bank should be in abeyance altogether during any period that particular officers and agents of the association are authorized or JMT- mitted by the directors to have full control of its affairs. If the directors of a national bank choose to invest its officers or agents with such control, 70 what the latter do may bind the bank as between it and those dealing with such officers and agents. But the duty remains, as between the director* and those who are interested in the bank, to exercise proper diligence and super- vision in respect to what may be dono by its officers and agents. Aa t<> tin- degree of diligence and the extent of supervision to be exercised by direct ors, there can be no room for doult. under the authorities. It is such dili- gence and supervision as the situation and the nature of the business requires. Their duty is to watch over and guard the interests committed to them. In fi- delity to their oaths and to the obliga- tions they assume, they must do all that reasonably prudent and careful men ought to do for the protection of the interests of others intrusted to their charge." The justice, in sup- port of the conclusion* of the mi- nority, quoted largely from many of the following cases, and cited the oth- ers : Martin r. Webb. 110 U. 8. 7; Cutting r. Marlor. 78 N. Y. 4*4; Prw- ton r. Prather. 137 U. 8. 604 ; Hun r. Cary. 82 N. Y. 65; Ackcrman r. Hal Bey, 87 N. J. Kq. 356; Halscy r erinan. 8S N. J. Kq. 501; I'mie-l N., , ety of Shakers r. t'nderwood. 9 Bunli (Ky.). 601); Horn Silver Co. r. Ryan. 43 Minn. 196; United State* r. Means. 43 Pod. Rep. 590; Ik-lai.o ft III. 247; Perry r. Milhudmi. X U. 568; Marshall r. F. A M. Saving* Bank of Alexandria, etc., 85 Va. 676; 554 OFFICERS OF BANKS. [ 300 300- Jurisdiction of state courts in cases of directors of national banks violating their duty. This being a case against the directors of a national bank which, being insolvent and in the hands of the receiver, defendant here, the demurrer to the bill challenged the jurisdiction of the state court. To this it was said : " The right of action is not, in our opinion, derived from the act of congress, but depends upon general principles of equity, but in any aspect of the case, the state courts have con- current jurisdiction, unless exclusive jurisdiction has been con- ferred upon the United States courts. 1 The jurisdiction of the state courts over actions against national banks is expressly recog- nized by the act, and such jurisdiction has been repeatedly exer- cised in actions by receivers to collect claims due to such banks. There can be no reason why civil actions brought by stockholders in place of the receiver, to enforce claims against delinquent directors or officers, should stand upon any different footing. The only cases in which exclusive jurisdiction is conferred, by the Banking Act, upon the courts of the United States, so far as we can find, are proceedings to enforce the forfeiture of the fran- chises of banking associations for violations of the act ( 5239), and proceedings to enjoin the comptroller of the currency from winding up the corporation, through a receiver. There is noth- ing in the act which withdraws from the jurisdiction of the state courts civil actions to enforce rights of individuals against national banks or their officers. 2 Criminal prosecutions for offenses cre- ated by the act stand upon a different footing. Exclusive juris- diction in such cases is vested in the Circuit and District Courts of the United States by the Judiciary Act of 1789." As to par- ties, it was also said : " The bank was a proper and even necessary party defendant. Robinson v. Smith, 3 Paige, 222. It con- tinued to be a corporation, notwithstanding the appointment of a receiver, and the receiver may bring action in its name. Pah- quioque Bk. v. Bethel Bk., 36 Conn. 325 ; Kennedy v. Gibson, 8 Building Fund Trustees v. Bosseiux, Newberne, 81 N. Y. .385; National 3 Fed. Hep. 817 ; Charitable Corpora- Bank of Gloversville v. Wells, 79 N. tion v. Sutton, 2 Atk. 400 ; Land Y. 498; affirmed in the Supreme Court Credit Co. of Ireland v. Lord Fermoy, of the United States, January, 1882. L. R, 5 Ch. 763 ; Williams v. McKay, Siting Cooke r. State Nat. Bank of 40 N. J. Eq. 189. Boston, 52 N. Y. 96; Bletz T. Colum- 1 Citing Claflin r. Houseman, 93 U. bia Nat. Bank, 87 Pa. St. 87. S. 130; Robinson c. National Bank of 301 I OPH.-I.I:-. ,,|. I:\NK-. Wall. 50G; Green v. Walkill Nat. lik., 7 Hun, 03; City of ington /. IJutler, 14 Wall. 888; i:.mk 9. Kennedy, 17 Wa! The receiver was also a necessary party, as it was through him that the amount which might IH; adjudged against tin- directors was to be collected and paid over. The presence- of Ix.th of these parties was necessary to a final determination of the controversy." l 301. Jurisdiction of courts of equity in such cases. The New York Court of Appeals has sustained the jurisdiction of courts of equity of suits to enforce the liability of directors of corporations growing out of a violation of their duties in allowing or promoting the waste of corporate funds, for instance. Upon this subject RAPALLO, J., for the court, said : "The liability of directors of corporations for violations of their dut breaches of the trust committed to them, and the jurisdiction of courts of equity to afford redress to the corporation, and in proper cases to its shareholders, for such wrongs exist independ- ently of any statute. By the Revised Statutes of New York (2 R. S. 462) it is declared that the chancellor has jurisdiction over directors, managers and other trustees, and officers of corjx>ra- tions,and to compel them to account for their official conduct in the management and disposition of the funds and property com- mitted to their charge, and to compel payment by them to the corporation whom they represent, of all sums of money, and the value of all property which they may have acquired to them- selves or transferred to others, or may have lost or wasted by any violation of their duties as such trustees. These enactments are, however, merely declaratory of a jurisdiction long previously conceded to exist, both in this state and in England, and to tliem were added by further provisions of the Revised Statutes certain visitorial powers not before exercised by the Court of Chancery (except in cases of charitable bodies), viz., to restrain corpora- tions from exceeding their corporate powers. This latter juris diction was that which the Court of Chancery disclaimed in the well-known case of The Attorney-General v. The I'tica In- 2 Johns. Ch. 389, with reference to which case the provision- of the Revised Statutes just referred to were f mined. I hit, in that very case, jurisdiction in cases like the present \\a- conceded 1 Brinkurhoff r. Bwtwick, (1882) 88 N. Y. 52, 60, 6t. 556 OFFICERS OF BANKS. [301 to be inherent in the court, and in Robinson v. Smith, 3 Paige, 222, 233, the power is declared to exist independently of the provisions of the Revised Statutes, so far as the individual rights of stockholders are concerned, to call directors to account and make satisfaction for losses occasioned by breaches of their trust. This jurisdiction has been continually exercised in England and in this country, and is not of statutory origin. Angell & Ames on Corp. 312, and cases cited." * 1 Brinkerhoff v. Bostwick, (1882) 88 N. Y. 52, 58, 59. See, also, Brinckerhoff v. Bostwick, (1885) 99 N. Y. 185. As to how such actions may be brought, it was said in Brinker- hoff v. Bostwick, 88 N. Y. 52 : " The action to recover such losses, as before observed, should in general be brought in the name of the corpora- tion, but, if it refuses to prosecute, the stockholders, who are the real parties in interest, will be permitted to sue in their own names, making the corpora- tion a defendant. Greaves v. Gouge, 69 N. Y. 154. And that course of proceeding is also allowed if it ap- pears that the corporation is still under the control of those who must be made the defendants in the suit. See Butts v. Wood, 37 N. Y, 317; Robin- son v. Smith, 3 Paige, 222. In such cases a demand upon the corporation to bring the suit would be manifestly futile and unnecessary. A suit prose- cuted under the direction and control of the very parties against whom the misconduct is alleged, and a recovery is sought, would scarcely afford to the shareholders the remedy to which they are entitled, and the fact that the delinquent parties are still in control of the corporation is of itself sufficient to entitle the shareholders to sue in their own names. Hodges v. New England Screw Co., 1 R. I. 312; Heath v. Erie Railway Co., 8 Blatchf. 347. If they could not be permitted in such cases to assert their own rights in a court of equity, the directors so long as they remained in office could set them at defiance. In the present case the corporation cannot sue, be- cause all its rights of action have been transferred by operation of law to the receiver. He certainly is not a proper person to whom to intrust the conduct of the action, even did he consent to institute it, or should the comptroller of the currency direct him so to do, for he is one of the parties charged with misconduct and against whom a remedy is sought. It necessarily fol- lows that the shareholders must be permitted to sue in their own names, or the wrongs complained of must go without redress, and substantial rights be sacrificed to a mere matter of form. The shareholders are the parties whose interests are involved in the proceeding. If conducted in the name of the corporation or the re- ceiver, it would be as their representa- tive and for their benefit; and when, as in this case, sufficient reasons are shown why it cannot be effectually prosecuted in that form, the right of the shareholders to sue in their own names is sanctioned by principle and precedent. Where the shareholders are numerous, the suit may be brought by one or more in behalf of all." Butts v. Wood, 37 N. Y. 317; Robin- son v. Smith, 3 Paige, 222; Hichens v. Congreve, 4 Russ. 562; Heath r. Erie Railway Co., 8 Blatchf. 347. More than sixty years ago Chancellor WALWOKTH, of the Court of Chancery of New York, referring to the allega- OFFICER!) OF HANKS. 557 302. Statutory liability of directors of national banks actions to enforce it rules. -The personal liability of direct- ors of a national bank for violation of the Revised Statutes of the United States, section 52<>4, by declaring dividends in excess of net profits, and of section ."L'IMI for loaning to separate persons, firms or corporations amounts exceeding one-tenth of the capital stock, cannot be enforced in an action at law. 1 Under the Revised Statutes of the Unit-d States, section 5239, providing that, if the directors of a national bank shall violate any of the provisions of the tit It- relating to the organization and management of banks, the franchises of the bank shall be forfeited, such violation, how- ever, to l)e determined by a proper court of the United States in lions of the bill before him said : " If negligently permitting various persons [ tiny ] are true, there is no doubt that and cor|Kjrations who were insolvent the directors of this company were and irresponsible to overdraw their guilty of a most palpable violation of accounts to a large amount without their duty, in engaging in this security, and negligently permitting gambling speculation in stocks, which the money of the bank to be loaned to was wholly unauthorized by their irresponsible persons and corporations, charter, and which, the bill alleges, without adequate security, whereby was carried on to subserve their own said money was lost; with employing individual interests and purposes. I a cashier who was dishonest, un faith have no hesitation in declaring it as ful and incompetent, all of which was the law of this state that the directors known to them; with neglecting to of a moneyed or other joint-stock cor- take and keep good and sufficient poration, who willfully abuse their security for the performance of the trust or misapply the funds of the duties of said cashier and of the company, by which a loss is sustained, president and other officer* of the are personally liable as trustees to bank; and that they so negligently make good their loss. And they are and carelessly conducted iU *** equally liable, if they suffer the cor- that its entire capital, surplus, prop- porote funds or property to be lost or erty and effect* were lost and the wasted by gross negligence and in- stock rendered worthless, and the attention to the duties of their trust." stockholders wen? rendered liable for Robinson r. Smith, (1832) 3 Paige Ch. a large sum of money on account of 828, 282. Adopting and approving the unpaid debts of the bank, stated a this rule declared by Chancellor WAI.- cause of action upon the personal WORTH, the Court of Appeals has liability of din-dors, since held that a complaint charging 'Welles r. Graves, (1890) 41 !' 1 the directors of a national bank with Itcp. 4.M). in acconlancc with the doc- neglecting to perform their official trine laid down in Humor r. limning, duties as such directors, and ncgli- 08 U. 8. 238. See Stone r. Chisolin. gently permitting the money, prop- 113 U. S. 802; s. " Sup C't Rtp. erty and effects of the bank to bo 487. stolen, wasted and squandered; with 558 OFFICERS OF BANKS. [ 302 a suit therefor by the comptroller, and that in cases of such vio- lation every director participating therein shall be personally lia- ble for all damages which the bank, its shareholders, or any other person shall have sustained in consequence thereof, the comp- troller cannot authorize the receiver of any such bank to bring suit under section 5234 to enforce such personal liability until it has been adjudged by a proper court that such acts have been done as authorized a forfeiture of the charter. 1 Directors of a national bank have been held personally liable as provided by section 5239 of the Revised Statutes of the United States for damages sustained in consequence of excessive loans where they had assented to a loan in excess of the limit prescribed by section 5200 of the Revised Statutes of the United States, and subse- quently retired paper representing a part of this loan by charg- ing it against an illegal dividend, declared when the bad paper reckoned to make up an apparent surplus more than exceeded the capital stock, which transaction was invalid, the liability being fixed at the amount of the paper thus retired. 2 An action under the act of congress imposing a legal liability on the directors of a national bank for certain things which they do which shall result in an injury to the bank, its stockholders or creditors, and making them liable for the amount of the dam- ages, survives against the estate of a director, the statute being a remedial and not a penal statute. 8 It is no defense to an action by the receiver of a bank against a director's estate, such bank director having made a wrongful loan of money from which loss occurred, that the insolvency of the person to whom the loan was made was not discovered until after the death of the director and the appointment of the receiver. 4 Directors of an insolvent national bank which has been placed in the hands of a receiver are not amenable to a suit by a stockholder in the bank to make them personally liable for the mismanagement of the bank, such right of action being in the receiver and not in the individual stockholder. 5 The receivers of a railroad company in Texas had 'Welles . Graves, (1890) 41 Fed. 4 Ibid. Rep. 459. See Kennedy T. Gibson, 8 s Howe v. Barney, (1891) 45 Fed. Rep. Wall. 498. 668. In National Exchange Bank of 'Witters T, Sowles, (1890) 43 Fed. Baltimore . Peters, (1890) 44 Fed. Rep. 405. Rep. 13, HUGHES, Circuit Judge, re- 8 Stephens t. Overstolz, (1890) 43 Fed. ferring first to the statutes, discussed Rep. 465. this question elaborately as follows: (MTU I 1> ..I HANKS. 509 under the onirr- of the federal eourt appointing them deposited larire amounts of money in 11 hank in that htatc. Tim bank l>eeatue insolvent and it- affair* were in tin- hands of a receiver appointed l.y a .-tate court. The balance of funds due receiver- on their deposit account not In-in^ paid mi demand, thev jn-ti tioried the court appointing them, alleging a conspiracy on the part of >everal oflieers of that hank to misappropriate the fund-, " Thus the statute lnw makes directors As before said, wlmti v.-r i* claimed in of a ii:itiuii:il bank liaMe in damages the suit at bar would bo an aMet in the for violations of their duty, or negli- hands of tin- receiver if n-covcml. and gcnce or malfeasance as directors, and the- statute law imposes U|K>II him tin- prescribes how they shall be subjected duty of suing for it. under the comp- to liability. Being liable in damages, trailer's direction. But this bill <<>n tin y arc amenable to suit for damages tains no allegation cither that corn- in u jury proccciling, and not, I infer, plainant called upon the comptroller to suit in any other form, whether at to direct the receiver to sue, and be law or in equity. Hut even if they refused, or that the receiver hinuelf WITC amenable to liability in a pro- was called upon and refusal. Coo- ceeding not sounding in damages, then, taining no such allegation, the bill tin- damages recoverable being an asset makes no ease for a suit by a penon of the bank, the statute law empowers other than the receiver. Nor would it and requires the receiver of the in- follow, even if such an application jun-d bank, under the direction of the had l>een made and refused, and the comptroller, and him alone, to sue the fact liad been only alleged in the bill. claim. Except the receiver, the stat ute law nowhere uuthori/es suit to be brought by any person not in privity against directors of national banks. that this suit could be maintained, for in cases where directors of national banks have violated or negligently permitted the violation of the lawn The bill of complaint under consid- regulating those banks, the statute eration has, therefore, no sanction in law seems to require tlmt tlie question respect to its party plaintiff from the of violation shall IHJ judicially detor- statute law of the land. Does it pre- mined in a proper court of the United sent a case in which equity, in the ex- States, in a suit instil utcd in hi* own ercise of a high prerogative to which name by the comptroller for that it feels at liberty sometimes to resort, sj>ecific pur|M>sc. l>eforc the liability will relieve against the rule of privity, can attach to the directors; and. therr- and entertain this suit, though brought fore, it would seem i hat dirccton cmn- by a plaintiff otherwise incompetent not !>< pursued individually for uch to sue? Certainly the bill contains violation until after such an ad judica nothing on its face to require or to tion thus obtained. So that if tin- r< justify such a recourse. Exceptional ceiver and the comptroller, though authority to sue is given only in the culled up"" to sue the defendant* in rare cases in which those legally com- this suit, had refused to do so, even petcnt to sue wrongfully refuse to do the allegation of such application mid so. When such a ease is presented, refusal would have been inauftVi' m equity will sometimes authorize and ground of authority for bringing thi direct suit to be brought by some suit. I am of the opinion that ibr other plaintiff whom it may approve, provisions of the National Banking 560 OFFICERS OF BANKS. [302 the making of securities to themselves for alleged personal debts against the bank and the appointment of a receiver, and asked that these officers of the bank be punished as in contempt of the court. The rule for contempt was discharged, but an order was laid upon the receivers to institute such proceedings as might be necessary to make the respondents individually and collectively liable for all the funds wrongfully obtained from and withheld from the receivers. 1 Act enter as part into the contracts of creditors with the national banks, and that those provisions which define the liability of directors, and prescribe the proceedings to be taken against them, when guilty of violations of the act, are exclusive of other liability and other proceedings; and that it is not within the prerogative of equity to authorize a disregard of the provisions of the National Banking Act, denning such liability and prescribing such proceedings." See, on this point, Smith t>. Kurd, 12 Met. 871; Craig v. Gregg, 83 Pa. St. 19; Allen v. Curtis, 26 Conn. 455; Evans v. Brandon, 53 Tex. 56. As to the circumstances under which a stockholder may bring such actions, see Robinson v. Smith, 3 Paige, 222; Brinkerhoff v. Bostwick, 88 N. Y. 52; Smith t>. Poor, 40 Me. 415; Carter v. Glass Co., 85 Ind. 180. As to the avails of such litigation by stockholder going to the corporation and being a part of its means, see Dewing v. Perdicaries, 96 U. S. 193, 197, 198. 1 Southern Development Co. v. Hous- ton & Texas Central Ry. Co., (1886) 27 Fed. Rep. 344. PARDEE, J., said: " Counsel for the receivers contend that the effect of the order of court designating the bank as one of the depositories of the receivers, and the acceptance by the bank of the re ceivers' deposits, was to make the bank and its officers officers of the court, and, therefore, directly responsible to the court for misappropriation of the moneys deposited by the receivers under the order of court." He then said: "The adjudged cases on this point brought to the attention of the court are unsatisfactory. The state- ment in Rapalje on Contempts ( 15) that 'a private corporation made the depository of the funds of the court, is an officer of the court, within the power of the court to punish by con- tempt process for misconduct,' is sup- ported by a dictum of the Supremo Court of Illinois in the case of In re Western Marine & Fire Ins. Co., 38 111. 289, in which case it is said ' When a court makes an order ap- pointing a particular person a deposi- tary of the court funds, and such per- son, knowing of such order, accepts the deposit, he unquestionably be- comes pro hoc vice an officer of the court. The court may order him to refund the money, and if he fails to do so, without shoicing gome valid reason, may proceed against him as for a con- tempt. The same rule would apply to a corporation, and if its officers, Jutting control of its funds, and hating the means of payment belonging to the corporation in their hands, should re- fuse to pay, they might be proceeded against as for a contempt.' It will be noticed by the foregoing that officials of a corporation delinquent as a de- pository are to be held as in case of contempt when they have control of its funds and have the means of pay- ment belonging to the corporation in their hands. * * * In the present 303] anvam m um, 561 303- President his power and duty. The exccutis. officers of a bank, its pn-sid. -nt and wwhier, art' j>rrumcd to h;i\.- authority to direct the application of any funds in the hunk t.. its debts. 1 An official indorsement of a note payable at a bank by its president will bind the bank. 1 A president of a bank must be authorized by the board of director-, ..r In- will not be author- ized to execute a warrant of attorney to institute a suit. 1 Should a president of a bank receive stock of the l>ank in payment for a note made payable to the bank in its stock, he would hold the stock for the bank as its property. 4 It has been held in Vermont that the president of a bank had the right in behalf of the bank, and without special authority, to agree with the makers of a note, payable to and at the bank, upon an agent to receive money upon the note at some other place, and to forward it to the bank ; and that such agency might be proved by parol. 5 A bank will In- case I think that it is somewhat doubt- possession of [one of the respondent*]. ful whether the funds deposited by as receiver, being that of tbo [Texan the complaining receivers with the court appointing him].' So that if we [insolvent bank] under the aforesaid take the law to be as broad as declared order of court, were strictly court by the Supreme Court of Illinois, in f unds or could be considered as moneys the Western Marine & Fire Ins. Co. paid into court. By the orders ap- case, it is not broad enough to meet the pointing them, the complainants, as necessities of this case; for if it is con- joint receivers, were authorized and ceded that the [insolvent bank], by directed to carry on and operate the designation of the court and by accept- railways and property of the [railway ance, became an officer of the court, corporation in their hands]; and such and that the funds deposited therein carrying on and operating contem- were court funds, and that, therefore. plated and required the handling, re- the bank is liable for misconduct in ceiving and paying out of money, the misappropriating such fun. As to tin- former note, lit- te>tilied to entries on the discount book indicating that it had been di-coiintvd, nnd that the proceed.- were deposited to the credit of the j.n-i.l.-nt of the hank. The bank a short time afterwards Ix-came in.-olvent. The United States Circuit Court of Appals for the third circuit held that this testimony did not sufficiently show the Imnk to be a lonafde holder for value, as against the defense that the notes were procured from the makers by the president, who was abo the managing officer of the bank, by fraud and without considera- tion. They also held that it was error to refuse to allow the makers to show that the note in suit, and the former notes which were renewed by it, were given at the solicitation of the presi- dent, who, in the actual conduct of the business of the bank, was its sole managing officer, and upon his execution of a receipt which was also offered in evidence reciting that the note was for the use of the bank, and was to be paid by it at maturity ; and that he stated that he proposed to use it in the clearing house, as it would look Ixjtter for the credit of the bank than numerous small notes which it held, and which small notes it would retain to protect this note of the makers, as the facts, if shown, would make a valid defense to the action. It was also held to be error to refuse the defendant's offer to show that the president was the sole managing officer of the bank, in the actual conduct of the busi- ness, and that the cashier occupied more the position of a clerk than that of actual cashier; for, if the president exercised the .Junctions of cashier and was the sole managing officer of the bank, he had authority to borrow money for the use of the bank in tho regular course of its business. 1 One intending to purchase bank- 1 Simons r. Fisher. (1803) 55 Fed. should have a lien; the flrni to be kept Rep. 905 (BUTLER, D. .!.. dissenting), informed of the condition of the bunk. ACIIESON, Circuit Judge, in the opinion which the cashier stated to be cmbar- of the majority of the court, referred rassed, but, with certain expected aid, to the case of Coats r. Donnell, 94 N. able to continue business. The agree* Y. 168, 176, as having features very ment was held to be valid, and within like the case before the court. He the power of the cashier to make, both said: " The cashier of a bntik [in that under his general authority and by case] orally agreed with a firm that if virtue of a by-law which gave him the latter would receipt certain drafts supervision of the bank, with tin- duty negotiated by the bank it would keep to attend to the making of loans, din- on deposit with the firm until their ma- counts and other active business trans- turity a balance equal to the amount actions of the bank." It was snid in of the drafts, upon which the firm Coats r. Donnell, tupra : "The cashier 566 OFFICERS OF BANKS. [ 305 stock is entitled to rely upon a statement of its president as to the bank's condition, without inquiring further. 1 35- President's acts not binding on bank illustra- tions. The Nebraska Supreme Court has, in an action against a national bank to recover the amount of a subscription made in its name by the president of the bank to encourage and aid the erection of a paper mill, affirmed the judgment of the trial court instructing the jury to return a verdict for the bank. 2 The president of a national bank in Wyoming arranged with bankers in New York to credit his bank with $10,000, with the under- of a bank is its executive officer, and part of the business for which it was it is well settled that as an incident of incorporated. The bank that is, the his office he has authority, implied corporation by the unanimous con- from his official designation as cashier, sent of its stockholders, might, no to borrow money for and to bind the doubt, make such donation of its bank for its repayment; and the as- capital to any enterprise or person it sumption of such authority by the chose; but is the bank bound by a cashier will conclude the bank as contract made in its name by its presi- against third persons, who have no dent, in and by which it is agreed to notice of his want of authority in the donate to some person or enterprise a particular transaction, and deal with part of its capital ? A large part of him on the basis of its existence." the argument of counsel in this court 1 Merrill c. Florida Land & Imp. has been directed to the doctrine of Co., (1893) 60 Fed. Rep. 17. ultra vires, but we do not think that it 2 Robertson v. Buffalo County Na- is necessary to invoke that doctrine in tional Bank, (Neb. 1894) 58 N. W. order to reach a correct decision in Rep. 715. The court said : "Theun- this case. It seems to us that this disputed evidence in the case is that question is one of agency. The bank the president of the bank, without the is the principal -and the president of knowledge or consent of the directory, the bank was its agent, and the bank, signed the name of the bank to the of course, was bound by the acts of subscription paper, and that the its president, done within the scope directory of the bank had never rati- of his authority. In Morawetz on fled this act of the president. Whether Private Corporations ( 423) it is said : the court erred in instructing the jury ' The property and funds of a corpora- te return a verdict for the bank de- tion belong to its stockholders, and pends, then, upon the question as to cannot be devoted to any use which is whether the bank is bound by the sub- not in accordance with their chartered scription made by its president. This purposes, except by unanimous con- bank was organiKed undeV the act of sent. No agent of a corporation has congress for the purpose of lending implied authority to give away any money, receiving deposits and for the portion of the corporate property or conducting of a general banking busi- to create a corporate obligation ness. The making of donations of its gratuitously.' In Jones v. Morrison, funds or capital to aid in the building 31 Minn. 140; s. c., 16 N. W. Rep. of paper mills, canals or churches is no 854, it is said : ' The directors of a ""'J OFFICERS OF BANKS. -7 standing that the bank would not draw agjiitift it, aid liad the Nrw York bankers charged with tin- anniiint, and hi.- own per- sonal account with his bank credited with the amount, placing with the Now York lianker.- his individual note for dirt-mint f..r the same amount. He then was allowed t.. overdraw hi- indi- vidual account afterwards, and then authorized the New Yrk bankers to charge the amount of his individual not.- to hi.- lank, which they did. The bank becoming in.-- .1 vent, the re< brought his action against the New York Itaiikere for the amount. The United States Circuit Court of Appeals for the second cir- cuit held that unless expressly authorized to do so the president of the bank could not use the funds of the bank to pay hi- per- sonal obligations ; and, there being no proof of such express authority, that he authorized the New York bankers to do so was not a defense to the suit. 1 corporation have no authority to ap- same manner as natural persona.' We propriate its funds iu paying claims think these authorities are decisive of which the corporation is under no legal the case at bar. This is not a case in or moral obligation to pay, as to pay which the bank has received ami n for post services which have been tains the fruits of an unauthorized rendered and paid for at a fixed salary contract made by its agent." For an previously agreed on, or under a illustration of what kind of a contract previous agreement that there should made by the director of a bank, be no compensation for them.' To the specially delegated to take charge of same effect see Salem Hunk r. Glou- the matter, and who acted under the cester Bank, 17 Mass. 29; Bissell r. direct advice of the president of the City of Kankakee, ill 111. 249; Minor bank, would be binding upon the r. Bank, 1 Pet. 40; Case r. Bank, 100 bank, see Waxahachie Nat. Bank r. U. S. 446. In Alexander r. Cauld- Vickery. (Tex. 1894)28 S. W. Rep. 876. well, 88 N. Y. 480, it is said : ' One ' Chrystie r. Foster. (1894) 1 Fed. who deals with the officers or agents Rep. 551. WALI.ACK, Circuit Judge, of a corporation is bound to know their said : " While it may be conjectured, powers and the extent of their au- in view of the character of (the prwii- thority. The corporation is only bound dent's] relations with the bank, that it by their acts and contracts which are would have |>erniitted him at any within the scope of their authority.' time to overdraw his account, there U In Rich r. Bank, 7 Neb. 201, it is said no evidence tluit it did not rely upon in the syllabus : 'No officer of a bank the credit [given it by the New V.-rk can bind it by a promise to pay a bankers] in its subsequent dealing* debt which the corporation does not [with the prcsidenll. and the prvum|> owe and was not liable to pay, unless tion is that the notice given by the do the hank authorizes or has ratified the fendants influenced the bank an tin > act; but ratification is equivalent to intended it should. Theauthnrixatimi original authority to net in the matter, to the defendant* by (the president), and the corporations are bound in the in his official capacity as president of 568 OFFICERS OF BANKS. [ 300 306. When a bank is not chargeable with constructive notice as to knowledge of its president. This was an action against a bank brought by the grantor of an undivided half inter- est in a city lot by a full conveyance of title to one who was the owner of the other undivided half interest in the lot, at the time the president of the bank, and who had subsequently, for a valuable consideration, conveyed the whole lot to the bank for its uses, to enforce the vendor's lien upon the undivided half interest con- veyed by him. It appeared that the bank knew nothing of the transaction between this vendor and its president beyond the deed of full conveyance from the grantor to the president. The United States Circuit Court of Appeals for the fifth circuit held that the bank acquiring its title by conveyance from one who held the interest in the lot under a deed reciting full payment of the purchase money, and having no actual knowledge that the pur- chase money was not in fact paid, was an innocent purchaser without notice, and was not chargeable with constructive notice because of the knowledge of its president. As to what did appear from the evidence that the grantor had a conversation with a director of the bank, in which he stated that he was will- ing to convey his half interest in the lot to the president of the bank, with the understanding that the president was to convey the whole lot to the bank, and that the president of the bank was to pay him by giving him credit upon notes then running against him in the bank, the court held that it did not amount to notice to the director that the grantor intended to retain a vendors lien, but rather imputed a notice that no such lien was to be retained. 1 the bank, to apply the fund in their another in making a contract for him- hands belonging to the bank in pay- self. West St. Louis Sav. Bank v. ment of his note, docs not protect the Shawnee Co. Bank, 95 U. S. 557; defendants. It is not pretended that National Park Bank r. German- [the president] had any express au- American Mut. Warehousing & Secur- thority to apply the funds of the bank ity Co., 116 N. Y. 281; s. c., 22 N. E. to the payment of his own note. He Rep. 567; Anderson v. Kissam, 35 Fed. had no implied authority to do so. Rep. 699. If [the president] had used There are no presumptions in favor of his note with the defendants to pro- such a delegation of power. He who cure an advance to the bank for its assumes to rely upon the authority of benefit, and not for his own, and had au agent to bind his principal to the given them such an authorization, discharge of the agent's own obliga- very different questions would be tion must have actual authority if con- presented from those which are now test arises. No principle of the in the case." law of agency is better settled than ' First Nat. Bank -of Sheffield v. that no person can act as agent of Tompkins, (1893) 57 Fed. Rep. 20. 307 I OFFICERS OP BANKS. 307. Cashier his power and duty. The cashier of a bank is the executive olHccr .r silent i it> tinuiicial deport- ment, and, iu all the duties imposed upon him l\ law or usage aa PARDKK, Circuit .In.!-.-, referred in Ala. 502. If the fact* were rtroogt-r support of the court's ruling to certain fur the imputation of notice t. cases in these words: " In the case of liams than an- fuiunl in the record. Whelaii v, .McCreary, 04 Ala. 819, notice should n.t Ix-iinpuUtl to the In- Mr. Cliii -f ,hi-ti( c BIUCKEI.L, speaking su ranee company.' The nitft of for the court, declared the law of Ala- Barnes r. Can Light < J. Eq. bama as follows: ' Whoever gives 83-87. involved a question in regard value, or enters into transactions by to notice very similar to the CAM in which his position is materially hand, and the chancellor held an fol changed, and from which change loss lows: ' That the defendant* are boim must ensue, on the faith that the ven- fulc purchasers for valuable consklrra- dor of real estate, or person with whom tion is not denied. Their title U not be deals, has, as the title papers ex- impugned, except on the ground of hibit, a clear legal title, will be pro- notice, and the claim to relief t* tccted against outstanding and latent based on the allegation that at the time equities, of which he has no notice, when the conveyance was made by A mortgagor taking a security for a Mr. Potts to them he was their preal- contcmporaneous loan or advance falls dent, and this fact is relied upon an of within the rule and is entitled to pro- itself sufficient to establish notice to tection. Boyd r. Beck, 29 Ala. 713; them of all the facts which the bill Wells v. Morrow, 38 Ala. 125. The charges were within his knowledge, only notice, actual or constructive, of The general proposition is undoubtedly Mrs. Whclan's equity, which is at- true that notice of facts to an agent in tributed to the insurance company, is constructive notice thereof to the priu imputed, because notice, it is insisted, is cip.nl himself, where it arises from or traced to Williams, one of its direct- is at the time connected with the sub- ors, active and instrumental in making ject -matter of his agency. The rule the loan to Cunningham and McCreary, is based on the presumption that the and taking the mortgage. Whatever agent has communicated such facta to facts may have been known to Wil- the principal. Story Ag. 140. On liams which ought to have excited in- principles of public policy the knowl- quiry on his part, came to his knowl- edge of the agent is imputed to thu edge while he was acting as the agent principal. But the rule dot* not ap- of Cunningham, in a transaction in ply to a transaction such an that under which the insurance company bad no consideration, for, in such a transar- interest. The rule is settled in this tion. the officer, in making the aale and state that a corporation will not be conveyance, stands as a stranger t<> tin affected by notice which one of its company. Stratum r. Allen. 10 N. J. directors or other officers may have Eq. 221). His interest in oppoaed to received when not acting for the cor- theirs, and the presumption boot that Deration, but in the transaction of his he will communicate his knowledge of own private affairs, and under such any secret impurity of the title to tho circumstances that its communication corpo*' 011 ' ' ml lunt nc w "' COOI to other officers of the company is not it. Where an officer of a corporation to be expected. Terrell r. Bank, 12 is thus dealing with them in bis own 72 570 OFFICERS OF BANKS. [ 307 such cashier, he acts for the bank and speaks for it. 1 A cashier, in the absence of all positive and known restrictions, possesses the incidental authority, and it is his duty to apply the negotiable funds of a bank as well as the moneyed capital to the discharge interest, opposed to theirs, he must be held not to represent them in the trans- action, so as to charge them with the knowledge he may possess, but which he has not communicated to them, and which they do not otherwise possess, of facts derogatory to the title he con- veys,' citing in support of the same Bank v. Cunningham, 24 Pick. 270; Kennedy v. Green, 3 Mylne & K. 699; In re European Bank, L. R , 5 Ch. App. 358; In re Marseilles Extension Railway Co., L. R., 7 Ch. App. 161; Winchester v. Railroad Co., 4 Md. 231. In Commercial Bank of Danville P. Burgwyn, (1892) HON. C. 267, certain promissory notes were indorsed to a corporation and by its president in- dorsed for value to a bank some months before they were due. The president of the corporation was a director of the bank and in the matter of discounting these notes had spoken to the presi- dent of the bank, who ordered them discounted, but this director, the presi- dent of the corporation, took no action in the matter of the discounting of the note. In this action by the bank upon the note it was claimed that the note was subject to a certain equity or set- off of the maker, on the ground that the president of the corporation knew it had notice of the impurity of the note, and, being a director of the bank, notice to him was notice to the bank. The Supreme Court of North Carolina said: 'That conceding * * * that if the director of the bank had such notice at the time of the discounting of all of the notes, it is well established that the plaintiff [the bank] cannot be affected therewith unless [he] was act- ing ia his official capacity for the plain- tiff in the said discounting transactions. The foundation principle upon which rests the doctrine that a party, whether an individual or a corporation, is chargeable with notice imparted to his agents in the line of their duty, is that agents are presumed to communicate all such information to their principals because it is their duty so to do. The principal is conclusively presumed to know whatever his agent knows, if the latter knows it as agent. Of course no such presumption can exist where the agent is dealing with the corporation in the particular transac- tion in his own behalf.' In such transactions the attitude of the agent is one of hostility to the principal. He is dealing at arm's length, and it would be absurd to suppose that he would communicate to the principal any facts within his private knowledge affecting the subject of his dealing unless it would be his duty to do so, if he were wholly unconnected with the principal. As was said by the court in Wickersham v. Chicago Zinc Co., 18 Kans. 481: 'Neither the acts nor knowledge of an officer of a corpora- tion will bind it in a matter in which the officer acts for himself and deals with the corporation as if he had no official relations with it,' or, as wns said in Barnes v. Trenton Gas Light Co., 27 N. J. Eq. 33: 'His interest is opposed to that of the corporation, and the presumption is not that he will 1 Ellicott v. Barnes, (1884) 31 Kans. Bank, 10 Humph. 507; United States 172; Lane . Bank of West Tennessee, v. City Bank of Columbus, 21 How. 9 Heisk. 419; Maxwell r. Planters' 364. 307] <>M i, ] i;s Ol BA1IB. 571 of the bank's debts and obligation-. 1 Tin- power of a cashier to purchase for the bank is not implied from his office m cashier. 2 A bank will be bound by the agreement of its cashier to e.v paper. 8 A statement \>y its cashier, U[>on inquiry of one known by him to be a surety on a note due the bank, that the not been paid, with the intention that the surety .-lioiild relv upon the statement, and the surety does so, and in eon>e|uen< his position by giving up securities or indorsing othrr not. the same principal or the like, will estop a bank from denying that the note was paid. 4 The cashier of a bank, without special authority, cannot bind it by an official indorsement of hi.- JT sonal note. In an action on such a note the onus would bo upon the payee to show the cashier's authority. 5 A bank has been held communicate his knowledge of any secret infirmity of the title to the cor- poration, but that he will conceal it.' This doctrine has been applied to the case of a director procuring the dis- count of a note for his own benefit, having knowledge that it is founded upon an illegal consideration (Bank r. Christopher, 40 N. J. L. 485). or that it was made for his accommodation (Bank r. Cunningham, 24 IMck. 270), or that it was obtained upon a false pretense of having it discounted for i lie maker (Washington r. Lewis, 22 Pick. 24), or that it was affected in his hands with certain conditions (Louisi- ana State Bank r. Senecal, 18 La. 525), or with a claim of recoupment of which the bank had no notice (Looinis r. Bank, 1 Disney, 285), or with other equities. Savings Bank r. Hamlin, 125 Mass. 506. To the same effect are Corcoran F. Snow Cattle Co., 151 Mass. 74; Innerarity . Bank, 139 Mass. 832; Stevenson r. Bay City. 26 Mich. 44; Frost t. Belmont, 6 Allen, 163, and other cases. In the fore- going decisions the director was not act- ing in his official character in the partic- ular transaction, but had he been so act- ing, the bank by a great preponder- ance of authority would have been affected by his knowledge." 1 Maxwell r. Planters' Bank, (1860) 10 Humph. (Tenn.) 507. * Lionberger r. Mayer. (1882) 18 Mo. App. 575. As to the act* of a caiihier. within the sphere of his duties, being the acts of a bank, see Burnham r. \\ . h ster. 19 Me. 282; Medomak Bank r. Curtis, 24 Me. 86; Warren r. Oilman. 17 Me. 860; Farrar r. Oilman. 19 Me. 440; Badger r. Bank of Cumberland. 26 Me. 428; National Bank of Metrop- olis r. Williams, 46 Mo. 17. As to tin* authority of cashiers of banks. Me Caldwell r. National Molmwk Valley Bank, 64 Barb. 888; Chemical National Bank r. Kohner, 8 Daly. 580. A to powers habitually exercised by a cashier with the knowledge and acqui- escence of the bunk. see MrrchanU' Bank r. State Bank. 10 Wall. 604. Wakcfield Bank r. Trueadell. 55 Barb. 602. 'Cocheco National Bank r. llankcll. 51 N. II. 116. ' West St. Ix>uia Sav. Bank r. Shawncc County Bank. (1874) 3 Dill. 403; affirmed in 95 U. 8. 557. In Houghton r. First National Bank of Elkhorn, 26 Wis. 663. the bank waa held to IM* bound by it* raahior'ft in- dorsement of his name followed by the abbreviation " Can." on the negotiable note of another, though not done at the Kink, or for its benefit . and by hi* statement i<> a purchaser that MI. li statement was all right. An to pay- 572 . OFFICERS OF BANKS. [ 307 not responsible to the real owner for money paid out with his consent to the administrator of the apparent owner, the one who had deposited it, even though his consent had been given upon the advice of the bank's cashier. 1 A bank will be bound by rep- resentations made by its cashier in the ordinary course of busi- ness as to the payment of a note in the bank, upon the faith of which the maker of the note may have acted. 2 It may be shown by parol that a check signed by one who is the cashier of a bank in his own name only is the check of the bank. 8 The assignee of a bank, it has been held, could not recover the securities deh'vered by a cashier as collateral for money borrowed on the bank's note from the lender. 4 Receiving offers for purchase of securities held by a bank, and a statement whether or not the bank owns securities in its possession, are within the scope of the general authority of its cashier. 5 The act of a cashier in certifying a check given as collateral security for the delivery of oil, " good when properly indorsed," has been held not to have rendered the bank liable, as his act was outside his proper powers and duties. 6 Evidence of the custom of bankers where a bank is located to borrow money on time is competent in an action against bankers upon a note given by their cashier for money borrowed which he may have appropriated to his own use, as tending to show that the act was within the scope of the ordinary and customary busi- ness of the bankers. 7 A bank is not exonerated from its liability for money borrowed by the fact that its cashier may have given his own note for money borrowed by him for the bank. 8 The provisions in the charters of certain banks in Georgia requiring all contracts whatever to be signed by the president and counter- signed by the cashier in order to bind the banks were held by the Supreme Court of that state not to apply to such dealings and transactions as are usually and necessarily performed by the merit of overdrafts by a cashier being the bank. Ringling V. Eohn, (1878) 6 a violation of his duty, see Bank v. .Mo. App. 333; Dounell v. Lewis Co. Calder, 3 Strob. (S. C.) 403. Savings Bank, (1883) 80 Mo. 165. 'McDermottr. Bank, lOOPa. St. 287. 5 National Bank of Xenia v. Stew- * Manufacturers' Bank . Scofield, art, 114 U. 8. 224. 39 Vt. 590. 6 Dorsey v. Abrams, 85 Pa. St. 299. 8 Mechanics' Bank v. Bank of Colum- 'Grain t. National Bank, 114111. bia, 5 Wheat. 326. 516. 4 Creswell v, Lanahan, 101 U. S. 8 City Bank of New Haven r. Per- 347. What is necessary to show a kins, (1859) 4 Bosw. 420. cashier's authority to borrow money for 307] OFFICERS OF BAKU. ."-T '', cashier of a bank, such, for instance, a> tin- drawing or indorsing by a cashier in connection with bill* of exchange, checks and drafts. 1 A cashier may, ex-ojj\> /'//, indorse a note the |ro|K.-rt\ of the bank so as to authorize a demand and notice to the indorser. 9 In the course of his ordinary duties, the cahit-r of a bank, virtute officii, may transfer the paper securities of the bank in payment of the debts of the bank. The inducement for such indorsement of the papers need not appear ; in the absence of proof to the contrary the presumption would be in favor of t Im- propriety of the transfer. But such an inference would njt In- conclusive. A party interested would be authorized to contro- vert the fairness of the transfer by showing that it was not made in the regular course of business, but in prejudice of the right* and interests of the bank, and thus defeat the transfer.* The exercise by the cashier of a bank of his power to pledge tin- negotiable securities belonging to the bank is prhiiafaiyt evi- deiK-e that he had the power. 4 Without authority from his bank, evidenced by a resolution of the board of directors, TiMgn in like cases, or in some other way, a cashier cannot transfer non- negotiable paper. 5 But he has authority growing out of his peculiar relation to the bank and his duties resulting therefrom to transfer negotiable paper belonging to the bank for a legiti- mate purpose. 6 A cashier can invest no clerk of the bank with iinv more of his power than is necessary to enable the clerk to carry on the usual and ordinary business of the bank. A clerk acting as cashier in the absence of that officer has no authority, unless conferred upon him by the directors, to transfer notes or 1 Merchants' Bank r. Central Bank, case. As to the powers of a cashier in 1 Oa. 418; Cary, Assignee, r. McDou- discharging and transferring curi- gald, 7 Ga. 84. ties, etc., of the bunk, set- State r. Com- Hartford Bank r. Barry, (1821) 17 mercial Bank of Manchester. 6 Smote Mass. 94; Folger . Chase, (1886) 18 & Marsh. (Miss.) 218; Harper r. Cal- Pick. (Mass.) 68. houn, 7 How. (Mi*O 208; Crocket t. * Everett r. United States, 6 Port. Young, 1 Sraedes & Marsh. (Mte.) (Ala.) 166. As to the power of a cash- 241. ier of a bank to transfer its notes and * Mercantile Bank r. McCrth\. assets in payment of the bank's indebt- (1879) 7 Mo. App. 818; Bunk of 8UI* edness,seeKimballt?.Cleveland,4Mic-h. r. Wheeler, 21 1ml. 90. 606; Peninsular Bank t. Hanmer, 14 Barrick t. Austin. (1855) 21 Barb. Mich. 208. Whether the power to ap- 241. ply the assets in this way include* the Bank of New York r. Bank of power to guarantee their collection or Ohio, (1864) 29 N. Y. 619. invalidity was questioned in the last 574 OFFICERS OF BANKS. [ 307 securities of the bank. 1 A clerk thus temporarily acting for tlie cashier may transmit notes owned by the bank or held for collec- tion to the bank's agents for that purpose, and to vest in the col- lecting agents such title as is necessary and proper to accomplish that object. But he has no power to transfer any other or higher title thereto, and the agents of the bank will not, as against the bank, acquire any lien on the notes for any balance due from the bank. 2 As its executive officer, a cashier of a bank has authority to take such measures for the security and eventual collectio'n of a debt of the bank as he deems proper, and to act in reference to the collection or compromise of the debt according to the general usage, practice and course of business. 3 A cashier of a bank has power, prirna facie, to indorse for collection notes discounted and notes deposited with the bank to be collected or deposited as collateral security. 4 But he cannot indorse, without special authority, a note made payable to a bank and discounted by another person. 5 A cashier may bind a bank for costs incurred in the collection of a note which he has indorsed for collection. 6 That it was the usage of a bank, or that the bank, through its directors, had adopted his act, if proven, would be a sufficient authority for the satisfaction of judgments in favor of the bank by its cashier, although he may have no authority under seal or in writing to satisfy such judgments. 7 A cashier has no power to accept bills of exchange on behalf of the bank for the accom- modation merely of the drawers. 8 A bank will be bound by the official signature of its cashier to a negotiable note. 9 A bank may be held liable for a loan obtained on its account for which the personal note of its cashier may be given on a count for money had and received. 10 Unless the power to accept has been conferred upon him by the corporation, a bank will not be bound 1 Potter v. Merchants' Bank, (1864) sary to that end, see Young . Hudson, 28 N. Y. 641. (1889) 99 Mo. 102. 2 Ibid. 'Bancroft v. Wilmington Conf. 3 Bridenbecker v. Lowell, (1860) 32 Academy, 5 Houst. (Del.) 577. Barb. 9. 8 Farmers', etc., Bank . Troy City 4 Elliot v. Abbot, 12 N. H. 549; Bank, 1 Dougl. (Mich.) 457. Corser v. Paul, 41 N. H. 24, 26. 9 Rockwell v. ElkhornBank, 13Wis. 6 Cross T. Rowe, 22 N. H. 77. 653; Ballston Spa Bank r. Marine Bank, 6 Eastman T. Coos Bank, 1 N. H. 23, 16 Wis. 120. 25. As to the power of a cashier of a 10 Chemical Nat. Bank of Chicago v. bank to collect a note due it and to City Bank of Portage, (111. 1895) 40 N. adopt such measures as may be neces- E. Rep. 328. "7| ..MI. i i> M BABUL b\ its cashier's acceptance of a hill ,,f . -\changc in hi* official apacity. 1 A cashier of u hunk ha* M.. |M,VKT to transfer judg iiu-nts in favor ..( tin- hank, or t.. di.-poM- of it- property. 1 Neither ha> lit- power to di-<-.,unt u nou- ; hut if he discount u note his act will hi- valid, if afterwards ratified by tin- bank.* Hy hi> general power to certify chocks, a cashier of a hank is not authori/ed to certify a post-dated check. 4 The general |M.wen of iN ca>hier do not include authority to him! a hank to indemnify an otlicer for levying on property. 3 There U no implied power in a cashier of a bank to pledge its asKcts for payment of an ante- cedent debt. 8 A cashier of a hank as such hat* no power to accept a note signed by two parties only* in payment and discharge of a note upon which another party was also bound with the two, so as to release the third party from his indebtedness to the hank. 7 Neither can he, virtu fa ojficii, release a surety UJHM a note, even though the bank holds other security to which it might roort, nor make collateral contracts or agreements of any kind." It is not within the ordinary scope of the duties of a cashier of a bank to discharge a surety on a debt due the hank.* A cashier of a bank cannot, by reason of the general authority he may have to certify checks, certify his own checks or issue certificates of deposit to himself. 10 It would be l>eyond the SCOJK* and jwwerof the cashier of a private bank (himself a partner) to enter credit* upon the bank book of a depositor without any check, bill or noU being presented for discount. Should he enter the credit* on the books of the bank and the depositor be permitted to draw the money, the bank would be estopped from setting up the want of authority in the cashier ; but it would IK* otherwise as to credits not entered on the books of the l>ank, though duly entered on the 1 Pendleton r. Bank of Kentucky, ' Erker r. Firet National Bank of (1824) 1 Mon. (Ky.) 179. New Windsor. (lt*2) 5 Md. l. Holtr. Bacon, 8 Cushman, (Miiw.) 803. 57. 'Ibid 1 1'Jantera' Bank r. Sharpe, 4 Smeds I>viea Co. Saving* Aawdati A Marsh. (Miss. ) 75. Sailor. (1878) 88 Mo. 24. TbU a cashier 4 Clarke National Bank r. Bank of ha* no power to dforharjre a aunty on Albion, (1868) 52 Barb. 592. bank paper, HecCochi-ro National Bank Watson r Bennett, (1851) 12 Barb r. Ilaskvll. 51 N. H. 116. Rrlnur of 196. surety by canhicr. Merchant*' Bank r State of Tennessee r. Davis. (Sup. Rudolf, 3 Neb. 540. Ct. N. Y. Spl. Terra. 1874) 50 How. ' Lee r. 8mlth. (1884) 84 Ma 804. Pr. 447. 576 OFFICERS OF BANKS. [ 307 depositor's pass book. 1 The cashier of a national bank which holds the paper of a firm of which he was a member, it has been held, could not waive liability on an accommodation note procured by him to be substituted for the indebtedness of his firm. 2 A cashier of a bank cannot bind it as an accommodation indorser on his individual note. 8 Neither can he bind the bank by assurances that would release parties from their liability on a note held by the bank. 4 The act of an assistant cashier of a bank, prohibited by the bank to certify checks, in accepting a post-dated check without any usage to justify it, would be void, even as toward a bonajide holder. 5 A director in a savings institution of West Virginia, by collusion with other directors and the co-operation of the cashier, when he knew the institution was insolvent, with- drew a deposit of a large sum of money which he had had for some length of time in the institution at interest. The money was not paid to the whole amount, but the cashier paid him in bills and notes which had been discounted by the bank and belonged to it. The bank having made an assignment to one for the benefit of its creditors, he brought his action against the director to recover the amount which he had received on the ground of the fraud and other wrongdoing by which it was accom- plished. The Court of Appeals of West Virginia held that this assignee or trustee was entitled to recover in proper action the amount of deposits which this director had withdrawn under the circumstances disclosed in the case. 6 In an action by a Nebraska 1 Williams v. Dorrier, 135 Pa. St. tended that he had any such authority 445. from the board of directors. The whole * Allen v. Bank, 127 Pa. St. 51. record is against any such presump- 3 West St. Louis Savings Bank v. tion as this. Did he then, virtute of- Shawnee County Bank, 95 U. S. 557. ficii, have the right to dispose of the SBank of Metropolis v. Jones, 8 discounted bills and notes of the bank? Pet. 12. There is nothing in the charter of the 5 Pope 0. Bank of Albion, (1874) 57 institution conferring that right upon N. Y. 126. him. The management is there con- 6 Lamb v. Cecil, (1884) 25 W. Va. f erred upon a board of directors. The 288. It was necessary in determining Court of Appeals of New York, in this question for the court to discuss Hoyt t. Thompson, 1 Seld. 320, held the question of the power and au- that where the management of the af- thority of a cashier to dispose of the fairs of a corporation is intrusted by discounted bills and notes, the prop- its charter to a board of directors, the erty of the bank. Upon that question president and cashier, unless specially it was said by JOHNSON, President, authorized by the charter, have no speaking for the court: " It is not pre- power to assign the choses in action of 307] OFFICERS OF BANKS. bank upon a note the maker, as a dd'en-e. claimed payment of the liahiiioe due on the note, in that In- hail sold to the bank through its cashier certain shares of stock in an insurance company, the cashier promising at the time that lie would credit them on the* note when it should be returned from another city, where it then was. The Supreme Court of Nebraska held that the ea-hicr, hv virtue of his office, had not the power to accept the stock of the insurance company in payment of the debt due the bank, but that power, if it existed, was lodged in the directory, and, as it had not expressly authorized the cashier thereto, he exceeded his powqr in agreeing to accept, on behalf of his principal, the iti>ur- ance company stock in payment of the debt due the bank, and that the bank was not bound thereby. 1 the corporation to its creditors as secu- abused. But the stockholders should rity for the payment of a precedent provide against this evil in the debt of the corporation without au- of directors. Having this power, tlu-n- thority from the board of directors, is no reason why it should not ! An assignment so made is not merely ercised by one of the body with tin- voidable, but is absolutely void. Rro- consent of the rest, expressed by tlu-ir 'ii-. Ch. J., in delivering the opinion vote. We are satisfied, therefore, that of the court, said: But the power and the directors might by their vote or duties of the president and cashier are power of attorney authorize the prep- rint prescribed by the charter; no dent or any other officer of the bank u> power is conferred upon them to mort- assign over the promissory notes pay- gage, assign ordispose of the property able to the company.' In Fleckner r of the corporation. This is a part of U. S. Bank. H Wheat. 33*. it was held the management of the business of the that the authority of the cashier to company which is confined expressly assign a note of the bank need not be to the directors, but not to the presi- under the corporate seal, but that a dent and cashier. In no case has it resolution passed by the directors WM been held that these officers arc author- sufficient authority for the cashier. I ized to do an act like that in question can find no authority which holds that without the assent and authority of the cashier, without authority from the the directors. To the same effect is directors, can dispose of the discounted Spear t. Ladd. 11 Mass. 94, and Bank bills and notes of the bank. It would v. Pepoon, 11 Mnl. 988. Indeed, in be a dangerous (tower, indeed, to re- the first of these cases it was gravely pose in au officer of the bank. It consfdered whether the board of di- would put a large part of the property rectors could confer such powers on the of the bank under the absolute control president and cashier; and, in the sec- of the cashier or other officer ex< ond, whether they could confer it on cLsing such power; and be might, for any attorney. In the last-named case, his own use. dispose of surh pm; PAUKER, Ch. J. (p. 292). said: 'This and pass good title th<: power puts the whole property of the ' Bank of Commerce r. Ilart. (1808) bank under the control of the directors. 87 Neb. 197. RT AX, C.. speaking far and without doubt the power may be the court, as leading to and supporting 73 578 OFFICERS OF BANKS. [308 308. Cashier's liability for his acts. A cashier applying to his use securities of a bank will be liable on his bond for the full amount. 1 And a misapplication by such officer of funds delivered to him out of business hours and remote from the bank- ing house, will be a violation of the condition of his official their conclusion, made reference to leading authorities, as follows: "In Sandy River Bank v. Merchants & Mechanics' Bank, 1 Biss. 146, the facts were: The cashier of the Mechanics' Bank settled an account of twenty-two thousand dollars with the cashier of the Sandy River Bank, by paying ten thousand dollars cash and giving twelve thousand dollars private paper, which the cashier of the Sandy River Bank accepted in payment, and gave a receipt in full. The Sandy River Bank brought its action against the Merchants and Mechanics' Bank on the account. The latter pleaded payment by the contract with the cashier. The question in the case was whether the cashier had authority to receive in pay- ment anything but money. In the course of the opinion delivered, the judge said: ' A cashier of a bank is ordinarily the executive of the bank. He is the agent through whom third persons transact their business with the bank. The'bank generally holds him out to the world as having authority to act according to the general usage, practice and course of business, and all acts done by him within the scope of such usages, practice and course of business, bind the bank as to third persons who transact business with him on the faith of his official char- acter; and perhaps it may be presumed without proof, and merely from his office, that he is authorized to receipt and discharge debts, and deliver up securities on payment or discharge of the debt for which they are held. * * * But still this authority is a limited autlwrity, and when a party claims a discharge from a debt due the bank, not by payment, but by giving other or different notes, bills or secu- rities, which the cashier has agreed to take and release the debt, his author- ity, like that of any other agent; must be shown by proof. As a general rule, a jury have not a right to infer that the cashier of a bank, as such, has the authority to compromise and dis- charge debts without payment or by taking other securities, but the author- ity from the bank must be shown ex- pressly or by necessary implication, or it must * * * be established by the particular usage or practice or mode of doing business of the bank, or it must be ratified or acquiesced in by the bank in order to be binding.' In United States 0. City Bank of Columbus, 21 How. 356, the facts were: The cashier of the Columbus Bank gave to one of its directors, Miner, a letter to the secretary of the treasury of the United States, to the effect that Miner had authority to contract in be- half of the bank for the transfer of money for the government. Relying upon this letter, the secretary of the treasury made a contract with Miner for him to transfer one hundred thousand dollars of the government's money from New York to New Or- leans. Miner received the money, but never delivered it. The United States brought suit against the Columbus bank to recover the money. The Supreme Court of the United States decided that the action could not be successfully maintained, as the cashier 1 Pendleton r. Bank of Kentucky, (1824) 1 Mon. 179. 308] OFFICERS OF BANKS. bond. 1 A cashier of a banking corporation, having authority to Iccin tin- money of the bonk, wither without M-mritv, has been h'ld in California liable for losses arising from loans without security not entered in the books of the bank nor reported to the board of of the Columbus bank bad no author- tatc in satisfaction and release. U the it v to make such a contract, and there function of the hoard of directors and was no proof that the board of di- not of any individual director or rectors had authorized it. In the officer. It baa also been decided that. course of the opinion Justice SWAYNK in the rtmmoo of special authority, said: ' The court defines the cashier of the cashier of a bank could not release a bank to be an executive officer by the surety from a note owned by the whom its debts are received and paid, bank. Merchants' Bunk r Itudolf. and its securities taken and transfer- 5 Neb. 527; Cocheco National Bank red, and that his acts, to be binding . Huskell, 51 N. 11. 116. That in tin upon a bank, must be done within the absence of special authority or estab- ordinary course of his duties. * * * lished usage the cashier lias no power The term 'ordinary business,' withdi- to compromise claims due his bank. rect reference to the duties of cashiers Chemical National Hnnk r. Kditicr. of banks, occurs frequently in * * * 8 Daly, 590. That he had no author reports of the decisions of our state ity to bind his bank by issuing a cer- courts, and in no one of these has it tificate of deposit to himself. Lee r. been judicially allowed to comprehend Smith. H4 Mo. 904. Nor bind the bank a contract made by a cashier, without by an official indorsement of his own an express delegation of power from a note. Yv'est St. Louis Savings Bank r. board of directors to do so, which in- Shawnec County Bank, 95 U. 8. Sfl. volves the payment of money, unless The cashier of the [plaintiff bank], it be such as has been loaned in the then, as the executive officer of the usual and custonmry way. Nor has bank, was clothed with authority to it ever been decided that a cashier collect all debts due the bank, but this could purchase or sell the property or means collections in money. If a create an agency of any kind for a cashier may discharge the debts due bank which he had not been author- his bank by exchanging the evidence* ized to make by those to whom has of them for stocks of an insurance 00ss> been confided the power to manage its pany or a gas company, then he can, business, both ordinary and extra- under the name and charter of the ordinary.' The court then addressed bank, conduct an entirely different itself to the case at bar, and said: The business, and use the funds of his power of this bank to purchase stock stockholders for a purpose for which In an insurance company, if it exists they were never subscribed, and in at all, is an extraordinary power and violation of the law of the bank's ere- one not confided to the cashier, but alion. The purposes for which [thin belonging to the directory. In The bank] was organized, as expressed in Bank of Hcaldsburg r. Bailhache. 65 its articles of incorporation, were to Cal. 329, it is said that the power to receive deposits of money and par the make a settlement of defalcation to a same out on proper vouchers ; to loan bank, and accept a deed of real es- money on personal security ; to issue Ibid. 580 OFFICERS OF BANKS. [ SOS trustees, but treated in his reports to the board as cash on hand. 1 The obligors upon a bond of the cashier of a bank under a condition for him " safely and securely to keep all moneys deposited, and to refund and pay over the same when properly required," will not be held liable for money violently robbed from him while in the discharge of his duty. 2 A bond of a cashier of a bank framed to cover past as well as future delinquencies will be invalid against a surety, if his name was procured at the desire of the directors where they have knowledge that past defalcations exist of which the surety may be ignorant and withhold the knowledge from him when they have a suitable opportunity to communicate it. 3 A cashier of a bank employed to sell certain shares of its stock at a fixed price, but before he had completed the sale, the bank was enjoined and proved insolvent, has been held not to be responsible for the supposed value of the stock, no negligence on his part in forwarding the sale being shown. 4 Where a bank brings an action against its cashier for a wrongful appropriation of moneys, it would be no defense that at the time of the appropriation he was the owner of four-fifths of the stock of the bank and had since that time sold all of his stock to other parties who were now the officers and managing authority of the bank. 5 The condition of drafts or letters of credit; to buy and collect its debts, under orders of the sell securities of every kind, and do a board of investment, to execute a general banking business. Had this power of sale under a mortgage to the charter expressly provided that the bank, by conveying to a purchaser, corporation might invest its funds in see North Brookfield Sav. Bank r. stocks of insurance companies and deal Flanders, (Mass. 1894) 37 N. E. Eep. generally in stocks of other corpora- 307. See, also, Bank v. Keavy, 128 tions, such a provision would have been Mass. 298; Holden v. Upton, 134 Mass. contrary to the laws of the state and 177, 179; Trustees of Smith Charities ^oid. But there is no provision in the v. Connolly, 157 Mass. 272; s. c., 31 N. bank's charter which by any reason- E. Rep. 1058. able construction can be construed into ! San Joaquin Valley Bank v. Bours, an authority to purchase and hold the (1884), 65 Cal. 247. stocks of any other corporation. True, * Bank of Huntsville v. Hill, 1 Stew. it says 'to purchase securities of every (Ala.) 201. kind,' but certificates of stock are not 3 Franklin Bank v. Cooper, 36 Me. securities within the meaning of this 179; Franklin Bank v. Stevens, 39 Me. provision, nor such as the word imports 532; Franklin Bank v. Cooper, 39 Me. in commercial or banking phraseology. 542. 'Securities,' as here used, means notes, * Washburn v. Blake, 47 Me. 316. bills, evidences of debt, promises to pay 5 First National Bank D. Drake, money." As to the authority of a sav- (1883) 29 Kans. 311. ings bank's treasurer, having power to 308] OFFICERS OF BAN KM. , > 1 tin Ixjnd of the cashier of a state bank as required by the statnt.- of Indiana is that ho " will honestly and faithfully discharge [hi>] duties as such [officer] * * * during [his] continuance in office." This was an action against the cashier of a hank and hi- sureties upon his official bond, and his arts complained ..f were that ho converted different amounts .f the large sums of money coining into his hands to his own use, as alleged in one paragraph of the complaint. In another it was alleged that pur.Miant t.. the by-laws of the bank it had organized an " exchange committee, composed of its president, cashier and a designated director ; that the by-laws further provided that the cashier should not make loans in excess of five hundred dollars without the approval of such committee or one member besides himself." It was further alleged that as cashier that officer, in violation of his trust and the said by-laws, loaned and otherwise disposed of large sums of money belonging to the bank, which were wholly lost. Various other breaches of the bond were charged in allowing overdraft* of customers, making loans in violation of his trust and the rules and regulations of the bank ; also, that by a conspiracy with two others, large sums of money were withdrawn from the vaults and invested in " options " and " bucket-shop deals " so-called ; witli further allegations of the entire loss of such moneys and the con- cealment on his part of these transactions from the other officers of the bank. The sureties, in their answer, admitted these alle- gations, but alleged that, in violation of its duty and the require- ment of the by-laws in force when the bond sued on was exe- cuted, the bank failed to organize an " exchange committee," and because of such failure the duties of the cashier were delayed, and, as the result, the various breaches of duty and losses com- plained of ensued, and hence they were not liable. BERKSHIRE, J., for the Supreme Court, in the opinion, said of this answer: " The basal rock upon which these paragraplis of the answer iwt is the allegation that there was no exchange committee organized, as required by the by-laws ; " and afterwards : " But the answer* themselves disclose the existence of the 4 exchange committee' provided for in the by-laws. They show that this committee WM to be composed of the cashier, president and a designated director. The committee was composed of three ineinlH-i> ; the by-laws named two of them, or a majority ; the failure to name a director for that committee did not deprive the committee of its powers ; 582 OFFICERS OF BANKS. [ 309 the two Lad power to act. Besides, the by-laws provided that the cashier was at liberty to take any legitimate action in dispos- ing of the funds of the bank with the approval of its president ; hence, the approval of the chief officer would have been the cashier's justification as to any such transaction. But if it were conceded that the bank had entirely failed to provide for an 'exchange committee,' and in the absence of such committee that the cashier had exclusive and complete authority to transact any and all of the business of the bank, this would not relieve his sureties from liability because of his fraudulent conduct in con- nection with [co-conspirators], whereby large sums of money belonging to the bank were invested in illegitimate transactions. Under no circumstances was the cashier authorized to dispose of the funds of the bank for such purposes. "With or without the approval of an ' exchange committee,' such as provided for, this was a clear violation of duty and rendered his sureties liable." The, court further held that an agreement by the board of direct- ors, after the execution of the cashier's bond, enlarging his duties, and increasing his salary, but not changing the character of his duties, or his relation to the bank as cashier, was no defense to this action against the sureties for the cashier's violation of duty. 1 309. Knowledge of its cashier not imputable to bank illustration. In an action by the makers of a note against a bank cashier to have the note surrendered for cancellation, it being alleged that there was fraud or misrepresentation on the part of one who was not only cashier of the bank which had dis- counted the note for the corporation, and also secretary and treas- urer of this outside corporation, concerning which the represen- J;ations alleged to be fraudulent were made, it was attempted to charge the bank with his knowledge. The Supreme Court of Missouri, in affirming the dismissal of this bill, stated " that," as shown by the evidence, " in the negotiation for the sale and further delivery of the stock [the cashier of the bank] repre- sented, and only represented, the company ; that the plaintiff relied wholly upon him, as the secretary and treasurer of the com- pany, for the delivery of the stock for which he had contracted. To that transaction the bank was an entire stranger, and in it its cashier neither represented, nor undertook to represent, the 1 Wallace v. Exchange Bank of Spencer, (1890) 126 Ind. 265. 310] OKKK I I> ..I HANKS. 588 hank." 1 Notice to a cashier that *t<-k j>l<-een held in Vermont that notice to the attorney of a hank or to the cashier, while acting in the matter ,,f attaehini: land for the benefit of the bank, of an equitable right in a third jR-rson as, by a defective deed or record was notiee to the hank. 1 310. Rules as to ratification of a cashier's act by the bank. In a case before the Supreme Court of Iowa it appeared 1 Benton r. German-American Na- tional Bank, (bio. 1894) 268. W. Rep. 975; citing 1 Mor. Priv. Corp. 540c; Hank r. Loybed, 28 Minn. 396; 8. c., 10 N. W. Rep. 421; DeKay v. Water Co., 88 N. J. Eq. 158; Wilson r. Bank, (Pa.) 7 All. Rep. 145. Sep. also, Bank r. Christopher. 40 N. J. L. 435; Inerarity r. Bank, 139 Mass. 332; 8. <-., 1 N. E. Rep. 282; Barnes r. Gas Light Co., 27 N. J. Eq. 33; Bank r. Neass, 5 Den. 329; In re European Bank. 5 Ch. App. 358; Bank r. Savery, 82 N. Y. 291; Fisher v. Murdock. 13 Hun, 485; Gates r. National Bank, 100 U. S. 239, 245; Louisiana State Bank r. Benecal, 13 La. 527; Branch Bank at Huntsvillc r. Steele, 10 Ala. 915. The Missouri court said: " Whatever may have been his kuowl- edge of the condition of the company's stock account, or of its affairs gener- iilly. that knowledge cannot be im- puted to the bank when, subse- quently, he came to pnx-ure for that company a discount of paper acquired in his negotiations for the company which he represented. It seems to be well-settled law in this state that knowledge which comes to an officer of a corporation through his private transactions, and beyond the range of his official duties, is not notice to the corporation. State Savings Aasn. r. Nixon-Jones Printing Co., 25 Mo. App. 648; Bank r. Schaumburg. 88 Mo. 228; Manhattan Brass Co. r Webster Glass & Queensware Co.. 3? Mo. App. 145; Hyde r. Larkin. 35 Mo. App. 306; Johnston r. Short ridge. 03 Mo. 287; a. c., 6 8. W. Rep. 64; Bank r I 114 Mo. 519; s, c.. 21 8. W. Rep. 885. In this last case, which is quite anala- gous to tkc case in hand, we held that: ' An officer of a banking corporation has a perfect right to transact hi* own business at the bank of which be is an officer, and in such transaction bin in- terest is adverse to the bank, and hi* represents himself and not the bank. Tin- law is well-settled that where an officer of a corporation is dealing with it in his individual interest the corpo- ration is not chargeable with his un communicated knowledge of facts de- rogatory to his title to the pro|>crty which is the subject of the transac- tion.' A corollary of the foregoing proposition is that if a person is an officer of two corporations, and these corporations enter into dealings with each other, the knowledge of tbi- common officer cannot be attributed to either corporation in a transaction in which he did not represent it." * Duncan r. Jaudon. 15 Wall. 165. 1 Vermont Mining Co. r Windbani County Bank. 44 Vt. 4H9. A* to the effect u|M>n the teller of the bank of knowledge of a cashier that a note ac- quired by the hank was fnni-lul- nt!\ negotiated, see Fnll River Union Bank r. Sturtcvnnt. (1858) 1'J aper itself bore no marks of suspicion sufficient to affect tin- title of the hank a* a purchaser in good faith, which, upon the facts, would otherwise be presumed. 1 312. Promise by cashier to pay draft of a customer to be drawn at a future day not binding on the bank. A national bank is empowered by United States lle\ utes ( 5136) "to exercise by its board of directors or dnlv authorized officers or agents, subject to law, all such incidental 'Merchants' National Bank of St. Paul r. McNeir, (1892) 01 Minn. 128. The court said: " [The negotiator] assumed to be acting in his official capacity, and appeared to be engaged in the business of his bunk. He pro- posed to take up the note which he had before rightfully negotiated in behalf of the bank as cashier, and to substitute another executed by the same party. And the cashier of the plaintiff bank, as the court finds, in good faith, believed that [he] was act- ing officially for [his] buuk, and the evidence sustains this finding. If the new note had been of the same amount as the old one taken up, tin- fact that it ran to [the negotiator] would hardly be claimed to be sufficient to excite suspicion. And so, if the note had been subsequently negotiated by plaintiff, and had passed in the regular course of business into the hands of a remote indorsee, it would hardly be claimed that such indorsee was not a bonn fiilt purchaser, either on the ground of notice from the note itself, or that he was bound to have instituted a pre- liminary inquiry as to the authority of [the negotiator] to make the second indorsement as cashier. The fact that [he] appeared to be the first indorscr, and the bank the second indorser. was not, of itself, a circumstance 10 extra ordinary or suspicious M lo make the case one of gross negligence on the part of the plaintiff, and subject it to the imputation of bad faith in receiving the paper. Nor, in the face of the finding of good faith of the officers of the plaintiff in the transaction, did the circumstance that the surplus, over the amount due upon the old note, WHS paid directly to [the MHO tiator] either in currency or by check running to him, amount to notice of [his] intended fraud upon his bank. or make the plaintiff a purchaser nutta fitle of the note. It is not suflicient. under the rule applied to the transfer of negotiable paper, under the law merchant, that there be i-iministancea of suspicion such as would put a cart- ful purchaser upon inquiry The cir- cumstances must be HO pointed and direct as to amount to evidence of mala fide*, in the absence of inquiry, or such as to bo prima faeit incon- sistent with any other view than that there is something wrong in UK* tide. and thus amount to const r notice. 1 Dan. Neg. In*t i ttli r.l S; 796; 2 Kami. Com. Paper, gg 988. 1001. Tied. Com. Paper, {I 989; FVce- man's Nat. Bank r. Savery. 127 78, 7." 588 OFFICERS OF BANKS. [ 313 powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, and other evidences of debt, * * * by loaning money on personal security," etc. It was held in the United States Circuit Court for the southern district of California that under no pro- vision of the statute above referred to did the cashier of a national bank have power to bind the bank to pay the draft of a third person on one of its customers, to be drawn at a future day, when it expected to have a deposit from him sufficient to cover it, and that no action would lie against the bank for its refusal to pay such a draft. 1 313. Estoppel of a bank to deny the validity of an act of its cashier in drawing drafts on its correspondent, and fraudulently indorsing them. In a very recent case before the New York Court of Appeals, which was an action by the receiver of an insolvent South Carolina bank to recover a deposit 1 Flannagan v. California Nat. Bank, authority to indorse the commercial (1893) 56 Fed. Rep. 959. The court paper of his bank, and bind the bank said: "In Bank v. Dunn, 6 Pet. 51, by the indorsement. So, too, in the the court would not permit the presi- absence of restrictions, if he has pro- dent and cashier of the bank to bind it cured bonafide rediscount of the paper by their agreement with the indorser of the bank, his acts will be binding of a promissory note that he should because of his implied power to trans- not be liable on his indorsement. It is act such business; but certainly he is said it is not the duty of the cashier not presumed to have power, by reason and president to make such contracts, of his official position, to bind his bank nor have they power to bind the bank, as an accommodation indorser of his except in the discharge of their ordi- own promissory note. Such a trans- nary duties'." The court then referred action would not be within the scope to U. S. . City Bank of Columbus, 21 of his general powers; and one who How. 356, and afterwards said : In accepts an indorsement of that charac- West St. Louis Sav. Bank v. Shawnee ter, if a contest arises, must prove County Bank, 95 TJ. S. 557, where it actual authority before he can recover, was attempted, but unsuccessfully, to There are no presumptions in favor of bind a bank as an accommodation in- such a delegation of power. The very dorser on the individual note of its form of the paper itself carried notice cashier, the court said: "Ordinarily to a purchaser of* a possible want of the cashier, being the ostensible execu- power to make the indorsement, and tive officer of a bank, is presumed to is sufficient to put him on his guard, have, in the absence of positive restric- If he fails to avail himself of the notice, tions, all the powers necessary for such and obtain the information which is an officer in the transaction of the thus suggested to him, it is his own legitimate business of banking. Thus fault, and, as against an innocent party, he is generally understood to have he must bear the loss." 3 1 3] OFFICERS OF BANKS. of that bank in a bank in tin- city of New York, it appeared that the latter had debited the former with certain checks which tin- cashier of the insolvent bank liad drawn upon the New York bank, payable to certain customers of the bank of which he was the cashier, and then indorsed the names of these payees UJN.M the checks, making them payable to the order of a New York firm of brokers, who collected the amount of these checks from t he- bank upon which they were drawn. The New York Court of Appeals in its opinion referred to the discussion of the trial judge of the question of what the act of the cashier of the bank amounted to in law, as follows: "In his judgment, the cashier's indorsement of the checks in the name of the payer, which lie had written in the body of the check, was not, in a legal sense, forgery. He said that act did not defraud the persons whose names were used as payees, nor the bank in New York, nor his own bank, but that the fraud consisted in the unlawful drawing of the check for his own purposes, with the intent to convert hw own bank's funds. Regarding the transaction in that light, and the indorsement as a part of one continuous act of preparing the check so that the New York bank should pay the funds drawn upon to the indorsees, he very properly reached the conclusion that, so far as the New York bank was concerned, the cashier's intent was the intent of his bank, and, hence, the payment of the checks was conclusive upon it." Then it is said of the review of the legal questions by the General Term, sustaining the judg- ment of the trial judge dismissing the complaint : " Upon the question of the effect upon the transaction of the use by [the cashier] of names, as payees, of persons who were the customers of the bank, it is said in the opinion that that fact did not pre- vent the application of the principle which would govern if fictitious names had been selected and used for payees. They held, in substance, that the bank, through its authorized ohVer. had put in circulation paper, with knowledge chargeable to it, that the names of the payees did not represent real persons, and with the intention to indorse thereon the names of the payees, who. for all intents and purposes, were fictitious payees, and whose names were adopted and resorted to as a device to avoid suspicion." The Court of Appeals approved these two judgments. 1 A 1 Phillips v. Mercantile National 140 N. Y. 556. 559. 560. afflrraing 67 Bank of the City of New York. (1894) Hun, 878. The Court of Appeals in their 590 OFFICERS OF BANKS. [313 national bank of the city of New York was the correspondent of a country national bank. One who, during the time in which the transaction in controversy in this case took place, was cashier, and during the remainder of the time was president of the country bank, all the time practically managed the bank, and his codirectors and other officers had little or no oversight of opinion distinguished Shipman v. Bank of the State of New York, 126 N. Y. 318, in these words: "There it had been found that the checks were signed by the firm, in the belief that the names of the payees represented real persons entitled to receive the amount of the checks, and with the intention that they should be delivered to real payees and should not go into circula- tion otherwise than through a delivery to and an indorsement by the payees named. [The] employment [of their clerk] did not comprehend the draw- ing or indorsement of checks or drafts, and in indorsing upon the checks the names of the payees he committed the crime of forgery, because he was without authority in that respect and did so with the intention to deceive his employers, the makers, and to put their checks in circulation for his ac- count. That was a case wholly other than was made out here. It was stated in the Shipman case that the maker's intention is the controlling considera- tion, which determines the character of the paper, and that the statutory rule, which gives to paper drawn pay- able to the order of a fictitious person, and negotiated by the maker, the same validity as paper payable to bearer, applies only when such paper is put into circulation by the maker with knowledge that the name of the payee does not represent a real person. The principle of that decision is quite ap- plicable to the case at bar. Though [this cashier] selected, for the execu- tion of his dishonest purposes, the names of persons who were dealers with his bank, it was in legal effect as though he had selected any names at random. The difference is that, by the methods resorted to, he averted suspicion on the part of the directors or other officers of his bank. The names he used were, for his purposes, fictitious, because he never intended that the paper should reach the per- sons whose names were upon them. The transaction was one solely for the fraudulent purpose of appropriating his bank's moneys by a trick which his position enabled him to perform. Con- cededly, if the names of the payees were of fictitious persons [the bank whose cashier drew these checks] would have had no claim upon the defendant; how, then, can the trans- action be said to assume a different aspect because the names adopted were of known persons? As cashier, invested with the authority to draw checks upon the bank's accounts with its correspondents, instead of drawing them directly to the order of the part- ies, who he intended should get the moneys, he drew them to the order of persons who had no interest in them, and thereupon wrote their names under a direction to pay to the real parties, who were intended to be the recipients of the funds drawn upon. If the checks had been drawn directly to the order of the real parties, the defendant would undoubtedly have been protected in paying them. As it was, the payees were fictitious per- sons in the eye of the law, and the only real parties were the firms in New York, to whom the cashier sent them in such form as that they could draw the moneys upon them. The fictitious- .- -13] OFFICERS OF BANKS. 'I its affair.-. He \vns engaged in stock speculation* <>n his own account in New York, and drew from time to time, for hw own purposes, in favor of a firm in NYw York, his broken, on the liank balance with the New York bank. IIi brokers front time to time returned to that hank sums to In- credited to the country hank. The latter, being ruined by fraudulent ojicratioiis of its officer before mentioned, who disapj>eared, IH?< I vent and was placed in the hands of a receiver. This receiver brought his action against the firm of New York brokers to recover the sums so paid to them by this officer of the country bank out of the balance to the credit of the bank with the New York bank. The brokers claimed the right to offset the return payments made by them to the New York bank. The trial court ruled that they were not entitled to do it, and no question in respect of them was submitted to the jury. For this error the United States Supreme Court reversed arid remanded the case for a new trial, holding that, at the least, it was a question to go to the jury whether the officers of the bank, other than the dishonest official, in the exer- cise of reasonable and proj>er care, could have ascertained tliat ness of the maker's direction to puy fall upon the bunk, whose (lira-tore, does not depend upon the idenlitkit- by their misplaced confidence and gift tion of the name of the payee with of powers, made them possible, and some existent person, but upon the not UJMHI others who. themselves act- intention underlying the act of ing innocently and in good faith, wen? the maker in inserting the name, warranted in believing the transaction Where, as in this case, the intent of to have been one coming within the the act was, by the use of the names cashier's powers. It may be quite of some known persons, to throw true that the cashier was not the agent directors and officers off their guard, of the bank to commit a forgery, or such a use of names was merely an any other fraud of such a nature, but instrumentality or a means which the he was authori/cd to draw or check cashier adopted, in the execution of upon the bunk's funds If he ahuwd his purpose, to defraud the bank, in an his authority and robbed his bank it apparently legitimate exercise of his must suffer the loss. The distinction authority. The cashier, through his between such a case and the many office and the powers con tided to him other cases which the plaintiff's coun for exercise, was enabled to perpe- sel cited from, is in the fact that it wu trate a fraud upon his bank, which a within the acope of this ouhier' greater vigilance of its officers might powers to bind the bank by bU check* have earlier discovered, if it might In transmitting them, made out and not have prevented. If his position indorsed as they were, the bank wa and the confidence reposed in him so far concluded by hU acU aa to be were such as to enable him to escape estopped from now denying their detection for the while, then the con- validity." sequences of his fraudulent acts should 592 OFFICERS OF BANKS. [313 these moneys had been deposited to the account of the insolvent bank, and would or would not have accepted such deposits as the return of the moneys to the bank. 1 It appeared in a case that a bank clerk, the duty of whom it was to prepare exchange for the cashier's signature, so drew a draft for twenty-five dollars to his own order that the amount could be readily altered. After procuring the signature of the cashier to the draft by pretending that he wished to make a remittance of that amount, the clerk altered the draft so that it presented the appearance of a genuine draft for $2.500, indorsed it and had it discounted. It was sought in the action to hold the bank liable on this draft. The 1 Kissam , Anderson, (1892) 145 U. parties. If it be said that no officer S. 435. Mr. Justice BREWER, speak- of [this] bank knew of these deposits ing for the court, arguendo, said: "We except [its cashier], the wrongdoer, think [the principle upon which the and that he subsequently drew out trial court acted, which was stated by most of these moneys in drafts to counsel for plaintiff in his brief, as further other wrongs, the reply is that follows: 'It is settled by abundant the other officers and directors of [this] authority that where one has taken bank were chargeable with knowledge the property of another damages are of these deposits. If, through their not mitigated by showing merely that negligence, they did not in fact know, the wrongdoer returned the property that is a matter for which [this] bank without the consent of the owner or and not the defendants were responsi- applied it upon the owner's debts. It ble. [Defendants] had no supervision must appear still further that the over its affairs, no knowledge as to owner consented to such action or that how those affairs were managed, the proceeds were so applied under They were not called upon to go to [the legal process without connivance of place of its location] and hunt up the the wrongdoer, * * * '] does not various officers and directors, and in- control in this case. Defendants re- form them, one by one, personally, turned this money to the [country] that these moneys had been deposited bank. They deposited it with the to their credit in the [New York] [New York] bank, the correspondent bank. It was enough that they de- of the [former], and the bank from posited them, and that that bank, in which they received the money or the the regular course of business, by checks from the [former]. In fact, monthly statements, informed the therefore, the money was placed where [country] bank that it received and held it was before it was taken in the those moneys. The learned circuit possession and under the control of judge seemed to be of the opinion the [country] bank. Not only that; the that, as they had assisted [this cashier] [New York] bank, in its due course of in withdrawing these funds from the business, by monthly reports, in- bank, they could not escape responsi- formed the [country] bank that they bility, unless the sum total of his de- had received this money, and held it falcation was reduced by their deposits subject to its order, and it was subse- to an amount less than that received quently used by the [country] bank in from him. In his opinion overruling drafts drawn by it in favor of other the motion for a new trial he thus ex- '>14] OFFICERS OF HANKS. United States Circuit Court of Appeals for the seventh circuit affirmed the judgment rendered in the Circuit Court in favor of the bunk, holding that the forgery hy the clerk, and not tli- ligencc of the hank, being the proximate cause "f the lues, the bunk was not liable. Further, the bank was not liable on tin- ground that the forgery was committed by its confidential employee, because in this transaction he acted as a purchaser, and not as an employee, and the purchase of the draft being com- plete, he was the owner of it when the forgery was committed. 1 314. Teller and bookkeeper their powers and duties. There is no inherent, original power expressly conferred Ujxn the teller of a bank, in the powers and duties usually eoni upon such officer and to be exercised by him, to enable him ti certify that the checks of the depositors of the bank will be good when presented for payment at some future time ; nor is such pressed himself: ' Here all the money chargeable with his after miscondm t. returned by [the wrongdoer] was in- in respect to which they had no part, sufficient to replace his defalcation by It will not do lo say that they put the an amount much larger than the sum money where he could check it out sought to be recovered of the defend- and, therefore, are responsible for ants, and the bank had no knowledge what he did with it. They departed that he had returned anything to re- it to the credit of the [country] bank, place what he had misapplied until he and it was for the officers and direct- had again misappropriated it. It is ors of that 'iank to take care of its dc- not unjust or unreasonable to compel posits. The rule miirht be different if the defendants to restore such of the [the wrongdoer], the cashier of th funds of the bank as they received [country] bank, was the only ofllcrr when they are unable to prove that authorized to draw on the [New York) the bank was not directly or ultimately bank, or cliarged with knowledge of a loser in consequence of their acts, the state of the account; but the* prod- It may be that [the wrongdoer] would dent and teller Imd equal authority, and have misappropriated the money of were equally chargeable with knowl- 1 IK- hunk in other ways if they had re- edge; in fact, it appears that th*M fii-i'l to receive the checks, but cer- officers did dmw drafts on the New tainly one temptation would not have York bank and thus diminished the been in his path if he had found that total of deposits, and the other dinvt ho could not use the paper of the bank ore, also, were under Home obligations for his speculations with the same to know the affairs of tbc bank facility as though it were his own it will not do to say that the bank can money.' But surely they cannot be ignore the negligence of nil it* officer* held for his subsequent wrongdoing, and profit by their omUwion of dut> If they have returned a part of that Exchange Nat. Bank of Spokane they assisted him in wrongfully with- r. Bank of Little Rock, (18W) 98 Fed. drawing, they arc pro tanto relieved Rep. 140. from responsibility, and are not to be 75 -594: OFFICERS OF BANKS. [ 3 1 1 power incident to, ,or necessary to, the faithful discharge of any of his duties. 1 The court further held that a jury would not be warranted to infer such a power in a teller from evidence that the teller of the bank during all the time of his holding office whenever the convenience of the bank or of its customers required it, certified that checks were "good " which were drawn on the bank by its customers when funds to the amount of such checks were to the credit of the drawers, and his so doing was in some instances known to the bank and was not forbidden, or that it was the usage of the tellers of other banks to do the same ; further, that the usage of issuing certificates of deposit by a teller of a bank was not evidence to prove a usage of certifying checks. 2 The teller of a bank in New York had general authority to certify checks, qualified by directions not to do so without funds, and to enter them in the books. He certified checks in violation of these instructions under a fraudulent arrangement with the drawer. The bank was held liable to a bonajide holder for value of the checks. The court further held that the delay of a year in presenting the checks for payment did not impair 'Musseyr. Prest., etc., Eagle Bank, notes discounted; and to redeem the (1845) 9 Met. (Mass.) 306. In the bills of the bank with specie when the opinion the usual duties of such officer same is demanded. This is his official are thus stated: "The office of the employment; and in the discharge of teller is implied in the word used to these duties he is regularly to account designate it to tell or count the for the moneys he has received and moneys of the bank, which are re- paid out, not only to prevent mistakes, ceived or paid out. The office is often but to charge him when short or de- divided into two branches, that of re- linquent; and he is also made respon- cciving teller and of paying teller, sible for the payment of a check when where the business of the bank is large the drawer has not a like amount to and the duties cannot conveniently be his credit unless he applies to the book- united in one person. When united, keeper for information as to the state the duty of the teller is to receive all of the drawer's account; and then, if moneys offered at the bank in pay- an overpayment is made through the ment of notes and bills previously dis- mistake or fault of the bookkeeper, he counted or lodged for collection as and not the latter is responsible for tho they severally full due, and all moneys loss. And when checks on other offered by customers of the bank to be banks are received in payment or on deposited to their credit on account, deposit (as is the usage among the whether arising from moneys brought banks of the city), it is made his duty by them to the bank, or the proceeds to attend to their collection by a given of discounts made for them; to pay hour of the day." the checks of depositors as the money 8 Mussey r. Prest., etc., Eagle Bank, is from time to time drawn out, or for (1845) 9 Met. (Mass.) 306. OFFICERS OF BANKS. ,', the. holder's right. 1 A bank will be estopped by its teller, upon the presentation of ii check U-aringa forged certification, he beiriLr the officer whofle certification it iurjMrta to be, pronouncing the certification genuine. 2 In a New York caw- after the certification of a check it was raised and the nu: the payee changed. The check was then tendered to the plain- tin's in this case, who sent it to the certifying lank durini; the busy part of the day, and its teller was asked if the chock was good. Before thia inquiry the drawer of the check had requested the hank to stop payment. The teller, however, responded affirmatively to the inquiry made as to the check being good. The Court of Appeals of New York held that the failure of tin- paying teller to call attention to the fact that the bank had been notified that the check had been lost in transit to the payee and that its payment had been stopped, which facts were entered upon the bank's register of certified bills, amounted to negligence which would authorize a recovery against the bank ; further, that the fact that the teller did not know that the draft pre>> was the one the payment of which had been stopped, and his good faith in making the answer would not prevent a recovery.* Should the teller of a bank enter a check purporting to be drawn up- ui the bank in the bank book of a depositor as cash, and it should turn out that the check was forged, the bank would have to bear the loss. 4 Should the teller of a bank, after receiving, as cash, an invalid check upon another bank, consent to take it as his own and look to the drawer of the check for its iwymcnt, ho cannot, afterward, without the consent of the Imnk authorities, return it to the bank. 5 A paying teller of a national tank has no power, without the sanction of its directory, to receive after tank- ing hours a post-dated check and to agree, for the convenience of the holder of the check, that he will hold it until the day it is piv-entablc and will then cause an account to be oj>ened by the bank with the holder and the amount of the check placed to hU credit so that it can be drawn against.' The functions of a note 1 Farmers' & Mechanics' Bank P. * Levy r. Bank of the United SUtm. Butchers' & Drovers' Bank, (1855) 4 4 Dull. 234; 8. r., 1 Binn. (Pa.)f7. Duer. 219; affirmed in 16 N. Y. 125. Union Bank of Ocorgctown r. Continental National Bank r. Mackall. 2 Cranrh Cir. (1. OM. National Bank of the Commonwealth. Aven-H r. Second National Bank. (1872) 50 N. Y. 575. (1890) 8 Mack. (D. C.) 846. A to a Clews v. Bank of New York. (1889) post-dated check the court mid: "II 114N.Y. 70;s.c.,22N.Y. 8t.Repr.897. should in due course of businc* be 596 OFFICERS OF BANKS. [ 314r teller of a bank do not extend to the erasure of the name of one of several makers of a note, simply upon his request. 1 A bank will not be bound by the statement of its teller that the indorse- ment upon a check is genuine. 2 It is a gross violation of duty for the officers of a bank to honor a check or draft beyond the drawer's deposits. 3 A bank will not be bound by an agreement of one of its officers to give notice to a surety in case of a default on the part of the makers of a note pledged as collateral, in the absence of proof that authority was conferred upon the officer to make it. 4 In paying a debt due to a bank in good faith upon demand of one whom he finds as one of its officers employed in its business behind its counter, without any knowledge that the officer's authority is so limited that he has no right to receive it, the bank will be bound by the payment. 5 The bookkeeper of a bank or his sureties will not be relieved from liability on his bond which provides that he would strictly account for all moneys belonging to the bank and apply its funds to their proper uses, by the consent of the cashier to the taking by the bookkeeper of money of the bank not due him and applying it to his own use. 6 If, in receiving as cash the check of an individual of good credit upon another bank, in which it afterwards appeared that he had no funds, the teller of a bank does only what is usual in the ordinary course of trade and business of banking and the usage of banks in like circumstances, his so taking it would not be a breach of the condition of his official bond to make good to the bank all dam- ages it should sustain through his unfaithfulness or want of care. 7 presented by the holder on the day of might be presented in the meantime, its date. It is payable only on that although such payments would leave day or after. The duty of the banker nothing to meet the post-dated checks." is simply to pay his customers' checks l Marine Bank of Chicago v. Ferry's over the counter when presented on or Admr., (1860) 40 111. 255. after their date. It is no part of his s Walker v. St. Louis National Bank, business to receive post-dated checks (1878) 5 Mo. App. 214. before they are payable and to engage 3 Eichelberger r. Finley, 7 H. & J. to present them to himself, or, in other (Md.) 381. words, to consider them as presented 4 New Hampshire Savings Bank 0. to him for payment on the day when Downing, 16 N. H. 187. they are payable. Still less is it his 5 East River National Bank v. Gove, business to engage in advance to pay (1874) 57 N. Y. 597. checks which are post dated as before 8 Chew v. Ellingwood, (1885) 86 Mo. mentioned. If he should do so it 260. would be at his own risk, for he could * Union Bank of Georgetown u. not refuse to pay other checks that Mackall, 2 Cranch Cir. Ct. 695. CHAPTER XI. DEPOSITS AND CHECKS. i 815. General deposits. 816. Depositors duty and rights. 817. When I In- ownership of a de- posit is ([iirstioned rules. 818. Passing of title- by deposit of check. 819. Deposits in suviugs banks. 820. Receiving deposits by a bunk knowing its insolvency. 821. Certificate* of deposit, -peciftl deposits. 823. The duty of a bank as to de- posits and its right as to their application. 824. Check* generally. 825. Certification of checks. 826. Acceptance of a check by a bank illustration. 327. Presentment of check* for payment. 328. When a draft on a bank faiU to bind the fund in bank. 329. Forged checks rale*. 330. Payment of forged cheeks or payment of checks on forged indorsements. 331. Payment of raised checks. 315. General deposits. It is now perfectly well settled that the relation between banker and customer who pays money into the bank, or to whose credit money is received there on deposit, is the ordinary relation of debtor and creditor; -and that when the bank receives the money as an ordinary de]x>sit and gives credit to the depositor, the money Incomes the funds of the bank and may be used by it as any other funds to which it may be entitled. It is accountable for the deposits that it may receive as debtor; and in respect to ordinary deposits, there is an implied agreement between the bank and the depositor that the checks of the latter will be honored to extent of the fund standing to his credit. 1 A deposit is general, unless made special by the depoa- 1 Hardy & Bros. r. Chesapeake Rank, <1879) 51 Md. 562, 585: Horwitz v. Ell'ingcr, 31 Md. 492, 508; Foley r. Hill, 2 H. L. Cas. 28; Thompson r. Riggs. 5 Wall. 668; Bank of the Re pul.lie r. Milhml, 10 Wall. 152, 155. As to the relation between general de- positors and a bank, see Marine Bank r. Fulton Bank. 2 Wall. 252; Plurnix Bank r. Risley, 111 U. 8. 125; Planters' Bank r. Union Bank, 16 Wall. 483; Boyden r. Bunk of Cape Fear. 65 N. C. 18; McOrrgor . I.,oom is, 1 Disney (Ohio). 247; Periey r. Muskegon County, 82 Mich. 188; Neely v. Rood. 54 Mich. UM; I r. United States Saving* Institution. (1876) 2 Mo. App. 568; Union Bank r. Tutt, (1878) 5 Mo. App. 842; State r. Kcim, 8 Neb. 68. 67; First National Rank r. Gandy. 11 Neb. 481. 484; Sow aid County r. (attic. 14 Neb. 149; Long- bottom's Ex re. r. Hancock. 9 La, 50; Grant r. Fid. 17 La. 168; Wall r. Spur- 598 DEPOSITS AND CHECKS. [ 315 itor, or it is made expressly in some particular capacity by him. On a general deposit there will be an implied promise on the part of the bank receiving it to restore not the same funds, but an equivalent sum when demanded. 1 This liability to pay out the same on the checks of the depositor is implied by the law, with- out a special contract to that effect. 2 The law implies, also, that where a bank receives bank notes for deposit, in the absence of any agreement to the contrary, that the bank takes them at its own risk. 3 And even though a bank should take bank notes with the understanding that the risk of their being good was to rest upon the depositor, yet, it is the duty of the bank, upon knowl- edge of the insolvency of the bank issuing the notes, to give legal notice of the fact to the depositor ; and a failure to notify him will not be excused by the depositor's having knowledge of the fact. 4 A bank receiving a sum of money on deposit generally, must account to the depositor for the amount in good funds, and a local custom of bankers would not be admissible in evidence, to change the liability of the bank. 5 "Whenever the relation of debtor and creditor exists between the bank and a depositor, the bank will be liable for any depreciation of the currency.* "Where money is collected and mixed up with the general funds lock, 10 La. 342; In re Louisiana 3 Corbit v. Bank of Smyrna, 2 Hair. Savings Bank, 40 La. Ann. 514. That (Del.) 235. money, checks or bill deposited by a 4 Ibid. general depositor in a bank become the 5 Marine Bank of Chicago v. Birney, property of the bank, and the relation 28 111. 90. of debtor and creditor between the bank 8 Marine Bank of Chicago v. Chand- and depositor is thereby created, see ler, 27 111. 525. In Kupfer v. Bank of Matter of Franklin Bank, (1828) 1 Galena, (1864) 34 111. 329, a deposit of Paige Ch. 249; Chapman T. White, gold coin had been made in the bank (1852)6 N. Y. 412; Commercial Bank prior to the passage of the "legal of Albany v. Hughes, (1837) 17 Wend, tender " laws by congress, and had 94; Marsh v. Oneida Central Bank been drawn out by checks paid in (1861) 34 Barb. 298; .(Etna National treasury notes. The Supreme Court Bank v. Fourth National Bank, (1871) of Illinois held that the bank was 46 N. Y. 82. Under what circum- responsible for the value of the coin stances the trustee of a school district as compared with the notes in which by a deposit in bank becomes the cred- the drafts or checks on this deposit itor of the bank, see Union School were paid. As to the right to pay in Township v. First National Bank, treasury notes of the United States (1885) 102 Ind. 464. where the deposit was made in gold or 1 Brahm v. Adkins, 77 111. 263; Me- other coin, see Thompson v. Riggs, 6 Ewen v. Davis, 39 Ind. 109. D. C. 99. s Thompson v. Riggs, 6 D. C. 99. 315] DEPOSITS AND rii KCU. ' of a bank it becomes a general deposit to tin- m-dit of tin- party for whom the collection was made, and is governed by the rule* which obtain in ordinary cases of deposit of niom-v with lunik*. 1 hi such case, therefore, should the fund* aft-r Mi-h inin^Iiri^ become depreciated, the bank must Mi>t;iin tin- loss und not th.r one for whom the collections were made. 1 Where a depositor makes a deposit with a bank to his credit, with int ruction* to apply it to the payment of a claim against him held for collection, there must be an actual appropriation of the money for that pur- pose before it will operate a payment of the claim. Until this i* done the instructions may be countermanded. The money depos- ited is the money of the bank and the depositor may draw upon it or direct its appropriation in some other way. 8 When a bank, in the ordinary transaction of its business, receives money on gen- eral deposit, the money thereby becomes the property of the bank and the bank becomes debtor to the depositor for the amount as so much money had and received, and anj subsequent loss of the money or destruction of its value, falls on the bank. The depositor is only a creditor of the bank. 4 If the bank fail, and be unable to pay its debts in full, the depositor comes in only as a general creditor and can only receive his pro rata share of the assets. 5 Where money is deposited with a bank by a board of officials in their official relation, when superseded by the appointment of a new board, the money becomes subject to the check of the new board. 6 A banking corporation taking from another an assignment of all of its property, on, as a considera- tion, agreeing to pay all of the debts and liabilities of this other, and proceeding to conduct the business of banking, and crediting a depositor of the former with the amount of his dej>osit upon its own books of account, thereby assumes the relation to the depos- itor which the former owes to him. 7 The receipt of a cashier of a bank is evidence of a deposit in a bauk. s In a New York case where a lxx>kkeeper in the bank, as well as liookkccper for one of 'Marine Bunk of Chicago r. Hush- (1888) 61 Mtl. 487. The court refer* more, 28 111. 463. to ami i-omment* upon Lewi* r. I\u* Ibid. Rank. 42 X. Y. 463. and Swartwoulr. 3 Moore r. Meyer, 57 Ala. 20. Mcclwnica' Bunk of Xew York. 5 4 Henry r. North. Bank of Ala., 68 Dcnio. 555. Ala. 527. ' Green r < kid Fellow*' Saving* Jt Ibid. Commercial Hunk. ( 1H) 65 Cal. 71 Carman r. President & Dim-tors "State Bank r. Kain, Bree*e (111.), of the Franklin Bank of Baltimore, 75. GOO DEPOSITS AND CHECKS. [315 the bank's depositors, received from the latter money for the purpose of depositing it in bank, entered the amount in the led- ger of the bank and in the depositor's bank book, but the money was not received by the latter nor entered in the cash book, it was held that in making the deposit the bookkeeper was the agent of the depositor and not of the bank, and that the bank was not accountable for the money intrusted by the depositor to the book- keeper for deposit. 1 A credit on the books of a bank for a gen- eral deposit is an acknowledgment of the receipt of so much money. 2 A paper headed with the names of bankers, showing that a party had made a deposit with them, stating the amount thereof, and signed by them, has been held to be bona fide evi- dence of a general deposit against the bankers. 3 A pass book, given by a bank to a depositor, is not a written contract but is prima facie evidence that the bank has received the amounts on the dates therein stated, and binds the bank like any other form of receipt, and is open to explanation by evidence aliunde.* Should a bank receive the deposit of a minor it must honor his checks. 5 Should a bank credit a depositor with the amount of a check drawn upon it by another of its customers, and there be no want of good faith upon the part of the depositor, the act of crediting would be equivalent to a payment in money. And a bank, it has been held, could not recall or repudiate the payment, because, upon an examination of the accounts of the drawer, it was ascertained that he was without funds to meet the check, though when the payment was made the officer making it labored under the mistake that there were funds sufficient. 6 A check left with a bank for collection and credited to the depos- 1 Manhattan Co. t. Lydig, (1809) Law J. 43 ; Anderson u. Leverick, 4 Johns. 377 . (Iowa) 30 N. W. Rep. 39. The court 'Corbit v. Bank of Smyrna, 2 distinguished Jassoy D. Horn, 64 111. Harr. (Del.) 235. Whether a bank can 379, aud Long t. Straus, 107 Ind. 94; go behind its cashier's entry on a s. c., 6 N. E. Rep. 123, and 7 N. E. depositor's bank book to prove that Rep. 763. the amount deposited was a smaller 5 Bank v. Headley, 17 W. N. C. sum has been queried in Johnaon v. (Pa.) 557. Farmers' Bank, 1 Harr. (Del.) 117. 6 City National Bank n. Burns, 3 Brahm r. Adkins, 77 111. 263. (1880) 68 Ala. 267; citing Chambers v. * Talcott v. First Nat. Bank of Miller, 13 C. B. (N. S.) 125; Levy t>. Larned, (Kans. 1894)36Pac. R^p. 1066. U. S. Bank, 4 Dall. 234; Oddie v. Na- See Davis r. Bank, 53 Mich. 163; s. c., tional Bank, 45 N. Y. 735; s. c., 6 Am. 18 N. W. Rep. 629; Bank T. Smith, Rep. 160; Bolton r. Richard, 6 Term 19 Johns. 116; Asher r. Bank, 7 Alb. Rep. 139; National Bank T. Burkhardt, !">] DEPOSITS AXI> CHECKS. 601 itor may IK- charged back to him in CUM- the check proves a fraudulent <>m-.' Where commercial JHJM.T is delivered to a l>;mk under an urrangemMit that tin- dep.^itor lie allowed to dra\v a^ain.-t it, tin- paper !<. pr.ijK-rtv .f tin- Umk, and tin- depositor cannot then-after claim it. 7 The mere diK-ountin^ ion, was liable for low by tin- clerk's forgerie*, win-re the bank had used due care. 1 A check drawn by a depos- itor, never accepted and not accounted for, would be no obstacle to a suit for the deposit. 2 In an action against a depositor for an overdraft lie may set off COUJMWS, payable to bearer, fr which the l.ank may be liable. 8 Should a depositor on the same day of his deposit, and before it is placed to his credit n the books of the bank, direct the cashier to change the deposit to the credit of another, which is done, and the money be drawn out on the < of the latter, the depositor will not be allowed to recover the amount of the deposit from the bank. 4 As a gene ml rule, deposits of money in bank, subject to the checks of the depositor, draw no interest. It seems that if there should be unreasonable and vexatious delay in payment the depositor may demand inter- est. 9 In an Illinois case it appeared that a dc]x>sitor in a bank, expecting to be absent for a short time, gave his clerk and book- keeper a power of attorney to draw checks on the bank ai: deposits for fifteen days only, and placed the power of attorney with the bank. After his return he resumed drawing his own checks. But after the expiration of fifteen days the clerk con- trived to draw checks without the knowledge of the depositor, a part of which he applied to the business of his employer and appropriated the balance to his own use. In the depositor's suit against the bank to recover his deposits, the Supreme Court held that the bank was liable to the depositor for the moneys |>aid out on the checks drawn by the clerk after his agency ceased, so far 1 Leather Manufacturers' Bank r. of proceeding against him. Sammto Morgan, 117 U. 8. 96. t>. Clark, 13 III. 544; Hill r. Allen. IS * Jackson Insurance Co. r. Cross, 111. 592. And the defending in good (1872) 9 HeSsk. (Tenn.) 888. faith of a suit drought for the recovery 'Bank of the United States r. Mac- of the money is not a vexatious delay. alester, 9 Pa. St. 475. Aldrich r. Dunliain, 10 III. 403." In Neff ft Greene County National Jassoy r. Horn. (1K72) 61 III HI. Bank, (1886) 89 Mo. 581. where payment of an account 4 First National Bank of Springfield denced dy the entries in a depositor'* v. Colcman, (1882) 11 Bradw. (111.) 508. book had bren repeatedly drmandrd The court said: " It cannot de said that and ten year* had rlapM-d after toe dc there has deen any unreasonable and posit of tin- money, the IllinoU Suprrou- vexatious delay, unless the debtor has Court held tliat the delay of payment thrown some obstacle in the way, or, was vexatious and unreasonable ami by some management of his own, in- that interest should be allowed on the duccd the creditor to prolong the term account. (04 DEPOSITS AND CHECKS. [ 316 as he had appropriated them to his own use. 1 It was insisted before the court that the court before which this case was tried had erred in rendering judgment for any greater sum than the amount checked out by the clerk before the bank book or pass book of the depositor was written up the first time, when all the checks were returned to the depositor. It was claimed that from that date, at least, the bank had the right to presume that the clerk had authority to draw checks. The Supreme Court, how- ever, affirmed the judgment. 2 In a case where a bank received a deposit of a check under an agreement that the check should be paid out of the first unappropriated funds of the drawer that came in, and large sums came in from the drawer, but all appro- priated, the bank was held not liable upon its agreement. 3 There must be a demand for payment before a suit can be brought against a bank for a deposit. 4 And this demand previous to a suit is indispensable to the maintenance of a suit for such deposit, unless circumstances are shown which amount to a legal excuse for not making such demand. 5 A depositor, however, would have an immediate cause of action against a bank and its stock- holders for the amount of his deposit upon stoppage of payment by the bank. 6 An action against the bank cannot be maintained 1 Manufacturers' National Bank v. thority with the bank, in pursuance of Barnes, (1872) 65 111. 69. a previous arrangement, were suffl- 8 Ibid. The court said: " The same cient to show the bank that the plain - question arose in the case of Weisser v. tiff had no intention of giving to the Denison, 10 N. Y. 68. There, as here, clerk a general authority to draw, a clerk had drawn checks in the name The bank was guilty of great negli- of his employer, and the pass book gence in paying checks of the clerk had been several times written up and drawn after that period, and cannot be the checks returned before discovery excused merely because the plaintiff of the fraud. The court held that the failed to examine the returned checks, balancing of the pass book and the re- which he had a right to presume had turn of the checks are for the protec- been drawn by himself alone. We tion of the depositor, and not for that consider the reasoning of the New of the bank, and the failure of the de- York Court of Appeals, in the case positor to examine the checks is not cited, very satisfactory, and adopt its such negligence on his part as to ex- decision as the better rule." onerate the bank from liability for the 3 Johnston T. Bank, 101 Pa. St. 600. continued payment of checks improp- 4 Downes r. Phoenix Bank, (1844) 6 erly drawn. * * * The facts that Hill, 297. the plaintiff [in the case before us] had 5 Brahm v. Adkins, 77 111. 263. been thus careful to give the clerk ex- * Mitchell v. Beckman, (1883) 64 Cal. press written authority, and to limit it 117. to fifteen days, and to lodge this au- 31 <' | DEPOSITS AND CHECKS. . upon a certificate of drjKisit issued to one, " subject to order of himself * * and payable on return of thw eertitiotle" before a demand for payment and a refusal to pay. 1 A .1. IH.-H will bo ivlk'ved from demanding the payment of l.i- ij.-|.,Hiit a* preliminary to the right to sue, by a notirr fnun the bank, or by an advertisement, that his claim would not be paid at tin- | ter. 3 Upon the suspension of a national bank and tin- apjM>int ment of a receiver, a depositor in the bank, from the date of hi* demand for it, will be entitled to interest on his deposit.* Where money may be deposited by the drawee in a bank to pay n tain draft, not there at the time, the drawers would have no interest on the money until the application to their draft The drawee may revoke his direction at any time before tins money is so applied. 4 In an Indiana case one who wished a loan of money employed a firm to negotiate it for him. They apjilir.1 to another firm, who procured the money from their principal, a security company, and deposited it in bank. Soon afterwards tin- first party executed his note and mortgage for the amount mid delivered them to the firm who hail procured the money, ami they, in turn, left a check on the bank, with one of the firm first named, to be delivered to the first party when he obtained t!u release of prior incumbrances on his land, which he agreed to d at a certain time. lie did not carry out the agreement at the time fixed, nor subsequently, and ten days later, while the check was still in the keeping of others, the bank on which it was drawn failed. The court held that the loss was not his, and that ho could maintain an action against the security company for the surrender and cancellation of the note and mortgage. 1 One keep- ing an account with a bunking house, depositing funds which an? at the time current, has a right to insist upon payment in current funds, although the funds deposited may, in the meantime, have depreciated in value.' There has been a ease before the Supreme Brown t>. McElroy, (1876) 53 Ind. 'National Bank . Mechanic.' Na 404. tionnl Hank. 04 U. 8. 487. 'Farmers & Mechanics' Bank i. 'Bank r. lligbre. 10U IV 8t ISO. Planters' Bank, 10 G. & J. (Md.) 488. Security Company r. Bail. (lw. That demand must be made for pay- 107 Ind. 186. ment of deposit before action to re- WUIetU . Pfcine. (1887) 4S III. cover it, see National Bank of Fort Ed- 481. ward r. Washington County National Bank, (1875) 5 Hun, 006. 606 DEPOSITS AND CHECKS. [ 316 Court of Michigan in which it appeared that the two members of a firm joined in a letter to the bank, in which the firm kept an account, instructing it to pay no checks on the part of the firm unless they were countersigned by a son of one of the partners, who was the bookkeeper of the firm. The other partner made an arrangement with the bank by which he was to get money for their business at another point where he conducted it. He drew a number of checks in the name of the firm at different times which were not countersigned by the bookkeeper. A check drawn in this way finally came back to the bank not paid, and was charged up to the firm. For overdrafts on this account the bank brought its action against the firm. On the trial of this action there was no showing by the bank that the firm derived any benefit from the moneys received upon these checks, it rest- ing its claim upon the contract implied from the signing of the checks in the firm name. The majority of the court affirmed the judgment of the trial court in favor of the firm. 1 A person 1 Gladstone Exchange Bank v. Keat- ing, (1892) 94 Mich. 429. MONTGOM- ERY, J., speaking for the majority, said: " It is suggested that the burden of proof would rest upon the defend- ants to show that the moneys did not go to the benefit of the firm. In ray judgment, this is not the correct rule in such a case. The [bank] seeks to recover, notwithstanding it appear? affirmatively that the money was paid out by it upon checks which were drawn without the requisite authority of the firm. There can be no doubt about the power of either member of a copartnership to protect himself by stipulating that the other member shall not have the authority to bind the firm by signing checks, if notice is given to the bank which is the depository of the firm; and when, on the affirma tive showing of the bank, as in this case, it appears that the bank has dis- regarded the notice, how can it be said that a prima facie case is shown, with- out further showing that some benefit was derived by the firm from the pay- ment of the money? It is suggested in the case that the defendants are estopped from relying upon this de- fense, for the reason that there was an opportunity for an examination of the account and checks, and that the de- fendants should have examined these checks, and notified the [bank] of the excess of authority and of the inva- lidity of the checks." The case of Bank . Morgan, 117 U. 8. 96, cited to sustain this position, was distinguished in the opinion of the Michigan Su- preme Court, as follows: "But in the case cited, the party drawing the check had prima, facie authority to draw it; the bank acted in good faith in making the payment; the check passed back into the hands of the drawer, with opportunity to examine and observe the error; it appeared charged in the account of the drawer. Under these circumstances, it was held that there was a duty to notify the bank, in order that it might protect itself. But what notice was requisite in this case to enable the bank to protect itself? The moment it paid one of these checks, its officers knew from direct notifica- 17J HKI'oSlTJi AM. lit. D, '-."7 depositing money with on.- hank, to !* tranMiutted for hie me and benefit to another hank, which refit*** or is unable to receive it, and cannot be compelled t.. receive it, tin- purpose of the depo.,jt failing, the hank s<> receiving tin- MHIH- will hold it to tlio use of the depositor, and must account t.> him for it. Money BO deposited and expressed in the certilicut.- of deposit, to be for- warded in the usual course of business, cannot be regarded as assets of the bank to which it was to be remitted, and the bank receiving the deposit cannot apply the same in payment of debts due from the correspondent bank, nor would such money be sub- ject to garnishment at the suit of creditors of that bank. 1 317. When ownership of deposit is questioned - rules. In a controversy over the right to a bank deposit where it i- denied that the depositor was the owner of the fund, and entitled to draw the same from the hank, it may be shown that tin- ownership of the deposit is in another, and that a payment to him releases the bank from liability.* A receiver of a corpora- tion appointed upon the removal of a former receiver drawing a check upon the bank, where the receiver's deposits of funds had l>een made for a supposed balance due on that account, the bank declined to pay it on the ground that there was no such balance. The evidence showed the payment of a check by the former receiver drawn to an individual for the amount of money received by him belonging to her and deposited to the credit of the receiver's account. In an action upon the protested check the bank had judgment in its favor. Upon ap|>cal the Maryland Court of Appeals affirmed this judgment, holding that where such a receiver had deposited to his credit, as receiver, money belonging to an individual, the corporation was under obligation to repay such person, and was, therefore, not prejudiced by the tion that they were violating the ex- which the Imuk. a* well a* the defend press instructions and directions of ants, was apprised." (tRA\T. .1 defendants. Why notify them of what sentod on inch of the poinU ju*t they already knew? If either party discussed. was entith-d to notice of this transac- ' Drovers' National Bank r. O'lUrr. tion from the other, it was certainly (1887) 119 111. M8; s. c., 10 ' the two defendants, as individuals, 860; followed in Union Strk Yanl who were entitled to notice from the Nat. liank r. Dumond. (1HW) 150 III bank that some person connected with 501; *. r.. 37 N. E. Hep. WW the firm was assuming to violate the MVirhita Nat. Bank r. Maltby, express instructions of the firm, of (Kans. 1*04) l Par. Rep. U0. 608 DEPOSITS AND CHECKS. [ 317 giving of a check by the receiver to the individual in payment of the obligation. 1 Neither the bank nor the attorney can dem that money deposited by the depositor as attorney for another belongs to the latter. 2 Money credited to a depositor may be shown to be the property of a third person and be reached by attachment against the latter, or he may stop payment by proper notice. In the absence of any extrinsic claim, however, to the money the bank would be bound to honor the depositor's check. 3 In the absence of proof of fraud a deposit in the name of a third person is prima facie a payment of a debt due him, and the third person's ownership will be good as against all other persons. 4 The prima facie presumption is that money deposited in a bank belongs to the person in whose name it may have been deposited ; if claimed by another person the burden of proof would be upon him to establish his ownership. 5 And a bank will not be permitted to allege that money received by it from a depositor belongs to some one else. 6 In an Ohio case a party deposited money in one bank to the credit of another bank, but, without knowledge of the latter, took a letter from the bank securing the deposit, addressed to the one credited with the deposit, advising it of the deposit, and afterwards delivered the letter to a third person, with his own name indorsed on the letter in blank, for presentation to the bank credited with the deposit. The court held that, as between the depositor and the latter bank, the bearer of the letter had authority to control the fund, and, for that purpose, to write a check or order over the blank signa- ture ; also, it was held that the fact that this bank held the note of the party making the deposit, then overdue, did not constitute a notice that the fund was to be applied to the payment of this note. 7 1 Eccles v. Drovers & Mechanics' Rice v. Foster, 6 Ohio, 279; Mitchel v. Nat. Bank, (Md. 1894) 29 Atl. Rep. McCabe, 10 Ohio, 405; Moore . Gano, 963. 12 Ohio, 300; Howe . Hartness, Hill 'Burger v. Burger, 135 Pa. St. & Co., 11 Ohio St. 449; Cornwell v. 499; s. c., 26 W. N. C. (Pa.) 355. Kinney, 1 Handy (Ohio), 496; Fuller- "Hemphill v. Yerkes, 132 Pa. St. 545; ton v. Sturges, 4 Ohio St. 529; Putnam s. c., 25 W. N. C. (Pa.) 417. v. Sullivan, 4 Mass. 45; Selser v. Brock, 4 Ferry v. McKenna, 9 Pa. Co. Ct. 3 Ohio St. 307. In Tradesmen's Bank Rep. 17. v. Astor, (1833) 11 Wend. 87, the facts * Egbert v. Payne, 99 Pa. St. 244, were that the president of the bank ' Bank v. Alexander, 120 Pa. St. 476. became treasurer of a voluntary as- f Weirick v. Mahoning County Bank, sociation, and as treasurer opened an (1866) 16 Ohio St. 296. See Ring & account with the bank, depositing the 317] DEPOSITS AND CHECKS. A bank cannot claim a lien u{*m a hank ac. -nod with it In- one as the general agent, when it knows that he U agent of a cor- poration, for an individual debt of tin- depositor to the bank. 1 A factor depositing money in a bank which has knowledge that it i- the proceeds of sales of goods for his principal'* account, and the principal's ownership, the hank will not \tc allowed, as against the principal, to appropriate the deposit to jwvment <,f ;i general balance due from the factor to the hank. 1 A bank refusing, without cause, to honor a depositor's check has been held liable for substantial damages, though no special loos was shown. 3 In case a bank, with which an agent or trustee has deposited money belonging to his principal or beneficiary, without his authority, and in ignorance of the true ownership of the fund, applies the deposit to a debt which the depositor may owe it, the owner would not 1x3 debarred by that fact from recovering the money from the bank if it can be identified. 4 The rule that a trustee may follow trust property as long as it can be traced has no application in an action to recover money as a get deposit in a bank. 5 As against a depositor, a bank cannot allege that the fund in its hands belongs to a third person au whom the bank has a counterclaim. 6 A bank would not bo authorized to pay out money on check of a depositor in hi* individual name where the deposit has been credited to him a* trustee. 7 The money l>elonging to a county deposited by a county treasurer in a hank in his name as u treasurer," no money of the treasurer being mixed with it, upon his lecoming a bankrupt, belongs to the county, and it would IHJ no defense in an action against the bank to recover the deposit that it had l>een paid to the assignee in bankruptcy of the treasurer." There in justification for payhient by a bank of money upon ordero of the one depositing tho money or his agent, until notice funds of the association therein, which Patterson r. Bank. 130 Pa, 8L 418. account he overdrew. It was held Burtnett c. First National Dank, that tho bank could recover tho 88 Mich. 680. amount overdrawn from the members 'McLain r. Wallace. (1885) 10t Ind. of the association as he drew upon the 562. account as the agent of the association. Bank c. Mason. Vi Pa. St 118. 1 National Bank r. Insurance Co., ' Ihl r. Bank of St. Joaeph. (1887) 104 U. 8. 64. 86 Mo. App. 199. Union Stock Yards Bank v. Supervisors of Schuylor County Qillespie 187 U. 8. 41t . Bank of Havana, (1875) 5 Hun. 649. 77 610 DEPOSITS AND CHECKS. [318 is received of an adverse claim of ownership of the funds. 1 "Where a bank is notified of adverse claims to a deposit, as that a depositor has parted with his interest, and others have succeeded to his rights by his act or through operation of law, the bank would not be justified in paying the depositor. 2 When a bank is enjoined by a court from paying the sum deposited with it, either to the depositor or to his assignee, it is its duty to obey the mandate of the court, and not to pay out the funds deposited with it until the parties claiming the same can have an oppor- tunity to contest, by interpleader or otherwise, the good faith of the assignment. 3 Should a bank pay to any person other than the depositor the money he may have deposited with it, the bank would be required to show not only that the money did riot belong to the depositor, but that it did belong to the person to whom it was paid. 4 Where money belonging to one person had been deposited in a bank in the name of another, the bank's pay- ment to the committee of the real owner of the money (the owner having became a lunatic) was held by the New York Court of Appeals to have been legal and to have discharged the bank, and that it was a protection against the equitable claim of a third person to whom the one in whose name the money was deposited had given a check, of which facts the bank had no notice. 9 318. The passing of title by deposit of a check. Whether the title to a check deposited with a bank passes to the bank before collection, so as to immediately create the relation of debtor and creditor between the bank and a depositor, is a ques- tion of fact depending upon the circumstances and course of dealing in each particular case. Here certain checks marked " For deposit " were deposited in a bank at a quarter to three on Saturday, and credit was immediately given for the amount of the checks on the pass book of the depositor. The bank closed at three and the next day was declared insolvent with the checks still in its hands. The custom of the bank was, at the close of 1 McEwen v. Davis, (1872) 39 Ind. 3 Springfield Marine & Fire IDS. 109. Co. r. Peck, (1882) 102 111. 265. 'German Exchange Bank v. Cora- 4 Patterson . Bank 130 Pa. St. 419- missioners of Excise, (Sup. Ct. N. 6 Viets v. Union National Bank of Y. Spl. Term, 1879) 6 Abb. N. C. Troy, (1886) 101 N. Y. 563. 394. IS] DKP08IT8 AM rilKCU. 611 each day's business, to balance its l*n.ks crediting depositor* with the amount of their checks, and, if a cheek was subsequently returned unpaid from the clearing house, it was charged off to the depositors. This depositor did not know of thw custom. !! had made deposits with the bank for several years without any special arrangement, and had never drawn against uncolleeted ehecks, except by particular understanding. On these facts the United States Circuit Court for the district of Massachusetts held that title liad passed to the bank so as to create the reluti debtor and creditor. Bat these facts being alleged in the depositor's bill against the receiver of the insolvent hank, and connected with further allegations that, at the time the checks were received, the bank was " irretrievably insolvent, and made so by the operations of the president and two others of the uircc: and that the depositor then believed it to be solvent, and hod no means of knowing of its insolvency, the court held thw was suffi- cient to show fraud, and to render tho bank liable to return the checks or their proceeds. Further, it was not necessary for the bill to specifically allege that the officers of the bank had knowl- edge of its insolvency, since such knowledge would bo implied from the allegation that the insolvency was caused by the presi- dent and two of the directors.'' This case was on appeal before the United States Circuit Court of Appeals for the fir*t circuit, and that court held that, under the circumstances of tho case, no title passed to the bank by the deposit of the check " For collection," and that the depositor was entitled to the proceds of the check collected and passing to the receiver of the bank then insolvent. 2 One corporation which had 'City of Soraerville . Deal, Re- phadzes it. The paying of actual ceiver, (1892) 49 Fed. Rep. 790. money by a customer into a bank of Beal, Receiver, v. City of Somer- deposit does uot create a bail meat, be- ville, (1892) 50 Fed. Rep. 647. The cause, by the willed custom*, recof oplnion of PUTNAM, Circuit Judge, is nized by the Suprvme Court of the an elaborate one, and it so learnedly Uniled Slat**, the I!ouc of LonUnnd discusses the whole question and so numerous other court*, the bank U distinguishes the cases on this subject authorized to mingle ihe money at that we give it in this note. He said: once with it* general fund, creating "The fact that the checks were ex- immediately the relation of debtor prcssly indorsed 'For deposit.' does and creditor, subject by further cu- not change the nature of what oc- torn to draft in the iwual courae of rurred in this instance, as there arc no business. But. with reference to Ibe intervening equities, although it em- checks claimed by the city of Somrr- 612 DEPOSITS AND CHECKS. [318 deposited a sight bill drawn upon another indebted to it in another city in a bank in which it kept its account, and the bank had credited it to the corporation on itsbooksas a cash item, and the bank, which was insolvent at the time, forwarded the bill to its correspondent in the other city, who collected the same after the bank had failed and closed its doors, brought an action in the federal court for the southern district of New York against the ville, the word by which the transac- tions ordinarily described may con- veniently have, and, therefore, should have, its full natural force and mean- ing. A mere deposit would only re- quire a bank to keep; but a usage requiring the Maverick to do in this case something more has continued so long, and is so notorious and universal, that the law can take j udicial notice of it, and it happens that its terms and limitations cannot be mistaken. The bank must use due diligence to col- lect, and as collections are completed, the bank no longer holds the avails as bailee, but is authorized to mingle them with its other funds, and thus constitute itself a debtor. This, of course, makes the entire transaction something more than a mere deposit, in any proper sense, but this word well gives color to all that follows, and converts all that is due between the customer and the bank to and in- cluding the actual turning of the checks into money, into locatio operis, according to its meaning as explained by Judge STOKY in his work on Bail- ments, chap. 6, art. 2. Aside from the right of the bank to constitute itself a debtor from the time the checks are converted into cash, or its equivalent, instead of a mere trustee or agent, no qualification of the strict legal relations created by a bailment is deducible from the general nature of the transaction, the terms in which it is expressed, or the settled custom, or is shown by the appellant. * * * The first impression coming from the fact that the deposit was immediately entered to the credit of the city in its pass book favors the view of the ap- pellant; but a careful consideration will demonstrate that this was a mere matter of convenience, and the entry would have been the same on either theory, as was illustrated in Manufac- turers' Nat. Bank v. Continental Bank, 148 Mass. 553; 8. c., 20 N. E. Rep. 193, and Railway Co. v. Johnston, 133 U. S. 566; s. c., 10 Sup. Ct. Rep. 390. On the other hand, the appellant fails to show that the city had an absolute right to check against the deposit as soon as made, irrevocable by notice from the bank; and that such right did not exist must be received by this court as a matter of judicial knowl- edge, notwithstanding the parties in Moors r. Goddard, 147 Mass. 287; s. c., 17 N. E. Rep. 532, and the complain- ant in this case seem to have regarded it necessary to prove the practice of a particular bank with reference to this matter. This is inconsistent with any theory except that the bank is a bailee of deposited checks until they are col- lected; as is also the admitted fact that the bank is entitled to return to its customer an uncollectible check, though he neither indorses it nor gives any special agreement to that effect. The appellant fails to show any obli- gation to receive back such checks, unless from special custom; and it is more in harmony with fundamental principles to presume that this right to return grows out of the former than the latter. It strains the IMW to convert the natural incidents of a bailment into a right of an entirely 318] DEPOSITS AND CHECKS. Ml ver of the bank to recover the gum collected on this sight bill. The question in the case WES whether tin- collect the proceeds. The different character, to be sustained, if not of importance, jet it is noteworthy at all, by a custom violative of the that the parties deemed h necessary to ordinary rules governing analogous prove the rule of that state as though trmvictious. No authorities have local and peculiar, ami not to be gath- been cited or found which hind this ered from the common law. Bank*. court to the contrary of what is here- Loyd is discussed by the Supreme inbefore expressed. Railway Co. . Court in Railway Co. r. Johnston, al- Johnston, 133 U. S. 566; s. c., 10 Sup. ready cited; and iu effect is staled Ct. Rep. 390, is not iu point, as the (page 575, 133 U. 8. and page 892. 10 paper in question in that case was not Sup. Ct. Rep.) to be in substance that a check, but a sight draft, and the dc- a transfer by a bank of a draft de- cision was made to rest mainly on the posited for collection and indorsed ground of fraud, as was stated by the generally, would confer till learned judge from whose decree in of 'reputed ownership." This the Circuit Court this appeal was the pith of the New York decision. taken. Ex parte Hichdale, 19Ch. Div. the question being, not as to ti: 409, is critici/.ed in Balbach r. Freling- tween the primary bank and its co- huyseii. 15 Fed. Rep. 675. It can be tomer, but between the latter and ady MiW.ju.-iit j.avim-nt. 1 A national bank in Dakota, with knowlcd^- that tin- county tn-a-un-r of a county had not sufficient county funds in his hand- t. l.alan<-,- lii- official accounts, consented to give him tictitioii- cn-dif in order to i-nahl- corporation, or like certified checks their previous dealing*. Wln-n ii *\> upon banks, are generally accepted in pears that it ban been Uic uniform pic- commercial usage as the equivalent of tice between the partie* in thdr put money. They have practically the dealings to treat deposit* of paper a* same attributes an bills issued by bank- deposits of cash, their intention to do ing corporations, which are merely BO in the particular tranmction should promises to pay at sight, and are every- be inferred, in the absence of new and where accepted as money, in the ab- inconsistent circumstance*. It iquit- sence of special circumstances affect- certain that ImnkerK do not invariably ing the financial standing of the cor- credit their customers for right paper poration issuing them. Where bank as fore-ash, but are generally influenced bills arc credited at their face to their by the financial responsibility of the depositors, and arc treated by the de- customer or the drawee of the paper, or pository as a deposit of money, the both. If a Iwnk does not wUh to as- bank receiving them becomes a debtor sume the relation of a debtor fr th<- to the depositor for the face amount, paper to the dcjiositor. thin intention although the currency may at the time may be manifested in a very explicit be depreciated. Marine Bank r. Ful- manner by crediting the paper as pa- ton Bank, 2 Wall. 252. When a sight per. This was done in Thompson r. bill is deposited with a bank by a cus- Giles. 2 Barn. & ('. 422, in the Case of torner at the same time with money or Howton, 1 Rose, 15. and in the Case of currency, and a credit is given him by Sargeant. Id. 153. Some significance the bank for the paper, just as a like must be attached to a credit entry of credit is given for the rest of the de- the paper upon the book* of the bank posit, the act evinces unequivocally as cash, and the natural implication the intention of the bank to treat the would seem to he that the Innk. by bill and the money or currency with- making such an entry, assume* to re- out discrimination, as a deposit of ceive the bill as money. CorrcUlively. cash, and to assume towards the de- if the depositor understands that the posit or the relation of a debtor instead bank pro|>oses to receive the paper aft of a bailee of the paper. If the cus- money, and assent*, exprwwly or by tomer assents to such action on the acquiescence, it would nwm that he part of the bank by drawing checks consents to |mrt with the title to the against the credit, or in any other way, pa|>er. For these reason* the con- he manifests with equal clearness his elusions reached in Metropolitan Nat intention to be treated as a depositor of I (.-ink r Ixiyd, are adopted an sails- money, and, as such, as a creditor of factory. The aut horiti*-* IK* ring upon the bank instead of a bailor of the pa- the general quostionimre HO fulh per. Under such circumstances it and discussed in the opinions in that should be held that the I auk acquires case that it is deemed unnecrasary for title to the paper just as it would to a present purposes to refer to thrnt " deposit of money. The intention of ' Drawer r Mitftouri. etc.. ConMnic the parties in the particular I ransaction tion Co , 98 U. 8. 98: Mann r Sroond may be ascertained from the course of National Bank. *) Kan*. 412. Central ,61C DEPOSITS AND CHECKS. [ 319 him to impose upon the county commissioners, who were about to examine his accounts. The treasurer was given a cashier's check for a large sum, which he indorsed and took to the com- missioners. They received it, but refused to discharge him or his bondsmen, and placed the check and such funds as he had in cash in a box and delivered them to his bondsmen. The latter deposited the money and the check in another bank in the same place. This last bank, as appeared by the evidence in the case, manifested a desire to get control of this check, with a view to oppress its rival bank which had issued it, and seemed to have a knowledge of how it was issued. The bank brought an action against the bank issuing it to recover the amount. The question of the bonajide ownership of this check, and how far the bank holding it was protected as a purchaser for value without notice, was the main one before the court. The United States Supreme Cour;t held that the circumstances under which the check was issued were a plain fraud upon the law, and also upon the county commissioners ; that the receipt of it and turning it over to the bondsmen of the county treasurer was a single act intended to assist the bondsmen in protecting themselves, and was incon- sistent with the idea of releasing them from their obligations ; that the question whether the evidence did or did not establish the fact that the bank in which it was deposited was an innocent holder should have been submitted to the jury. 1 319. Deposits in savings banks. A savings bank cannot refuse to return a depositor's money to him because he deposited National Bank v. Valentine, 18 Hun, a bank, in the ordinary course of 417; Manfg.National Bank 0. Newell, 71 business, of checks, drafts or other Wis. 309; Buller #. Harrison, Cowp. negotiable paper, received and credited 565. on his account as money, the title to 1 Thompson v. Sioux Falls National the checks, drafts or other paper im- Bank, (1893) 150 U. S. 231. As to the mediately becomes the property of the vesting of title in a check deposited to bank, unless a different understanding the credit of payee and indorsed for affirmatively appears. Further, that deposit, see Ditch r. Western Nat. an indorsement by the customer of a Bank of Baltimore, (Md. 1894) 29 Atl. check payable to his own order "for Hep. 72, where there is a full review deposit in the [name of the bank] to of the cases upon this subject. In the credit of [the name of the de- Security Bank of Minnesota r. North- positor] is sufficient to pass the title to western Fuel Co., (Minn. 1894) 59 N. the check to the bank, and is not a re- W. Rep. 987, it was held that upon a strictive or qualified indorsement. " deposit being made by a customer of The court cite in support of its ruling I'-'] DEPOSITS AM. < II! 617 it in tlir name of some one else. 1 (Jt-ncral debitor* of saving* hanks cann.it get off their deposits against their debt* duo th hank. The rule is dilTerent in tin- CUM- of ^H-cial deposits out of tin- ordinary coiu>e of l.ii.-incss which the bank limy have received and converted to its own use.* A savings bank in New Jeney, under a special charter, was authorized to receive and invest depo.-iN tor the benefit of the depositors, the income or the profit to be divided among them after reasonable deductions for neces- sary expenses, the principal to be repaid to the depositors at such time and with such interest and under such regulations an the board of managers should from time to time prescribe. Under their regulations they not only received deposits participating in the profits, and not payable except on thirty days' notice-, but also another kind of deposits, called by them " special deposits," which were not to participate in the profits, and were to In- repaid to the depositors without any preliminary notice. lioth kinds of deposits were mingled in the funds of the bank indistin- iruishably. A receiver was appointed for the bank under insol- vency proceedings. The court, as to the relations between tin? depositors and the bank and the rights of the different claims against the assets, held as follows : That the l>ank was a mere trustee for the benefit of the depositors ; that a depositor who borrowed money from the bank, secured by his note or mortgage, could not set off against his debt the amount of his deposit at the time when the decree of insolvency was made ; that the so-styled " special " depositors were not entitled to priority in payment over the other class of depositors ; that debts and expenses con- tracted by the bank in carrying on its ordinary business were to be preferred ; that a claim under the covenant in a lease for rent accruing after the surrender of the premises to the lessor by th receiver could not be maintained ; that money jmid to the bank Hank r. Miller. 77 Ala. 168. Bank r. II. 228; Ilnrtl.-tt r. Remington. N. Smith, 133 Mass. 227; Fletcher r. II. 364; (Jilrs r. Merrill. M N. H. 00. Osbourn. (Minn.) 57 N. W. Rep. 88fl. Cogswell r. Kockingham Having* 1 Davis r. Lcnawee County Savings Bank. 59 N. II. 48. A* to the cUU- Hank. 53 Mich. 163. As to deposits in mcnta in a Having* bank deposit book savings bunks by onir in the name of being a pnrt of the contract between others, sec- Kimbnll r. Norton. 59 N. the bunk ami the depositor, tee HeU H. 1; Blasdel r. Locke, 52 N. II. 28H ; r. Portsmouth tarings Bank. 46 N. Marry r. Amazecn. 81 N. H. 131; II. 78. Smith r. Ocsipee Savings Bank, 64 N. 78 018 DEPOSITS AND CHECKS. [ ;$ olt) in exchange for its check, given for the accommodation of the payee, which was dishonored, presumably went into the funds, and the debt should be preferred ; that checks given to depositors on account of deposits were not to be preferred. 1 Money deposited with a savings institution, to be paid at certain times prescribed, may, after demand made in pursuance of the by-laws, be recovered in an action of assumpsit. It would be no defense that the institution, having, in accordance with its by-laws, invested its funds in stocks which have depreciated, was unable to repay the whole amount of the deposits. 2 Reasonable care and dili- gence is required of the officers of savings institutions. 8 Reason- able care and diligence do not necessarily require the disbursing officer of a savings institution to demand strict proof of the identity of the depositor in paying money on the presentment of a deposit book. 4 A deposit in a savings bank stated in the depositor's " deposit book " not made payable to order or bearer cannot be assigned so as to enable the assignee to maintain an action for the deposit against the bank. 5 A depositor in a sav- ings bank in Pennsylvania drew an order thereon payable nine 'Stockton v. Mechanics' Bank, 5 entered therein," and that " the insti- Stew. Eq. (N. J.) 163. tution will not be responsible for loss 2 Makin v. Institution for Savings, sustained when a depositor has not 19 Me. 128; Makin v. Institution for given notice of his book being stolen Savings, 23 Me. 350. or lost, if such book be paid in whole 3 Sullivan . Lewiston Institution or in part on presentment." Subse- for Savings. 56 Me. 507. quently the depositor's book was "Sullivan . Lewiston Institution stolen, presented to and paid by the for Savings, 56 Me. 507. In this case disbursing officer of the institution in the depositor received a book of deposit good faith. In this action of the de- containing a copy of the by-laws, positor to recover the deposit it was which, in accordance with their pro- held that if the disbursing officer, using visions, he thereupon "subscribed and reasonable care and diligence, but lack- thereby signified his assent to." These ing present means of identifying the by-laws provided that "all deposits depositor, paid bona fide on presenta- shall be entered in a book to be given tion of the book by one apparently in the depositor, which shall be his the lawful possession of the book, as voucher and the evidence of his prop- the owner of it, the institution had a crty in the institution," and that "the right to rely upon the contract of the money of any depositor may be drawn depositor safely to keep the evidence either personally or by witnessed of his claim, or make known its loss order, in writing of the depositor, but before it was presented for payment, no money shall be paid to any person 5 Howard v. Savings Bank, 40 Vt. without the production of the original 597. book, that such payment may be 320] DEPOSITS AS I (HECKS. 619 weeks from date. Upon the uj.jer margin of the blank form used were printed the words, "" Keturn notice ticket with thin order." On the lower margin lelou the drawer'* Mgnature were the following printed words: "Deposit book mu-t !* at bank l>f fore money can be paid." The Supreme Court of that state held that there was enough on the face of the order to show that. in the commercial sense, it was not a regular check and waa not intruded to operate as such, but was drawn on a specially deposited fund, held by the bank subject to certain rules and regulation* requiring certain things to be done before payment of the on 1m could be required. "The effect of these requirement*," *h'\ said, "was to restrain or qualify the otherwise general operation of the order." The court was controlled by the settled doctrine that anything written or printed on a negotiable instrument prior to its issuance by the maker, relating to the subject-matter of the instrument and tending to restrain or qualify it, must be regarded as part of the contract intended to be evidenced thereby. 1 320. Receiving deposits by a. bank knowing its insol- vency. In receiving a deposit, after his insolvency, a banker i- guilty of fraud. In such case the depositor will be entitled to rescind the contract and recover the check. 2 The depositor of a check upon another bank with a bank which receives it having knowledge of its insolvency at the time, may, in an action alleg- ing fraud, recover the check or the proceeds thereof.* Upon the 1 Iron City National Bank r. McCord, Hadley, 99 N. Y. 181; s. c.. 1 N. E. (1891) 189 Pa. St. 52. Rep. 587. an action was brought by 'American Trust & Sav. Bank r. the plaintiff against the receirer of Queder & Paeschkc Munufg. Co., the First National Bank of Buffalo to (111. 1894) 87 N. E. Rep. 227; Chaffec recover tbc amount of a dmft dcpodltd v. Fort, 2 Luns. 81; St. Louis, etc., with the bank at a lime when the R. R. Co. v. Johnston, 183 U. 8. 566. managers thereof knew that it waa 1 Grant r. Walsh, (N. Y. 1895)40 insolvent. It wa< held that pertnilUnjc N. E. Rep. 209. HAIGIIT, J., speak- the plaintiff to make the deposit in ing for the court, said : "The rule np- reliance upon the supposed solvency l>.-:,rs to be well settled that one who of the bank was a grow fraud upon has been induced to part with his the plaintiff, and that ihc latter was property by the fraud of another, entitled to reclaim th* dnift under guise of a contract, may upon proceeds The same rule was recog the discovery of the fniud rescind nizcd in Bank r. Ixiyd. MO N. Y. 5SO- the contract and reclaim the property. 587, but in that caar there was no unless it has come into the possession allegation of fraud in r. ami of ;i foniijiflc holder. In Tragic r. consequently it was held that the evi- 020 DEPOSITS AND CHECKS. [ discovery of the fraud practiced by a banker in receiving on deposit a check or draft, when he knows that he is insolvent, the depositor may rescind the contract, and reclaim the check or draft deposited, unless such check or draft has come into the possession of a lonafide holder for value. 1 If the proceeds of such a check or draft can be traced, the fund will create a trust in favor of the depositor in those proceeds. 2 Should a bank receiving from one of its customers, for deposit, his check upon another bank, know- ing its own insolvency at the time, and transfer this check to another bank, in an action by the latter against the drawee of the check, if the drawee answer, by way of defense, that there was fraud practiced upon him by the receiver of the check, and show such fraud, the burden of showing that it was a bonafide holder of the check would be upon the bank to which the check was transferred. 3 In a South Dakota case it appeared that the plain- dence offered, tending to show fraud, was properly excluded." 1 National Citizens' Bank of New York T. Howard, (N. Y. Super. Ct. Spl. Term, 1886) 3 How. Pr. (N. S.)511. * Importers' & Traders' Bank v. Everett, (Sup. Ct. 1889) 21 N. Y. St. Repr. 98; s. c., 4 N. Y. Supp. 599; citing Anonymous, 67 N. Y. 598. 3 Grant . Walsh, (N. Y. 1895) 40 N. E. Rep. 209. HAIGHT, J., speaking for the Court of Appeals, said : "In Bank v. Diefendorf, 123 N. Y. 191- 206; s. c., 25 N. E. Rep. 402, RUGER, Ch. J., in delivering the opinion of the court, says : ' The burden of making out good faith is always upon the party asserting his title as a bonafide holder, in a case where the proof shows that the paper has been fraudu- lently, feloniously or illegally ob- tained from its maker or owner. Such a party makes out his title by presumptions, until it is impeached by evidence showing the paper had a fraudulent inception; and when this is done the plaintiff can no longer rest upon the presumptions, but must show affirmatively his good faith.' In Vosburgh r. Diefeudorf, 119 X. Y. 357-364; 8. c., 23 N. E. Rep. 801, O'BRIEN, J., says : ' In this state it must be regarded now as a settled rule that, when a maker of negotiable paper shows that it has been obtained from him by fraud or duress, a subse- quent transferee must, before entitled to recover on it, show that he is a bona fide purchaser.' In Bank v. Green, 43 N. Y. 298, it was held that a party suing upon a negotiable note purchased before maturity is pre- sumed, in the first instance, to be a bonafide holder, but when the maker has shown that the note was obtained from him under duress, or that he was defrauded of it, the plaintiff would then be required to show under what circumstances, and for what value, he became the holder. The reason of this rule, as stated by RAP ALIA), J., is that ' where there is a fraud the pre- sumption is that he who is guilty will part with the note for the purpose of enabling some third party to recover upon it, and such presumption operates against the holder, and it devolves upon him to show that he gave value for it.' Citing Bank c. Noxon, 45 N. Y. 762; Bank v. Carll, 55 N. Y. 440; Wilson e. Rocke, 58 N. -'" 1 DEPOSITS A1CD CIIICKB. tiff had deported with a bank, a few day* before it* insolvency was admitted and its doors closed, a sum osu for which the money wa* left. Tliis purpose was, as shown by the receipt, tliat when ft warranty deed, properly executed. : ^ to him certain hind-, together with an ah>tnict showing good title in tin- jmrty who was to execute this deed, was delivered to the hank by the grantor, tin- money was to be paid to the latter. The bank ^oiri^' into tin- hands of a receiver, the latter refused to pay the MUM of money to the plaintiff upon demand. The Supreme Court affirmed the order of the court in which the proceedings in insolvency instituted to the receiver to pay this money to the plaintiff on hi* petition for such order, holding that the sum of money o deposited was a trust fund, and did not become assets of the bank, nor paw to the receiver as such. 1 A depositor in a bank in Nebraska whi< ' Y. 642; Nickerson P. Rugcr, 76 N. Y. bank. Suppose, under the ma* dr- 279; 2 Greenl. Ev. 172; Bailey r. cumstatices. [plaintiff] bad lefl the Bidudl, 13 Mces. & W. 73." As to money with [the secretary ] personally. fraud in receiving deposits by bankers and he had failed and made an assign- with a knowledge of their insolvency, meut, would this money so found in see Crugie v. Hadley, (1885) 99 N. Y. his possession pass to his assignee a 131; Rochester Printing Co. t. Loomis, his property? If so, when and bow (1887) 45 Hun, 93. did it become due? That he. or the 1 Eimmcl . Dickson, (S. D. 1894) 58 bank in this case. had. without the N. W. Rep. 561. There was pre- consent of [the plaintiff] diverted the sented to the court, on behalf of the money and used it for some other pur- receiver, an affidavit of the secretary pose, ought not to affect [hi*] right*. of the bank stating that when it was Abuse of a trust can confer no righU left with the bank this money "was on the party abasing it. or on thaw treated the same as any other deposits claiming privity with him. It U nol of said bank and mixed with the other claimed that [cash or money ] found in money therein." It was not intimated the bank's vault when it failed U the that this was done with the knowledge very money or a |art of it deposited of the one who left the money with by [plaintiff], and it U noC nccoHVjr the bank for a distinct purpose, or that it should be so. I f the money deli r that he in any manner consented to it. livered to the bank had been usr-i The court said: " Upon these facts it in its business, it had presumably either would appear that Uie money was left paid its debts pro tanto. or inortMed in trust for a particular purpose. He its aiwets; and the general crrditora ol cmtU not. afterwards, without the ac- the bank would be in the max < (iii. sconce of [the one who left it] tion if the money found in lu IIMMI change its relation to him from that of sion -n- j.n-l -\.r a bailee or trustee to that of a general the trust as though the ntoory depo* l.htor. We apprehend that no dlf- ited bad been kepi separate, and I trr.Mit principle is involved because identical money : >nd been ID one of the parties happens to be a paid OTCT. Peak r. EllicoU. 80 Kaoa. r,22 DEPOSITS AND CHECKS. [320 become insolvent and made an assignment, claimed in the courts that, upon his allegations that the bank was insolvent at the time it received the deposit specified, within the knowledge of all of its officers, and that the officers received his money with the intention of cheating and defrauding him, he should be decreed to have a preference on account of his claim in the payment from the funds in the hands of the assignee. The Supreme Court of the state held that he did not have a right to a preference over other creditors upon the case made in his petition. 1 In a late case 156; s. c., 1 Pac. Rep. 499, was a case entirely analogous to this. Peak bad left with the bank of which Ellicott, upon its failure, became assignee, money to pay a note which the bank was to send for. As in this case, he took a receipt showing the purpose for which the money was left. The bank passed the amount to the credit of Peak. After the failure of the bank, it not having paid the note, Peak brought action against the assignee, asking the same relief as is asked in this case, to wit, that the assignee be re- quired to pay over the amount in full as a trust fund. The Supreme Court reversed the trial court, holding that the transaction constituted a trust; that the relation created was not that of a debtor and creditor, but that of principal and agent, or bailor and bailee; and that the subject of such trust did not pass to the assignee as assets of the bank. It was held, fur- ther, that the manner in which the bank had treated the fund by credit- ing it to Peak and mixing it with its own money did not affect his right to claim the amount from the funds on hand. Ellicott v. Barnes, 31 Kans. 170; s. c., 1 Pac. Rep. 767, was a simi- lar case and the same rule controlled. McLeod v. Evans, 66 Wis. 401; s. c., 28 N. W. Rep. 173, 214, applies the same principles, with the same result, where a draft had been left for collec- tion with a banker, who afterwards, and before the depositor had received its proceeds, suspended and as- signed. The court held that the pro- ceeds of the draft constituted a trust fund, which did not pass to the as- signee, and there not being sufficient cash in the hands of the assignee to pay the amount, that the same should be a lien upon the assigned estate. The same principle, though to some- what different facts, was applied in People v. City Bank of Rochester, 96 N. Y. 32, and again in People . Bank of Dansville, 39 Hun, 187." 1 Wilson v. Coburn, (1892) 35 Neb. 530. The court said: "The rule on the subject is stated by Judge STORY thus: ' The right to follow the trust fund ceases only where means of as- certainment fail, which, of course, is the case when the subject-matter is turned into money and mixed and confounded in a general mass of prop- erty of the same description.' Story's Eq. 1259. That the foregoing rule is applicable to cases like this, where the funds in controversy are the assets of an insolvent bank, is well settled. In 111. Trust & Savings Bank v. Smith, 21 Blatchf. 275, Judge WALLACE, after remarking that the property cojaes into the hands of the receiver as a trust fund for the benefit of all the creditors, proceeds as follows: 'It would be a violation of law upon his part to set aside any part of their assets for the complainant unless his portion is capable of identification or being definitely traced and distin- AM> CHECKS. in the federal eourt for the district of Indiana, it ha* been held that where money and check- were nn-u>jM-ctingly deposited in a bank, which was known by it* matiajring officer to be hopeloMlv insolvent, a few mimite> befoiv el<,>inic time on the last day on whirl. it did business, and the cheeks were -nhs<-.jtiently collected by the hank's clerk, the whole of the deposit was charged with a trnal, und an e.jual amount mi^ht lx recovered from the reeeiver. who retained the *jeeitie money among the general ma** of the Itank'ft funds. 1 It was insisted in this case, on behalf of the receiver of of the insolvent hank through the fraud of its officers, and the bank, ft trustee tf malejifio, gave the defendant no right to a preference over other creditors unless it could trace and re- cover its property.' Ami such Is the law as recognized from the farttest history by the courts of chancery. Ryall r. Rolle, 1 Atkyns. 172; Thomp- son's Appeal. 22 Pa. St. 16; Perry on Trusts. 55 128." 1 Wasson r. Hawkins. (1894) 50 Fed. Rep. 238. Aryutiulo, it was said by I{.VKI.II. I). .1. : "The bank was in solvent, and was known by its pres- ident, who had sole management of it. to be. insolvent. The knowledge of the president was the knowledge of the bank. Martin r. Webb. 110 U. 8. 7; s. c.. 8 Sup. Ct. Rep. 428; Bank r. Walker. 130 U. S. 267; s. c.. 9 8up. Ct. Rep. 519. It fraudulently con- cealed its insolvency from the com- plainant, who was ignorant of U. and. believing it to IK* solvent, he deposited in the bank hank notes and checks to [a certain] amount within ftveminuU-s of its final collapse. The reception of the money and checks, under surh < ir cumstances, was a fraud upon the plaintiff, and entitled him to rescind the transaction, and recover hack his deposit from the hank. The keeping of the 1 i.i nk open, ami the conducting of its business in the usual manner. constituted a representation to its cus- tomers of the solvency of the bank. upon which they had the right to rely; guished,' etc. Counsel for plaintiff in error rely with confidence upon the case of Cragie r. Hadley, 99 N. Y. 181. We do not, however, regard that case as authority. That was an ac- tion against the defendants for the procceiU of a dm ft received for collec- tion from an insolvent bank. The fund, therefore, was easily di>tin guithahlc from the other assets of the Iwnk. It is evident from subsequent cases in Ne-w York that that case has never been regarded as an authority in cases like this, where the money of tin- claimant has been mingled with the other funds of the bank, and can- not be distinguished from other assets in tin- hands of the assignee or re- ceiver. In re N. River Bank. 14 X. Y. Supp. 261, is a case directly in point. The Supreme Court therein, after showing that Cragie r. Had lev- was not authority, for the reason given above, hold that the petitioner was not entitled to preference, although he de- posited his money on the forenoon of the day on which the bank closed its doors, on the assurance that it was solvent, upon the ground that it did not nppear that the money had not rone into the general funds of tin- hank, and because he had failed to impress upon the funds in the hand* of the receiver the character of a trust. In Atkinson r. Rochester Printing Co.. 114 N. Y. 10H, the same distinction is made, and the court says: ' The fact that the defendant became a creditor 024 DEPOSITS AND CHECKS. [ 320 the bank, that, though the money and checks were obtained by fraud, the title to them vested in the bank ; and that the only relation subsisting between the plaintiff depositor and the bank was that of creditor and debtor ; and that he could not reclaim the money and checks, because money has no mark and cannot be identified ; and that the plaintiff had no lien on the funds in the receiver's hands entitling him to priority or preference over the other creditors of the bank. The court held adversely to this contention ; that the depositor was entitled to be preferred out of the funds in the hands of the receiver. 1 and if the bank was known to be in- Pinner, 18 N. Y. 295; Brown v. Mont- solvent by the officers who were gomery, 20 N. Y. 287; Johnson v. Mo- charged with its management, the con- nell, 2 Keyes, 655; Chaffee . Fort, cealment of that fact from a person 2 Lans. 81. But it is believed that no about to make a deposit would consti- case can be found in the books holding tute a fraud upon him. The title that a trader who was hopelessly in- acquired by the bank to the money solvent and knew that he could not and checks deposited under such cir- pay his debts, and that he must fail in cumstances would be voidable at the business, and thus disappoint his cred- election of the depositor, who could itors, could honestly take advantage bring suit to recover his deposit, with- of a credit induced by his apparent out any previous demand. The bank prosperity, and thus obtain property would become a trustee ex malefido, which he had every reason to believe and would hold the deposit for the "use he could never pay for.' And it was of the depositor, and subject to his decided that ' in the case of bankers, right of reclamation. Eailway Co. v. where greater confidence is asked and Johnston, 133 U. S. 566; s. c., 10 Sup. reposed, and where dishonest dealings Ct. Rep. 390; Cragie t. Hadley, 99 N. may cause widespread disaster, a more Y. Rep. 131; 8. c., 1 N. E. Rep. 537; rigid responsibility for good faith and City of Somerville . Beal, 49 Fed. honest dealing will be enforced than in Rep. 790; Peck t. Bank, 43 Fed. Rep. the case of merchants and other 357. In the case of Cragie v. Hadley, traders; ' and that ' a banker who is, supra, it was held that the acceptance to his own knowledge, hopelessly in- of the deposit by a bank hopelessly solvent, cannot honestly continue his insolvent constituted such a fraud as business and receive the money of his entitled the depositor to his drafts or customers; and, although having no their proceeds. In Anonymous Case, actual intent to cheat and defraud a 67 N. Y. 598, the court say: ' This is particular customer, he will be held to not like the case of a trader who has have intended the inevitable conse- become embarrassed and insolvent, quences of his act, i. e., to cheat and and yet has reasonable hopes that by defraud all persons whose money he continuing in business he may retrieve receives, and whom he fails to pay be- his fortunes. In such a case he may fore he is compelled to stop business.'" buy goods on credit, making no false ' Wasson v. Hawkins, (1894) 59 Fed. representations, without the necessary Rep. 233. The discussion by the court imputation of dishonesty. Nichols v. of the question thus raised deals very 321] DEPOSIT* AND CHECK*. 321. Certificates of deposit. In making the discount of a note, a bank may give a ci rtitic.ite of deposit for tin- proceed*, instead of paying over the money to the borrow, r. 1 Where one person intrusts money to another to deposit in bank, the b*nk having knowledge of the ownership, hut no discretion aa t fully with English as well as other au- thorities, and was in these words: " It was said by Lord KING In Dcg r. Deg, 2 P. Wms. 414, 'that money had no earmark, inasmuch that if a receiver of rents should lay out all the money in the purchase of land, or if an ex- ecutor should realize all his testator's estate, and afterwards die insolvent, yet, a court of equity could not charge or follow the land.'" See, also, Cox P. Bateman, 2 Ves. 8r. 19. And bank notes and negotiable bills have been represented as possessing the same quality. But the notion that money, because it had no earmark, could not be followed into or charged upon land in the hands of the trustee or his executor, arose from some mis- conception, and could not be sup- ported. In Miller v. Race, 1 Burrows, *452, Lord MANSFIELD exposed this misconception, and pointed out the true reason why money could only be pursued under particular circum- stances. He observed: "It has been quaintly said thnt the reason why money cannot be followed is because it has no earmark; but this is not true. The true reason is upon the currency of it; it cannot be recovered after it has passed in currency. So, in case of money stolen, the true owner cannot recover it after it has been paid away fairly and honestly upon a valuable and bow fide consideration; but, be- fore money has passed in currency, an action may be brought for the money itself. Apply this to the case of a bank note. An action may lie against the finder, it is true, and it is not at all denied, but not after it has been paid away in currency; and thia point baa been determined even In the infancy of bank note*." Lord ELLEXBOH. in Taylor r. Plumcr. 8 Maule A S. 562, 575, observed: "The dictum that money lias no eannark niUBt be under- stood as predicated only on an undi- vided and uiuli.stinguUhable BMaa of current money; but money kept in a bag, or otherwise kept apart from other money, guineas, or otlu-r cuin marked (if the fact wen- so) for the purpose of being diMingiiiabed are ao far earmarked as to fnll within the rule which applies to every other description of personal property while it remains in the hands of the factor or his general legal representative." After these references to Kngliah cases, it was said : "The true ditinr- tion, therefore, between money, bank notes or negotiable bills, ami otln-r chattels, would seem to be that the former, for the protection of com- merce, cannot be followed into the hands of a bona Jidt holder to whom they have passed in due couraa of business, while other chutU-U affected by a trust may. in general, be pur- sued and reclaimed. The ancient notion that money could not be fol- lowed, even as between truU and ffttni que triut, bora UNO money had no earmark, has given way to a more just and enlightened doclrinr. Money, bank nou* and negotiable bills may be followed by the rightful owner, where they have not Dt~ iMilat.il or negotiated, or if the penon to whom they have paaacd baa ex- prcw notice of the truat. Miller r. Kacc, 1 Burrow*. 453: 1 Smith Lead. 1 Mississippi Railroad Co. r. Scott, 7 ilow. (Mias.) 7. 79 626 DEPOSITS AND CHECKS. [321 manner of making the deposit, it will be warranted in receiving the money and giving a certificate of deposit therefor -in the name of the person presenting the money for deposit. And where the real owner of the money deposited, receiving notice of the man- ner in which it was deposited, fails to dissent thereto within a Cas. (5th Amer. ed.) 597 (*250); Taylor ?. Plumer, 3 Miiule & S. 562, 575; King v. Egginton, 1 Term R. 370; Ryall v. Rolle, 1 Atk. 172: Pen- nell v. Deffell. 4 DeGex, M. & G. 372; In re Hallett's Estate, 36 Eng. R. 779; s. c., 13 Oh. Div. 696; National Bank v. Insurance Co., 104 U. S. 54. The only difference between money and notes and bills, is that money is not earmarked, and, therefore, cannot be traced, except under particular circumstances, while bills and notes, having a number and date, may generally be identified with less diffi- culty. It is conceded that, if plaintiff could identify the particular coins and bank notes which he had deposited, he would have the right to withdraw them from the mass of coins and bank notes which passed into the hands of the receiver; but it is insisted that inasmuch as the money deposited by him has, like water, flowed into the common mass and so become incapable of identification, the right to pursue and reclaim it is lost, although it is admitted that the very coins and bank notes deposited by him con- stitute a part of the common mass. It is charged in the bill, and admitted by the demurrer, that the identical coins and bank notes deposited by the plaintiff remained in the bank when it stopped business, and came into the hands of the receiver, who now has them in his possession as a part of the general mass of coins and notes held by him as such receiver. In such a case the identification is sufficient to entitle the depositor to follow and reclaim the deposit made by him. Although the identical coins and bank notes cannot be ascertained, yet, as It is admitted that so much in coins and bank notes belonging to the plaintiff is in common mass, he is entitled, in equity and good conscience, to take so much out. If he does not withdraw from the common mass the very coins and bank notes deposited by himself, no in justice is done, for he leaves an equitable amount of his own in place of every coin or bank note deposited by another. Pennell c. Deffell, 4 DeGex, M. & G. 372; In re Hallett's Estate, 36 Eng. R. 779; 8. c., 13 Ch. Div. 696; Cragie t. Hadley, 99 N. Y. 131; s. c.. 1 N. E. Rep. 537; National Bank v. Insurance Co., 104 U. S. 54; Frelinghuysen v. Nugent, 36 Fed. Rep. 229; Peters v. Bain, 133 U. 8. 670; s. c., 10 Sup. Ct. Rep. 354; Bank v. Dowd, 38 Fed. Rep. 172; Atkinson v. Printing Co., 114 N. Y. 168; s. c., 21 N. E. Rep. 178; In re North River Bank, 14 N. Y. Supp. 261. And the proceeds of the checks are governed by the same principle, because the identical coins and bank notes realized from their collection constitute a part of the common mass in the receiver's hands. The mere fact that the plain- tiff became a creditor of the insolvent bank through the fraud of its presi- dent, and that the bank became a trustee ex maleficio, would give him no right to preference over other creditors, unless he can trace and identify his money as a part of the common mass. But when it is shown by indubitable proofs, or is admitted, as in the present case, that the identi- cal bank notes and coins so obtained by fraud, constitute a part of the common mass of bank notes and coins '''21] IH I -08118 AKD CHECKS. '..'7 :iali!f time, he will IK; held to have ratified the Mine. And after the lapse of several years he cannot ..l.j.-ot that the bank subsequently ]>uil over the money to his a^ent IIJM.IJ the presenta- tion of the certificate of depi..-it, the hank having no knowledge that the agent's possession of the certificate was wrongful and tortious. 1 A certificate of dej>o>it is jn'iinafaci* evidence of indebtedness. 8 A certificate of deposit payable in " currency ** means priina facie money current by law, or paper equivalent in value circulating in the business community at par.' By giving a certificate of deposit for current bank notes," the receiver of the deposit admits that to be the character of the money received, and will be estopped by the admission from show- ing that the funds received were not current, or claiming the right to pay in anything but the same character of funds. 4 A certificate of deposit has been treated, in fact and in law, as a promissory note for the payment of money. 9 A certificate of deposit for a stated sum, to draw interest, if left for thirty days, and payable on return of the certificate properly indorsed, has in the hands of the receiver, in my * Osgood r. McConnell. (1868) 83 III. judgment, the modern and better 74. As to the meaning of " currency " doctrine is that the depositor may take and "current bnnk bills" the court out of the common mass so much as said: " This court has repeatedly brld he has put in." that currency and current bnnk bills 1 Bank of Montreal r. Dewar, (1880) have a fixed known signification. That 6Bradw.(lU.) 294. On the first point the the term currency mcana bank Wlb or court cited McNeil v. Tenth National other paper money, whirh paaar* a* a Bank, 46 N. Y. 825; Anderson r. Arm- circulating medium in the busiixM stead, 69 111. 452. community as and for the conaUtu- 'Cushmant*. Illinois Starch Co., 79 tional coin of the country. Current 111. 281. bank bills, it will be perceived, mean 8 Phelps v. Town, 14 Mich. 374. In precisely the same thing iu currency. Hulbert v. Carver, (1868) 40 Barb. 265, This question baa been repeatedly where the plaintiffs had deposited before the court, and it haa been unl- money with defendants, bankers in formly BO held. Sec Chicago Fire & Chicago, Illinois, taking a certificate Marine Ina. Co. r. KHron, 81 that they had deposited in the bank- Marine Bank r. Chamllrr. '21 111 .1 era' office a certain amount "Illinois Galena Ins. Co. r. Kupfer, 38111.888; currency," payable to the order of Chicago Marine & Fire In* ' themselves on return of the ccrtifl- pcnttr, 88 111. 850; Marine Bank r cate, the Supreme Court of New York Rushmorc. 28 111. 4osited a certain amount of money in the bank, and received three certificates of deposit, two at one time and one at another, bearing six percent interest. The two certificates first issued, the cashier, in a little more than three years after their issue, voluntarily paid by a transfer of negotiable paper belonging to the bank, and the payment of a small cash difference, giving as a reason therefor " that his directors did not like his paying so large a rate of interest ;" the payment was not requested by the depositor. Near nine months later the third certificate, which had been indorsed and transferred by the depositor to another national bank, was paid to the l>ank in the settlement of exchanges between the banks in the usual man- D ner. At the time of the payment the bank was insolvent, and had been so for some years, its insolvency being known only to the cashier, and it was in good credit with the public, 'Bank of Re-public r. Baxter, Ul while failed. In nn action again** the Vt. 101. In Cate t. Patterson. 25 pay-<- as indonMT. be WM held not to Mich. 191, the payee of 11 certificate of have been relieved fnm liability oo deposit had transferred it with a special the ground that the presentment f-r request that it should not be presented paynifnl wan not in du- tlmr. until three months had expired, and 'Munger r. Albany City National had actually received from the pur Bank. (1(81) H5 N. Y. WO. chaser the interest accrued at the dale Fella Point Saving In*, of lUIti of the transfer. The purchaser pre- more r. Weedon. Admr. etc., 18 Md. sented the certificate after the time 890. expired and the bauk hud in the mean* 632 DEPOSITS AND CHECKS. [ 321 doing business without suspicion. Its financial condition shortly after the payment of the third certificate of deposit became public from the absconding of the cashier and one of the book- keepers. The receiver of the bank, afterwards appointed, brought this action against the former depositor to recover the amount of the deposits paid him, upon the ground that the payments were void under the section of United States Eevised Statutes cited below, 1 which provides as follows : " All transfers of the notes, bonds, bills of exchange or other evidences of debt owing to any national banking association, or of deposits to its credit j all assignments of mortgages, sureties on real estate, or of judg- ments or decrees in its favor ; all deposits of money, bullion or other valuable thing for its use, or for the use of any of its share- holders or creditors ; and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in the manner prescribed by this chapter, or with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void." The New York Court of Appeals affirmed the dismissal of this action upon the findings of fact and evidence by the trial court, which had also been affirmed by the General Term. 2 In a case it appeared 1 5242. sented by its numerous customers. * Hayes n. Beardsley, (1892) 136 N. The first two certificates were paid, as Y. 299. EARL, Ch. J., in the opinion, we must assume, for the reason as- said: "The bank had not committed signed by the cashier at the time, be- any act of insolvency, as it met all its cause they were bearing interest at a obligations as they became due or larger rate than the directors of the were demanded during more than six bank were willing longer to pay, and weeks after the last certificate was the last certificate was paid to the paid. While its cashier knew that the [bank holding it] in the ordinary bank was insolvent, and must have course of business in the settlement of expected that it would liltimately fail exchanges between the two banks, to meet its obligations and be obliged There was no satisfactory evidence to go into liquidation, yet it cannot be that these payments were made by the said to have been an undisputed fact bank to prevent the application of its in the case that the financial collapse assets in the manner prescribed in the of the bank was impending or immi- National Banking Act or with a view nent, and there is little if any ground to a preference of the defendant over for saying that these payments were the other creditors of the bank. The made in contemplation of insolvency, circumstances under which the pay- The cashier paid the certificates, as he ments were made and the condition did all other demands upon the bank and credit of the bank at the time for- as they were from time to time pre- bid the inference that the payments 321] DEPOSITS AND CHECKS. SSI that two persons who were direct. >r* Itoth of a savings bank and of a national bunk, procured money from the savings bank on two notes made by third persons to th-m. ami . r the pay- ment of stock of the national Lank, issued in the names of tin- third persons for their bent-tit. These persons represented to the savings bank that it would have to carry the notes but a short time, and that the national bank would take care of them. Thev were behind in their account with the national bank, and the savings bank allowed them to overdraw their accounts with it to a large amount, which money was used in settling their account* with the national bank. After this the savings bank delivered the notes and the check representing the overdrafts to the national bank, and received from the latter a certificate of deposit fur an amount covering the whole amount represented by the notes and check. In a suit by the receiver of the savings bank, which had become insolvent, against the receiver of the national bank, were made for such a purpose. The bid such an inference." As to the defendant was not selected us a favor- effect of the defendant being a di ite creditor. During all the years of rector it was said: " The insolvency of the insolvency of the bank all cred- this hank seems to have been covered itore were treated alike, and there was up and concealed by the cashier with no preference of one over another, great skill and ingenuity. It was All its demands were met at maturity, not discovered by the bank examin There does not appear from the facts era in making their examination* of found to be any better ground for the hank, and no one of the directon claiming that these payments made to had the least suspicion of it. The tin- defendant were void than there is fact that the defendant, entirely igno- for making the same claim in refer- rant of the insolvency of the bank. ence to the numerous payments made was a director doe* not. under such in the regular course Of business by circumstances, as a matter of law. this bank to its customers during charge him with liability for the pay- many mouths prior to the closing of ment made to him. In the trial of the its doors. In order to uphold a re case and in weighing and balancing covery in an action like this there the evidence that fart might have should be some satisfactory evidence weight in nome case* controlling that the cashier or other officer actu- weight with the trial court. But ally paid the money of the bank in when, after all the evidence U ^ contemplation of insolvency for the it is found that the director acted in purpose of giving a preference to the 'good faith, wan ignorant of any payee and with a view to prevent the wrongdoing or of toe insolvency of application of the assets of the bank the bank, then a payment made t to the creditors generally, as provided must be tested under section 8942 |l in the National Hanking Act. We 8. Rev. St.] like payments made to think all the circumstances surround- any other creditor of toe bank." ing these deposits and payments for* 634 DEPOSITS AND CHECKS. [ 322 also insolvent, based upon this certificate of deposit, it was held that the certificate of deposit was without consideration and void, .and that the savings bank would have to submit to the loss accruing to it out of the transaction, as the loss was due to the fraud or incompetency of its own officers. 1 322. Special deposits. The United States Supreme Court has held that the provision of the National Banking Association Act, that it shall be lawful for a national bank after its failure to " deliver special deposits," was as effectual a recognition of the power of a national bank to receive special deposits as an express declaration to that effect would have been. 2 Bank notes, when received by a bank on general deposit, become the property of the bank, and the amount a debt payable on demand by the bank to the person entitled to it. An action of debt or assumpsit against the bank is the only remedy of the creditor in case pay- ment be refused. But it is different if they be deposited as a special deposit. The deposit then is nothing but a bailment. And if a cashier of the bank converts them it is a tortious act for which he will be held individually liable in an action of trover. 3 A deposit in bank will not be made a special one nor will the lia- bility of the bank , be changed by the addition of the word " clerk " to the name of a general depositor. 4 Where a bank has given a receipt for money received " on deposit," such a receipt would not show whether it was a special or general deposit, and the bank would be allowed to show by parol evidence that the transaction was in fact a special deposit. 5 In cases of special deposit the right of property remains in the depositor, and he is entitled to receive back the identical thing deposited.^ A bank, in receiving a special deposit, undertakes to exercise no greater care in its preservation than the depositor has the reasonable right 1 Murray v. Pauly, (1893) 56 Fed. (1885) 103 Ind. 562; Keene r. Collier, 1 Rep. 962. Mete. (Ky.) 417. As to a special de- * National Bank v. Graham, (1879) posit of bonds, see Van Leuven v. First 100 U. S. 699, which overruled Whit- National Bank of Kingston, (1873) 54 ney v. National Bank of Brattleboro, *N. Y. 671. 50 Vt. 388. 5 Keen . Beekman, 66 Iowa, 672. 8 Coffin v. Anderson, (1837) 4 Blackf . Lowry e. Polk County, 51 Iowa, 50. (Ind.) 395. As to a bank's liability to return a spe- 4 McLain v. Wallace, (1885) 103 Ind. cial deposit in kind, see Chesapeake 562. Distinction between special and Bank T. Swain, 29 Md. 483. general deposits, McLain i: Wallace, 322) DKI'o-n* AMi IIKCU. . ... uppose is exercix-.l in raring for its own property of like description. 1 A bank, reviving a package of money as a special deposit without compensati.Mi, will l>e bound only for hlight care, and responsible only for gross negligence.* The obligation ,,f a hanker in the keeping of a deposit will not be increased by a im-rv showing to the depositor the facilities and securities of the bank.* A bank will be liable where special deposits an- l>^ l.v reason of gross negligence or willful inattention on the part of iU diructora. 4 In case a special deposit of bonds, stock or coin with a bank lw stolen or embezzled by its clerk or cashier and he dot* n.-t par ticipate in the act and is guilty of no negligence in the matter, the bank will not be responsible to the depositor for its value.* A national bank will be held liable for damages oeea&i<>m- were 'deposited with a bunk for the 100 U. 8. 6W. purpose of their being converted into ' Wylic r. Northampton Bank, 110 similar bonds of another denomina- U. 8. 9tL 636 DEPOSITS AND CHECKS. [| 323 loss by robbery or larceny, if the baiik acted in good faith and took the same care of these bonds as it did of its own of like character. 1 By a cashier wrongfully transferring a special deposit and putting it with the funds of the bank, and the bank report- ing and treating it as a part of its assets, a conversion of the deposit is effected, and no demand and refusal would be neces- sary for the depositor to maintain an action of trover against the bank. 2 Where a bank receiving a special deposit had transferred it to another bank established at the same place, with the same officers, and the deposit was embezzled by the cashier, the Ken- tucky Court of Appeals held that the bank receiving the deposit would be liable unless the depositor directly or by implication assented to or ratified the transfer prior to the loss. 3 323. The duty of a bank as to deposits and its right as to their application. A deposit received under special agree- ment must be applied by the bank according to the agreement. 4 A depositor with a bank who, having made overdrafts, should transfer securities to the bank, and request that these overdrafts be paid, would thereby create a valid trust for the payment of such outstanding checks and drafts, whether presented or not, and the holders of such checks and drafts would be entitled to payment out of the securities so deposited in preference to the general creditors of the depositor. 5 Where a depositor of a bank 1 Whitney v. National Bank of lently takes away a special deposit Bmttleboro, 55 Vt. 154. As to the li- made in the bank, see Foster v. Essex ability of a bank receiving special de- Bank, (1821) 17 Mass. 479; Smith n. posits where loss is the result of their Westfield Bank, (1868) 99 Mass. 605. gross negligence, see Foster y him to his credit in another bank, the bank from which it was drawn may reclaim it from tin- one in which hi- ha* place- 1 it/ After rcci-iviii:; froin a depositor a genuine check drawn upon it by another depositor, and crediting the amount to the one deposit- ing it, even on the deposit ticket alone, through its receiving teller, a bank cannot return it to the depositor as not good, although tin- drawer's account may have been overdrawn at the time the cheek was deposited. 3 A bank receiving a deposit under an agreement to apply it to the payment of a debt due some designated pencil, cannot divert it from the purposes of the trust by paying it to a different person. 4 Should one to whom a bank has by mistake ji;iil the money of one of its depositors, make any payment to the depositor on that account, the bank would be entitled to a credit for the amount paid on its account with the dejxjsitor.* Where the bank book of a dc}K>sitor is written up and balanced, his checks returned and his indebtedness canceled, this cuntitutr- a full settlement of the depositor's account, and, if acquiesced in, it cannot be questioned.* The effect of a delay in questioning the accuracy of the balance credited to a depositor on his pass book after it has been written up ami returned to him, without objection, if the bank has not suffered by his silence, is to charge him with the burden of establishing fraud, error or mistake in his account. When he does this he is entitled to have it cor- rected. 7 Where one indebted to a bank has a less sum standing to his credit on deposit on the bank's l>ooks, the bank has a right to retain the sum on deposit in part j>ayment of its claim.' Where the maker of a note indorsed by the jwyee to a bank dis- counting it becomes insolvent before the maturity of the note, having a deposit at the bank, the bank may set off the deposit against the note, and prove the balance, if any, against the maker 1 Franklin Bank r. Bynun. 89 Mr. Ilgcnfriu r. Petti* County Bank. 489. (188Q tl Mo. App. 588. 'Tradesman's Bank r. Merrill. Peddicord e. Connard, 111. 1. (1839) 1 Paige Ch. 802. ' Frank r. Chemical National Bank Oddier. National City Bank, (1871) of New York. (1874)87 N. Y. Super 45 N. Y. 785. Ct 26. 4 Judy t. Farmers & Traders' Bank, Union Bank r. Cochran. 7 O. A J. (1884) 81 Mo. 404. (Md.) 188. 640 DEPOSITS AND CHECKS. [ 323 in insolvency. 1 A bank holding overdue paper of one of its depositors, would not be bound, though it might have the right, to apply his deposits to the payment of the paper. 2 A bank holding and owning a depositor's past-due note, the amount of which may exceed the amount of his deposit, may, however, hold the deposit account against the note, and refuse to pay checks drawn against the deposit. 8 "Where a note was discounted at a bank, for the benefit of the first indorser, and the money was passed to his credit as a deposit, and a portion of it remained in the bank until the note became payable, the Maine Supreme Court of Judicature held that it was optional with the bank to retain this money, in part payment of the note or not ; that the omission to retain it did not destroy the bank's right to recover the full amount from another indorser. 4 A bank may secure and discharge any obligation it may assume for a depositor, or which may be imposed upon it by operation of law, as in garnish- ment proceedings, by retention of a sufficient sum from the deposits in its possession made by the depositor. 5 A bank is not bound to apply subsequent deposits to the payment of a note for the protection of a guarantor. 6 A bank may apply to the dis- charge of the indebtedness of a depositor on a note which the bank may have discounted, which has not been paid at maturity, all funds of his held at the date of the maturity of the note, or afterwards acquired in the course of business with him, whether a general deposit or commercial paper placed by him in bank for collection. 7 But a bank has no lien upon the deposit of a cus- 1 Demmon v. Boylston Bank, (1849) payable at the bank. It was held 5 Gush. (Mass.) 194. As to the ap- that the letter accompanying the plication of a deposit to a note of the check was not an assignment of the depositor falling due in a bank, see fund to the holder of the note due the Mahaiwe Bank v. Peck, (1879) 127 fourth, and thathe could not malh- Mass. 298. In ^Etna National Bank v. tain an action against the bank. Fourth National Bank, (1871) 46 N. Y. 'Citizens' Bank of Steubenville *. 82, it appeared that certain depositors Carson, (1862) 32 Mo. 191. remitted to a bank a check for deposit, 3 Ehlermann v. St. Louis National with a letter saying, "Please credit to Bank, (1883) 14 Mo. App. 591. our account and charge us our note of 4 Ticonic Bank v. Johnson, 21 Me. five thousand dollars due 4th inst." 426. The bank received the check and & McEwen v. Davis, (1872) 39 Ind. credited it to the depositors on the 109. third, and on that day applied it to 'Bank v. Shreiner, 110 Pa. St. 188. the payment of a past-due note of 7 Muench v. Valley National Bank, |5,000 made by the depositors and (1881) 11 Mo. App. 144. 323] DEPOSITS AKD ClIECKS. 64 1 toiner for the purpose of indemnifying itself against a possible loss upon unmatured commercial paper of counted by the bank. 1 And a bank holding the note of a depositor for a certain sum can, on the morning of tho last day of grace upon such note, apply to its payment any money of the depositor then remaining on deposit in the bank. 1 There is no such lien on the funds deposited with a bank in it* favor a* will allow it to apply the funds of a depositor upon an indebUxJneai or liability of his not yet due. 8 Neither can a bank retain the money of a depositor to meet a note, the payment of which the 6 Met. (Mass.) 18. They then Mid : "Asa bill or not* Is payable oo the last day of grace, or. when there U oo grace, on the day of ita maturity, the maker or acceptor has the right to pay it on that day. though he cannot pay it on the day before without the coo- sent of the holder. By making hi* note payable at the Home National Bank, Newell authorized the bank to pay it at maturity. He constituted the bank his agent, and directed it to pay the note on the day it fell due. The act of making the not* payable there, was, as we have already aeon, a direction to the bank to appropriate any moneys he might have on deposit to the payment of his note, so far aa might be required for that purpose, on the day of its maturity. The law knows no parts of a day in respect to the maturity of commercial paper. Newell's note was equally due at ten o'clock in the morning as at three io the afternoon, and it is no aoswer to say that an action for its non-payment could not be brought agaiiwt him for its non-payment until the following day. He authorized bU ajrrnt to pay it on the day of its maturity, and tab must be conntrucd to mean at any boor of the day." 'Merchants' National Bank r zinger, 20 Bradw. (III.) 27; Jordan r National Shoe & Ix-nthrr Kink. 71 N Y. 467; * r,. 80 Am It. P 819; Ilank r. Jones, 2 !*ennypackcr (IV), 877. 1 State Savings Association v. Boat- men's Savings Bank, (1881) 11 Mo. App. 292. 'Home National Bank t>. Newton, (1881) 8 Bradw. (111.) 563. This was an action brought by the payee of a check drawn by one Newell upon the bank, which the bank declined to pay for want of funds of the drawer, it having applied his balance to a note of his falling due on the day when this check was presented, the applica- tion of the balance being made before the presentation of the check with others for payment. Aryitendo, the appellate court referred to the follow- ing cases, first as to when an action can be brought on paper due with days of grace : Walter r. Kirk, 14 111. 55; Reese t>. Mitchell. 41 111. 365; Osborn v. Moncure, 3 Wend. 170; Smith v. Aylesworth, 40 Barb. 104; Wilcombe t>. Dodge, 3 Cal. 260; Staples . Franklin Bank. 1 Met. (Mass.) 43; Greeley v. T-hurston. 4 Greenl. (Me.) 479; Dennie r. Walker. 7 N. H. 201; Farmers' Bank r. Duvall. 7 G. & J. (Md.)89; Wilson r. Williman, 1 Nott & McC. (8. C.) 440; Coleman r. Ewing, 4 Humph. 241; Flint r. Rogers, 8 Shepley, 67; Leftley r. Mills, 4 Term R. 170. They then referred to cases as to the presentment of such notes: Griffin v. Goff, 12 Johns. 423; Jack- son r. Newton. 8 Watts, 401; Farmers' Bank r. Duvall. 7 G. & J. (Md.) 78; Mechanics' Bank r. Merchants' Bank, 81 C42 DEPOSITS AND CHECKS. [ 323 depositor may have guaranteed, the note not being due at the time. 1 "Where the maker of a note held by a bank has funds in the bank on general deposit when the note falls due, the bank is bound to apply the funds to his credit in payment of the note ; if it fails to do so, the indorser upon the note will be thereby dis- charged from liability. 2 A bank holding a depositor's note must charge it against his account at maturity, or else the indorser will be discharged. 8 A bank will be bound to pay a note payable at its counter, of which it is the owner, with any general deposit of the maker in its hands. Should it let the note go to protest, the indorsers would be discharged. 4 A bank may refuse to apply a deposit of the maker of a note after maturity, so as to relieve the indorser. 5 In the absence of express directions, or an agreement to that effect, it is optional with a bank whether it will apply a general deposit made by the maker of a note held by it which is past due, on the note or not. It is under no obligation to do so, even as to an indorser. The general deposit does not of itself operate as a payment of such a note. 6 A debt due by a depositor to a bank will be extinguished by a check drawn in payment of it, the check operating as an appropriation of the fund from the time of its presentment. 7 The Supreme Court of Missouri have affirmed a holding of a lower court that, where a bank had received from a non-resident money which it had agreed to invest for him in real estate security, and having passed the same to his credit, led him to believe that the investment had been made, and subsequently assigned its assets for the benefit of its credit- ors, the relation of trustee and cestui que trust existed and not that of depositor and depositary between them, and that the bank was liable for wrongfully mixing the money with its own. 8 In a case where a draft was deposited in a bank, drawn against by a check, and the check certified to the bank in which it was to be deposited, and before the check arrived the bank certify- 1 Commercial National Bank v. posits in its hands, see Bank . Proctor, (1881) 98 111. 558. LeGrand, 13 W. N. C. (Pa.) 317. 2 McDowell v. Bank of Wilmington 6 Huckstein v. Herman, 1 Walk. & B., 1 Hair. (Del.) 369. (Pa.) 92. 3 Bank. Foreman, 27 W. N. C. (Pa.) "National Bank of Newburgh t>. 154. % Smith, (1876) 66 N. Y. 271; s. c., 28 4 Bank r. Henninger, 105 Pa. St. Am. Rep. 48. 496. As to the duty of a bank to 7 Laubnch v. Leibert, 87 Pa. St. 55. sureties on promissory notes as to de- * Harrispn r. Smith, (1884) 83 Mo. 210. 323] DEPOSITS AKD CHECKS. ' } . ing it had made an assignment, it wii* lu Id that the fund remained in tin- first hank impn->.-rd with tlu- tru>t, and that the relation of general creditors was not created between the depositor* and the hank. 1 A court in Illinois having hv order made a bank a depository of court funds and of funds .f its officer*, a clerk of the court made a deposit of funds In-longing to the court in the hank, just as other depositors did, the money being commingled with that of the bank, and there being no agreement to keep the funds separate. The hank became insolvent and was placed in the hands of a receiver. The Illinois Supreme Court held that the deposit being a general one, and not a mere naked bailment, and there being no means of identifying the money deposited, even if the assets of the hank were in the hands of the receiver, it was error to require the receiver to pay the deposit in full ; that the clerk was only entitled to share pro rata, with other deposit- ors and creditors of the bank. 2 Where the circumstances u which a lost check came into plaintiffs possession were so sus- picious that a person of ordinary prudence ought to liave hesi- tated and examined further before buying, the Supreme Court of Louisiana held that no recovery could bo had on it.' Where ft bank chock was received in payment, during banking hours, the day it was drawn, in the usual course of business, under circumstances not suspicious, and no negligence was shown from which lad faith could be inferred, the same court held that the holder might recover from the drawer, though the check had been lost or stolen. 4 A bank having, without instruction, jwiid a forged 1 Stoller v. Coates, (1885) 88 Mo. checks were collected the AMCU of the 614, holding the bank chargeable with Southern Bank were adzed by the the amount of the converted fund as a sheriff, and receiver* wen? appointed. preferred demand. In State ex rel. The Hank of Commerre claimed la Girardey e. Southern Bank, 8:i La. this case the rettitulio at tmtqrnm of Ann. 057, it appeared that the Bank of the proceed* of the three check*. The Commerce sent to the Southern Bank Supreme Court held that the Bank of for collection three checks on other Commerce wa* an ordinary depositor banks in New Orleans. The checks of the Southern Bank; that Uw pro- were collected and the proceeds paww-d cccds of the check* were mixed with to the credit of the Bank of Commerce its general fund*, and the Bank of in its general account, as it had given Commerce was no more than an no instructions for any special dis- ordinary creditor. position of the money, but, on the Otis r. OrOM, (1880) 96 HI 011. contrary, drew against the proceed* Vairin r. Hohsoo. 8 LA. 85. of these checks aa an ordinary de- Marsh r. Small. 8 L. Ann. 401 positor. On the same day that the 644 DEPOSITS AND CHECKS. [ 324 acceptance, and sent the same by mail to the firm whose names were forged as acceptors, the Kansas Supreme Court held, were not thereby entitled to a credit for the amount of the payment against the firm. The firm, as the court viewed it, were under no legal obligation to immediately examine the acceptance upon its being received by them, to ascertain whether it was genuine or not, and were not chargeable with negligence for not discover- ing the forgery immediately. In such a case it was sufficient to give notice when the forgery was discovered. 1 One having inclosed a note in a letter to a bank and asked the bank to dis- count it and place the proceeds to the writer's credit, and in that event to charge a certain overdraft of a corporation against the credit, and the bank having declined to discount the note, the United States Supreme Court held that the bank had no right to hold the note as collateral for the overdraft. 2 324. Checks, generally. Checks, like bills, are generally negotiable instruments payable to bearer, sometimes to order, requiring as essentials a drawer, drawee and payee. 3 That it shall be instantly payable on demand is an essential characteristic of a check upon a bank. 4 The payment of a check, before made, can be countermanded by the drawer. 5 Although not identical with a bill, a check on a bank is, in many respects, governed by the same rules ; and when payable to order is negotiable by indorsement. 6 The effect of drawing a check by a depositor upon his banker is to transfer the sum named to the payee, provided the depositor has that sum to his credit on the books of the banker, and an assignment of the check carries the title to the 1 First National Bank v. Tappan, that sum out of the funds of the (1870) 6 Kans. 456. drawer in bank to the drawee for the * Bank of Montreal v. White, (1880) purposes named in the check. For an 14 Sup. Ct. Rep. 1191. illustration of what would be a bank- 3 Hewitt v. Goodrich, 10 La. Ann. ers check and not an ordinary bill of 340. In Ridgley National Bank v. exchange, see Harrison v. Wright, Patton 109 111. 479, an instrument (1884) 100 Ind. 515. drawn by a depositor in this form, 4 Merchants' National Bank v. Rit- after giving the date and the name zinger, 118 111. 484. of the bank: "Pay to A. and B. for 5 Albers v. Commercial Bank, (1884> account of C. & Co., ten hundred and 85 Mo. 173; Bank v. Bank, 118 Pa. St. eighteen 23-100 dollars." and signed 294. by the depositor, was held to be a valid * Barbour v. Bayon, 5 La. Ann. 304. check, and that it operated to transfer 324] DEPOSITS AND CIIECKS. 045 fund to each successive holder. 1 Hut a banker is not bound to pay the check of a depositor in anything hut money. So, where a depositor drew a check upon his banker for < % hi<-a?o cxi-hangf, which he was to send to his creditors at their request, the Appel- late Court of Illinois held that these creditors could not, upon failure of the depositor to send the Chicago draft. .in an action against the banker upon the original check drawn upon him. 2 A bank check payable in "current funds" is payable in whatever is current by law as money.* When a chock is drawn upon a bank payable to the drawer's order and assigned by him, and lu- lias not sufficient money to his credit to pay the check in full, the bank will be under no obligation to pay, and an assignee can have no recovery upon such a check in an action against the bank. 4 A draft given on a bank in the ordinary course of busi- ness does not constitute an equitable assignment of the fund.* And, in this case, it was held that it was not sufficient to consti- tute such an assignment that the draft was drawn by a bank against its reserve fund in another city, and was given in exchange for clearing-house certificates upon the representation of its presi- dent that it owed a heavy debt at the clearing house which it was unable to meet, and his further statement showing the amount of the reserve fund against which the draft was drawn.' A bank by retaining, on the settlement of a depositor's account, the exact 1 Merchants' National Bank r. Kit- denied in Hogue r. Edwards, (1881) zinger, 20 Bradw. (111.) 27; Bank of Bradw. (III.) 203. America r. Indiana Banking Co., 114 * Bull r. Bank of Kasaon, 188 U. 111.483. As to the drawing of a check 8.105. by a depositor upon the bank holding * Coates r. Preston. 105 III. 470. In tin- deposits operating to transfer the Pack r. Thomas. 13 Smedtu A Marsh. title to the sum named in the check, see (Miss.) 11, it was held that it was not Foster v. Paulk, 41 Me. 425; Hoguc r. competent to proTe by parol that Edwards, (1881)9 Bradw. (111.) 148; check payable in " dollar* " limply. Union National Bank r. Oceans was intended by the partk* to be County Bank, 80 111. 212. And that the paid in depreciated bank noUaa. as that payee may sue the bank therefor, see would bo to vary a written contract by Brown t>. Pierce, 80 III. 214; C. M. & parol. F. Ins. Co. v. Stanford, 28 111. 108; Bank r. Millanl. 10 Wall IBS; Bickford /-. First National Bank. 42 Bank r. Schuler. 120 U. 8. 511. 111. 239; Brown r. Leckie, 43 111. 497; 7 Sup. Ct. Rep. W4. Seventh National Bank r. Cook, 73 Fourth Street National Bank r. Pa. St. 485. Yardley, (1N08) 55 Fed. Rep. 890 (a Vlogue r. Edwards, (1881) 9 Bradw. bill against the receiver of the bank (111. ) 148. A rehearing of this case was to charge bim as trustee of a fund). 646 DEPOSITS AND CHECKS. [ 324: amount of an outstanding check, impliedly accepts the check, and subjects itself to an action by the holder upon the check. 1 An unaccepted and uncertified check not being an equitable assign- ment to the credit of the holder, is but an order which may be countermanded. 2 Should the paying teller of a bank after a notice to the bank by the drawer of a check not to pay it, and his promise that he would not do so, afterwards pay it to the holder, the drawer may recover from the bank the amount of the check so paid. 8 A check upon a bank is payable in the kind of funds deposited prior to its date, and a subsequent agreement between the depositor and the bank that other funds would be received is not binding upon the payee of the check. 4 It appeared in an Illinois case that at a time when the banks in that state were receiving and paying out the paper of Illinois banks which were of doubtful solvency, and their paper at a discount, two bankers, in the usual course of their business, had mutual accounts grow- ing out of remittances and collections, and the relations existing between them were such that the depositor could withdraw his funds at pleasure, and the receiver of the deposits could in like manner return them. The Supreme Court of that state held that, in the absence of any agreement between them on the sub- ject, the holder of the deposits would be compelled to pay, or return in current funds or funds at par. But the banker who owned the deposit, with a considerable balance to his credit with his correspondent, having notified the latter by letter that he should require that any remittances he might desire should be made in the paper of certain banks, which were specified in his letter, it was held that this direction left the holder of the depos- its at liberty to make the remittances in bills of any of the banks so designated, which the owner of the deposits would be com- pelled to receive at their nominal value. Further, that after the receipt of such letter, the holder of the deposits was authorized to remit to the owner the entire balance standing to his credit, with- 1 Saylor v. Bushong, 100 Pa. St. 27. * Schneider v. Irving Bank, (1865) As to the drawer of a bank check 1 Daly, 500; s. c., 30 How. Pr. 190. being relieved of liability by a delay As to the duty of a bank in the pay- of nine days' presentment of a check, ment of checks drawn upon it by a see Kinyon r. Stanton, 44 "NVis. 479 ; depositor, see Dodge v. National Ex- Cork v. Bacon, 45 Wis. 192. change Bank, (1870) 20 Ohio St. 23<% 1 Florence M. Co. v. Brown, 124 4 Marine Bank of Chicago v. Ogden, U. S. 385. (1862) 29 111. 248. 324] l.KI'. CHECK*. 641 out further order, in the class of paper designated in the letter, at its nominal value, or in the pajn-r of any one of the banks detig- nated. Further, this right of the holder ..f tin- dcpoeiU would not he affected by the fact that subsequent ti. tin- ntiv g him, and before he had received any further notice on ject, the paper of such hanks had continued to depreeiute in value. It appeared also in this case that the holder of the deposits bad transmitted to the owner the entire balance due him in a package of these hills ; the latter retained it a week without owning it to leani the character of its contents, knowing it was a remittance from his correspondent, and the amount of it, and did not notify the correspondent that he would not receive it. The court held that by such delay he waived even any right he may have had to refuse to receive, at its nominal value, any of the pap< banks contained in the package. 1 An individual depositor may draw a check in favor of a bona jidc creditor and appropri ate his funds in a bank to such creditor, vesting him with full power to sue the bank and recover upon the check, notwithstand- ing an indebtedness to the bank of a partnership of which the depositor is a member. 2 A check duly notified to the bank ujxn which it is drawn constitutes an equitable assignment of the fund on which it is drawn. 3 A check upon a bank certified by its teller is equivalent to a bill of exchange accepted by the bank, and the bank is liable on the certified check to a bonajide holder whether it had funds of the drawer or not 4 A check drawn by one in extremis, with directions to the payee to defray the funeral expenses of the drawer from the amount, and to jwy the balance to his heirs, not accepted by the bank at the death of the drawer, has been held not to have operated as an assignment of the fund so as to make the bank liable to the payee. 5 The Indiana Supreme Court has held that a linker's check drawn upon the drawer's banker without words of transfer, and drawn upon no 1 Cushman p. Carver, (1809) 51 III. Mwuls r Merchant*' lUnk of Al 509. Sec, also, Marine Bank of Chicago bany. (1*62) 85 X. Y. 148. e. Rushmore, 28 111. 463 ; Marine * Stcond National Hank r. William*. Bank of Chicago t. Chandler. 27 III. 18 Mich. 288. Thnl a check U an a,. .Vjr, propriation of ao murk money in the 'International Bank r. Jones. 11 hank to the payer nwl holder, we < 111. 407. Uaiu r. Rowiie. (1H74) .V. '-wta Gordon & Gomila r. Muchlcr, 34 r. International Bank. (1888) 13 Mo. La. Ann. 604. App. 909. 648 DEPOSITS AND CHECKS. [ 324 particular designated fund, did not of itself, either as between the drawer and drawee, or drawer and payee or holder of the check, act as an appropriation or equitable assignment of a fund in the hands of the drawee ; nor did it operate as an assignment of a part of the drawer's chose in action against the drawee ; and, hence, the holder of the check was not entitled to a preference as against the depositors and the general creditors of an insolvent drawer. 1 If bank bills are deposited as depreciated paper, the depositor has no right to draw for funds at par or expect payment on a check thus drawn. 2 A right of action is given to the drawer of a check in case he has funds in bank to meet it by the refusal of the bank to pay it, if the refusal to pay is without his authority. 3 The presenting of a check to a bank on which it is drawn for pay- ment, and the bank's stamping it paid and canceled, although not in fact paid, but subsequently returned to the collecting bank pre- senting it, would not be such a payment as would discharge the drawer. 4 A bank paying a check drawn to order, without the indorsement of the payee, before it can refuse to pay upon demand by the payee having possession of the paper, is Tx>und to prove that the payee has parted with his title. 5 To a national bank's action to recover an overdraft which amounts to a simple loan, the omission of an officer of the bank to exact security for the money loaned cannot be made a ground of defense. 6 A banker cannot set off a demand he holds against the person pre- senting a check for payment. 7 A check drawn upon a bank for more than the amount of the drawer's funds on deposit creates no 1 Harrison v. Wright, (1884) 100 Ind. Union Gold Mining Co. v. Rocky 515. Mountain National Bank, (1873) 2 Colo. 2 Willetts t>. Paine, (1867) 43 111. 432. 248. See Lawrence v. Schmidt, 35 111. 440; 7 Brown v. Leckie, (1867) 43 111. 497. Galena Ins. Co. v. Kupfer, 28 111. 332. The court said: " In the case of Crom- 3 Citizens' National Bank of Daven- well v. Lovett, 1 Hall, (N. Y.) 56, it was port v. Importers', etc., National Bank held that a check on a banker given in of New York, (1887) 44 Hun, 386. the ordinary course of business, is not 4 Mclntosh v. Tyler, (1888) 47 Hun, presumed to be received as an absolute 99 ; citing Turner v. Bank of Fox payment, even if the drawer have Lake, 4 Abb. Ct. of App. Dec. 434; s. funds in the bank, but as the means to c., 3 Keyes, 425; Burkhalter v. Second procure the money. The holder, in National Bank, 42 N. Y. 538; Kelty v. such a case, becomes the agent of the Second National Bank, 52 Barb. 328. drawer to collect the money, and if 6 Citizens' National Bank of Daven- guilty of no negligence whereby an port t. Importers', etc., National Bank actual injury is sustained by the of New York, (1887) 44 Hun, 386. owner, he will not be answerable, if, S 324 ] DEPOSITS AND CHECK*. t ' lien upon, and will irm- the payee no right to the actual balance, until the l>ank 1ms agreed to pay it JT,. (.into. 1 The IllinoU Supreme Court has held that tin- Imldrr of a hank rhuck, who \MH paid value for it. i> mtitlcd t.. as much of tin- fund* of thu drawer on deposit a the check calls f..r, and, wln-n presented for payment, the bank on which it is drawn will become the holder of the drawer's money to the use of the holder of the check, and will In- bound to account to him for the amount unlet* other ecji. have intervened. 2 The rights of the holder of the check and tin- bank are fixed from the time the check is presented for paj- meiit, and the bank will have no right, subsequently, to paj other checks or other demands either to itself or to others which may afterwards be presented, or which may afterwards accrue.' A bank receiving an indorsed check for a special ptirjKwe, not in tin- regular course of banking business, has \HXI\ held to bo responsi- ble for an erroneous appropriation of the proceeds. 4 The payed of a check has been held not responsible to a bank for amount from any peculiar circumstances at- posit. It was further paid in Munn tending the bank, the check is not paid. r. Burch, 25 III. 85, to deny to the And in a suit against the drawer for holder of a bank check both a legal the consideration of such a check, the and equitable right, after presentation holder may treat it as a nullity, and of the check, to the money of the resort to the original cause of action." drawer in the hands of a banker, would 1 Dana v. Boston Third National destroy the most valuable feature of Kink, (1866) 18 Allen, (Mass.) 445. bank deposits and checks. In the very ' Fourth National Bunk of Chicago nature of such transactions a banker'* r. City National Bank of Grand Rapids, lion cannot extend to the money left on 1873)68111.398. deposit with him. according to the 1 Ibid. Mr. Justice BRF.ESK said : customs and usages of banks. It baa " The universal custom informs us never been so extended, but U con- what the contract of all the parties to lined to securities and valuable* which such transaction is. It informs us may be in the lnker' custody aa col- that the banker, when he receives the laterals. The credit muM tic given on deposit, agrees with the depositor to the credit of the securities or valnafesBSk pay it out on the presentation of his either in |>o8*c*8ion or expectoncj < Imks, in such sums as those checks HuKsell r. Haddnck. 3 Oilro. 288. Thb may specify, and to the person pro- is the extent of a banker'* Hen." See. senting them, and with the whole also. Johnson r. Ward. 2 Hradw. (Ill i world the banker agrees that whoever 261; Braum r. Adkina. 77 111. 888. shall become the owner of such check When the holder of a check is not ut shall, upon presentation thereof, be- ject to equities existing between ihr come thereby the owner, and entitled original parties. Rochester Bank r to receive the amount specified in the Harris, (1871) 108 Mas*. 514; Ames r. check, provided the drawer shall at Meriam. (1H67) 98 Mass. J84. that time have that amount on de- Parker r. Hartley, 01 IV Ht. 464. 82 650 DEPOSITS AND CHECKS. [ 324 paid to him, without fraud on his part, although paid by mis- take. 1 The mere presentment of a check does not fix upon a bank the liability to pay it. 2 Should a bank, without funds, pay a check long overdue, it would take it subject to all the equities of the drawer. 3 A bank, though it may have by mistake paid a check and placed it upon the canceling knife, would not be thereby prevented from recovering upon it against the drawer. 4 One receiving a counterfeit bill from a bank in payment of a check may return it in a reasonable time after discovering that it is not genuine. 5 The drawer of a check and his sureties will be discharged by the acceptance of the drawee, with the consent of the payee of a check conditionally fixing some other time or mode of payment than is implied in the language and terms of the check. 6 No law requires the drawee of a check to delay pay- ment until advice that it has been drawn. 7 A check to bearer, taken, though from one who obtained it unfairly, yet immediately after its issue, and without notice, entitles the holder to recover the sum it calls for. 8 Where a check is drawn on a bank in which the drawer has no funds it need not be presented at all, in order that an action may be maintained upon it. 9 Should a bank pay a post-dated check before the day on which it is dated, it will be a payment to its own wrong, and no defense to an action for the amount of the fund by one to whom it may have been assigned in good faith. 10 A bank on which a check is drawn is not constituted an agent for the owner of the check to receive the proceeds by his sending the check to it through the mail. 11 'Hull v. Bank, Dud. (8. C.) 259. amount of the counterfeit bill to the 8 Albers v. Commercial Bank, (1884) owner of the check. 85 Mo. 173. Warrensburg Co-operative Build- 3 Lancaster Bank T. Woodward, 18 ing Assn. v. Zoll, (1884) 83 Mo. 94. Pa. St. 357. 7 Merchants' Bank v. Exchange 4 State Savings Association v. Boat- Bank, 16 La. 457. men's Savings Bank, (1881) 11 Mo. * Clark v. Stackhouse, 2 Mart. (La.) App. 292. 326. 5 Boyd T. Mexico Southern Bank, 9 Foster v. Paulk, 41 Me. 425. (1878) 67 Mo. 537. In Murray v. Bull's I0 Godin r. Bank of Commonwealth, Head Bank, (1871) 3 Daly, 364, a bank (1856) 6 Duer, 76. which had through its teller cashed a " People . Merchants & Mechan- check drawn on another bank, and part ics' Bank of Troy, (1879) 78 N. Y. 269; payment was made in a counterfeit s. c., 34 Am. Rep. 532. bank bill, was held liable for the 325] DEPOSITS AMD CIIKCKS. ' ! 325. Certification of checks. A bank may render iteelf liable to the holder and payee of a check by a formal acceptance written upon the check, in which case it stand* to the holdi-r in the position of a drawer and acceptor of a bill of excliangv.' Tin* same result may "be accomplished by the bank'* writing upm the check the word "good" or any similar wonU which indicate ft statement by it that the drawn- 1ms funds in the bank applicable to the payment of the check, and that it will BO apply them.* Such a certificate discharges the drawer of tin- <-lir-k, and, as to him, amounts to a payment. 8 The certifying of a check an M good n is not a mere declaration of an existing fact, but creates a new and binding obligation on the part of the bank. Its meaning U not merely that the check was " good " when certified, but that it shall be " good " when presented for payment. A certified check, therefore, is as truly an absolute, unconditional promise to pay upon demand the sum it specifics, as an ordinary bank note ; and laches in making the demand is no more imputable in tin case than in the other. 4 The fact that a check may have been properly drawn on a national bank (a public depositor)') by an officer of the government in favor of a public creditor doe* not alter the rule that the holder of a bank check cannot sue the bank for refusing payment in the absence of proof that it was accepted by the bank or charged against the drawer. 5 Payment to a stranger upon an unauthorized indorsement of a check will not operate as an acceptance of the check so as to authorize an action by the real owner to recover the amount of the check a* uj>on an accepted check. 6 Although certified checks pass from hand to hand as cash, they are not cash, or currency, in the legal sense of the terms, and they do not lose, on tliat account, any of the char- 1 Merchants' Bank c. State Bank, 10 holders for value, were entitled to m- Wall. 604; Espy t>. Bank of Cincin- cover the sum advanced by them upon nati, 18 Wall. 804. four checks certified by the bank. Cook t. State Bank of Boston, 53 although payment wan not demanded \ Y. 96. until two month* after the checks ww 1 Bank v. Leach, 53 N. Y. 850; certified, and in the interval the drawer Meads t>. Merchants' Bank. 25 N. Y. had withdrawn, upon other check* all 148; Muasey t>. Prest., Directors, etc., hi* fund* from the bank. Eagle Bank, Met. (Mass.) 311; Wil Bank of Utr Republic r Mill.nJ 10 lets v. Phoenix Bank. 2 Duer, 121. Wall. 158. Willcts t. Pucpnix Bank. (1833) 3 Kin* National Bank of Waahlaf. Duer (N. Y.), 121. Holding upon the ton r. Whitman. (1876) W U. 8. Ml doctrine of the text that the plaintiffs, 652 DEPOSITS AND CHECKS. [ 325 acteristics of bills of exchange, and, therefore, when dishonored, the holder has a right to look to the drawer for payment. 1 The only effect of certifying a check " good " is to give it additional currency by carrying with it the evidence that it was drawn in good faith on funds to meet its payment, and lending to it the credit of the drawee in addition to the credit of the drawer. Beyond this it does not differ from an uncertified check. 2 The indorsement, by the proper officer of a bank, upon a check drawn upon it payable to bearer, that it is " good," would be prima facie an admission on the part of the bank that the money drawn for is in bank, subject to the order of the drawer. This presumption, however, may be repelled by proof, as that the admission was made by mistake. 3 Certifying a check is only an agreement that the signature of the drawer is genuine, and that he has funds to meet it. 4 A bank will not be relieved from its responsibility to the innocent holder of a check certified by its officer authorized to do so, by the fact that he may have transgressed his authority and certified checks where the drawer had no funds. 5 Where a check had been delivered by the drawer to the payee for accommoda- tion, and the payee had transferred it without indorsement to another, t who took it to the bank on which it was drawn for certi- fication, and while it was so in the possession of the bank the drawer notified the bank riot to pay it, it was held by the Supreme Court of New York that the payment of the check by the bank was unauthorized, and that the drawer could recover the amount from the bank. 6 A bank will not be bound, by a parol repre- sentation that a check is good, to pay it whenever presented until barred by limitation, such a representation not being equivalent to a certification ; neither would the holder of the check be relieved from the duty of proper diligence in presenting it for payment. 7 The deposit of the drawer of a check upon which it is drawn, is paid as the effect of the holder of the check procuring it to be 1 Bickford ?>. First National Bank, Am. Rep. 305. As to the power of a 42 111. 238. bank to certify checks, see Merchants' 8 Brown v. Leckie, (1867) 43 111. 497; Bank v. State Bank, 10 Wall. 604. citing Rounds v. Smith, (1860) 42 111. 6 Hill v. Trust Co., 108 Pa. St. 1. 245; Bickford v. First National Bank, * Freund v. Importers & Traders' 42 111. 238. National Bank, (1875) 3 Hun, 689; s. c., 3 Smith v. Branch Bank at Mobile, 6 T. & C. 236. (1845) 7 Ala. 880. ' Bank of Springfield v. First Na- 4 Marine National Bank T. National tional Bank of Springfield, (1888) 30 City Bank, (1874) 59 N. Y. 67 ; s. c., 17 Mo. App. 271. 32.'. ] DEPOSITS AKD CHECKS. ; certified instead of collecting it. 1 The drawer of a check will ! discharged by tin- holder's procuring it to bo certified instai collecting it. 4 In case a certificate of " good " on a check be erro- neously made by a bank, and the error be discovered and notice i^ivrii to the bank presenting tlio check in time for it to make a re-presentment and charge the indorsee, the certifying bank will be relieved from further liability.' A new and binding obliga- tion is created on the part of a bank by its certifying a check as " good " to hold sufficient funds of the drawer to meet the check ; and the holder's right is not impaired by a delay on his part in demanding payment. 4 The act of a bank certifying the genuine- ness of a check and directing its payment by a corrwpondnit bank, operates as a promise to pay the check ujxm presentation at the correspondent bank, properly indorsed. The obligation of tin? bank, as shown by such certification, amounts to a representation that the drawer has funds in the bank with which to pay the check, and that it will retain and pay them to the holder through the designated agency, upon presentation there, properly indorsed. 5 A bank certifying a check drawn upon it by one of its depositors is primarily liable upon it.* One taking a check which has been certified by a bank in good faith, for value, in tho ordinary course of his business, may recover against the bank although the signature to tho check may be a forgery. And it 1 BiHs v. National Park Bank, 47 N. bank to meet tho check, the plaintiff Y. Super. Ct. 302. was held not entitled to recover, on ac- 'First National Bank of Jersey count of her m-glijrencf in delay tog lft City P. Leach, (1878) 52 N. Y. 350; s. c.. presentation of the check for payment 11 Am. Rep. 708. for no long a time. Irving Bank r. Wetherald, (1887) Lynch r. Finit National lUnk of 86 N. Y. 335, affirming 34 Barb. 323. Jersey City. (18*7) 1O7 N. Y. 17; . 4 Farmers & Mechanics' Bank r. c.. 1 Am. St. Krp H rut 111*0 to accept u bill l>of<>iv it is drawn shall IK* drrim-d an actual acceptance in favor of any person to whom it is shown, and who on tin* faith thereof i ves the bill for a valuable consideration. 1 The same ca*e was l>efore the court again, \vhrn then- w/rv MHIM- further rulinp* as to the hank's liability on the check l.y reason of its aoeeptanee by telegram. It was held that the hank which had agreed to accept the check for a certain sum could not refoie payment because the check when presented concluded with the word* " with exchange," no place of exchange lx*ing mentioned. this was mere surplusage, and of no effect.' It was also held that a bank check payable to "the order of" the payee wa* a bill of exchange within the meaning of Revised Statutes of Muaoari :!>, riM|iiiring an acceptance of a "bill of exchange* " t.. ! in writing. 327. Presentment of checks for payment. Upon sentation of a check for payment the payee or legal holder becomes the owner, entitled to the sum called for by the check, if that, amount stands to the credit of the drawer on the books of the bank. 4 Bank checks being payable immediately on preaent- 1 Garrettson r. North Atchison Hunk, Bank. 76 Iowa. 689; a. c., 41 N. W. (1880) 39 Fed. Rep. 163. As to princi- Rep. 381: Hughitt r. Job MOO. 88 Fed. plea applicable to bank checks, we Rep. 865; Hill r. Todd. 29 111. 101-108; Bank r. Bank, 10 Wall, 647; Oooke r. Clauscr r. Stone. 29 111. 114. As to * Bank. 52 N. Y. 96; Jurvis r. Wilson, defense that presentation of a check 46 Conn. 90-92; Freund r. Bank, 76 for payment wa unreasonably de- V Y BBS, :::,(,; Unnk r. Richartls. 109 Inyed. see Bull r. Bank. 1*1 f. 8. 41:5; Whildcn r. Bank. 64 Ala. 111. 112; *. c\. 8 8up. (1. Krp. 29, 30. -As to how an acceptance of n OarretUton r. North AtchUoo Bank. check may l>e made, see Bank r. Bank. (1H91) 47 Fed. Rep. 867. affirming Oar l N Y. Leg. Obs. 26; Espy v. Bank, rettoon c. North Atrhiaon Bank. (1899) 18 Wall. 604 ; Whilden r. Bank, 64 89 Fed. Rep. 168 OarrrtUoo r. North Ala. 32, 33; Bank r>. Howard. 40 N. Y. Atchison Bank. Fed Rrp. 161. Super. Ct. 20. As to a check paasinp and 47 Fed. H-p. 867. were affirmed to another for a valuable consideration. ly the United .State* Circuit Court of sec Railroad Co. r. Bank. 102 U. 8. Appeal* in North Atchiaoo Bank r. 14-22; Pope r. Bank. 59 Barb. 226; aanrtUon. (1898) 51 Fed. Rep. !. Fn-und r. Bank, 76 N. Y. 808-808. Shaffnrr . Bdfertoo. 18 Bfdw * Garrettson r. North Atchison Bank. (III.) 188; W* r. Way. 87 Mo. 16; (1891) 47 Fed. Rep. 867. C. f.. Brink- Munn r. Buirh. 85 III. 85, man r. Hunter, 73 Mo. 179; Lindley r. 656 DEPOSITS AND CHECKS. [ 327 ment are not entitled to days of grace. 1 Whether days of grace are to be allowed on a draft in the form of a check depends upon the question whether the instrument is payable on demand or at a future day. 2 A check drawn on a bank ordering it to pay money to a third party or order on a day subsequent to its date would be entitled to grace. 8 A check drawn by one party upon another payable to a third person, due thirty days after date, has been held in a suit by the drawee against the drawer to be enti- tled to days of grace. 4 An instrument drawn upon the cashier of a bank, payable sixty days after date, has been held to be a bill of exchange, and entitled to days of grace. It was also held in the same case that it was essential to a check, eo nomine, that it should be payable on demand. 5 A draft on a bank for money payable at a day subsequent to its date, has been held to be a bill of exchange, and entitled to days of grace. 6 A bank check pay- able fifteen days after date has been declared in an Indiana case to be an inland bill of exchange, and to have every feature of such a bill. 7 A demand in business hours on the day succeeding that on which a check is drawn is a sufficient presentment. 8 Pre- sentment of a check is excused by the stoppage of its payment by the drawer. 9 The fact that a check may be drawn by a depositor of funds in a bank in favor of the cashier of the bank just previ- ous to the service upon the bank of process in garnishment, has been held not to be in itself evidence of fraud or want of good faith. 10 A bank which had sent another bank a bad check, sup- posing and affirming that it came from the bank to which it was returned and been paid money by the latter for the check, rely- ing upon this statement, which was erroneous, has been held liable in an action by the latter for the money, as paid under a mis- take of fact, although the error in the statement was not discov- ered until three days after the payment of the money, when the 1 Barbour v. Bayon, 5 La. Ann. 304. * Woodruff v. Merchants' Bank, 25 * Morrison v. Bailey, (1855) 5 Ohio Wend. 673. St. 13. When an instrument drawn 'Bowena. Newell, 8 N. Y. 190. on a bank is a check and not a bill of 7 Glenn v. Noble, 1 Blackf . (Ind.) 104. exchange, and not entitled to days of 8 Ocean Co. v. Ophelia, 11 La. Ann. grace, see Andrew v. Blachly, (1860) 28. 11 Ohio St. 89. 9 Woodin . Frazee, (1874) 38 N. Y. Ivory v. Bank of Missouri, (1865) Super. Ct. 190. 36 Mo. 475. 10 Bank of America T. Indiana Bank- Sutler v. Reynolds, (1872) 64 111. ing Co., 114111. 483. 321. 327J DEPOSITS AND CHECKS. drawer of the check had failed. 1 A bank paying a fraudulently altered post-dated check before its true date would not be tied to charge it again-t tin- drawer. 1 Check* are governed by the same rules that hills are, as to demand, protect and notice. A holder of a check, to recover against the drawer, mu*t show presentment for payment and protest, or that the drawer luid M.I funds in the hands of the drawee.* A post-dated check will not be entitled to days of grace, as a bill of exchange. 4 The obliga- tion of the drawee to pay a check and a bill are the same.' A bank check has been held to be a bill of exchange, within the meaning of that term as used in the Illinois Statute of Limitations.' When payment of a check is made to the payee an indorsement l>y him is not necessary. 7 Mere priority in drawing a check give* the holder no preference or privity in payment over the holders of checks subsequently drawn. 8 The neglect of the holder f a check to present it will postpone his right to the funds to that of a subsequent attachment upon the funds.' A bonajulc indoreetof a bank check, who had delayed for six months to present it for pay- incut, funds remaining in the hands of the drawee and the drawer, being unprejudiced by the delay, has been held not subjected to equities between the drawer and a previous holder of the check." Presentment and notice are not required where bank checks are 1 Union Bank r. United States Bank, Champion r. Gordon. 70 IV (1807) 8 Mass. 74. St. 474; Lawson r. Richanb. fl Phil. Crawford r. Bank, 3 Lancaster 179. Law Rev. (Pa.) 245. City Bank r. Oirnrd Bank. 10 L. Succession of Kercheval, 14 La. 566. Ann. 457, Barnct r. Smith, 30 N. H. 'Rogers r. Durant. 140 U. 8. *9& 256; Shrieve r. Duckham, (1822) 1 Litt. As to the transfer of Uic uiu named (Ky.) 195; Humphries t>. Bicknell, 2 in a rbeck to the payer. ace Hank of Litt. (Ky.) 297; Sutcliffe & Bird . America r. Indiana Banking Co.. 114 McDowell. 2 Nott & McC. (8. C.) 251; 111. 488. Lillcyc. Miller, 2 Nott & McC. (8. C.) 'Huber r. Boasart. (1886) 70 low*. 257. As to the necessity of proof of 718. presentment and notice of dishonor of Moaca . Franklin Bank of Bahi a check, to entitle the owner to resort more, 84 Md. 574. See. alto. Norrb to the drawer for payment, sec Case r. . Despard, 88 Md. 487. Morris. 81 Pa. St. 100. Payment of a Ilarry r. Wood. 3 Mil part of the check after it becomes due Kuhn r. Bank. 80 W. N. C. (IV) MO. by the drawer dispenses with the ne- ' Bull f. Bank of KBMOO, US U. 8. cessity of such proof. Levy p. Peters, 105. 9 Berg. & Rawle (Pa.), 125. 83 658 DEPOSITS AND CHECKS. [ 327 payable at a future day or protested. 1 A bank check must be presented for payment by the holder within a reasonable time ; should it not be, the delay is at the holder's peril. As to what is a reasonable time would depend upon the circumstances in eacli case. And the time of presentation may be extended by the assent of the drawer, express or implied. In a Connecticut case, by way of illustration, the plaintiff, desiring to make a remittance to a creditor at a distance, and there being no bank in the place where he lived, asked the defendant, who had an account with a banker in a neighboring city, to take the amount of him in bank bills and give him his check therefor, which the latter did, fully understanding the object. The plaintiff, to whose order the check was payable, at once indorsed it to his creditor and sent it by the next mail. It was three days before the check reached the place where the banker resided, on whom it was drawn, and was presented for payment, at which time the banker had failed and payment was refused. The plaintiff took up the check and brought this action against the drawer. The Supreme Court of Connecticut held that the check was presented w r ithin a reason- able time under the circumstances, and held the drawer liable to the drawee for its amount. 2 Negligence cannot be imputed to the holder of a check upon a bank for the payment of money if 1 Blachly v. Andrew, (1855) 1 Dis- Daggett v. Whiting, 35 Conn. 366. is ney (Ohio), 78. certainly an authority to show that 3 Woodruff v. Plant, (1874) 41 Conn, what the understanding of the parties 344. The court said: "What is area- was at the time that the check was sonable time will depend upon circum- drawn and delivered enters into the stances; and will, in many cases, de- contract. That the time for present- pend upon the time, the mode, and the ment may be extended by the assent place of receiving the check, and of the drawer, express or implied, is upon the relations of the parties be- well settled. Alexanders. Burchfield, tweeu whom the question arises. Story 7 Man. & Gr. 1061; s. c., 49 Eng. on Prom. Notes, 493; Mohawk Bank Com. Law Rep. 1060." See on this v. Broderick, 13 Wend. 133. Here subject, Bridgeport Bank v. Dyer, three days only elapsed between the 19 Conn. 136; Taylor v. Wilson, 11 giving of the check and its present- Met. (Mass.) 44; Ames v. Meriam, 98 ment for payment. The particular Mass. 294; First Nat. Bank v. Harris, circumstances attending this case we 108 Mass. 514; Morrison v. Bailey, 5 consider very important. The de- Ohio St. 13; Stephens v. McNeill, 26 fendant knew that the plaintiff desired Barb. 652; Rickford v. Ridge, 2 this check to make a remittance; that Campb. 537; Robinson v. Hawksford, it was not to be immediately presented 9 Adol.& El. (N. S.) 52; Hare v. Henty ; for payment, and would not reach the 10 C. B. (N. S.) 64; Prideaux t. Crid- bank for several day*. The case of die, L. R., 4 Q. B. 455. 3 27] DEPOSITS AUD CHECKS. lu demands payment on the day following that on which he received it. If, however, the holder unreaaonal.ly delay* in j.n- senting the check for payment, and in the meantime the hank fails, the loss will be the holder's and not that .f the drawer of the check. 1 In case it appears that the drawer of a check luu sustained any injury by the delay or negligence of tin- h..|.. the check in presenting it for payment, the drawer will be dis- charged from liability. 3 Where a holder of a check had neglected to present it for payment until twenty-five days after it was drawn, during which time the drawer failed, the Supreme Court of Illinois held that the holder of the check could have no recourse upon the drawer unless he showed that no loss occurred to the drawer through his delay in presentation of the check.' Where one having funds in a bank gives a check which the h neglects to present for payment within a reasonable time, the drawer cannot be held liable for non-paymeut in current fund* unless the holder shows not only that the funds on deposit were depreciated at the date of the check, but also that they were depreciated at the time of the deposit, and that, therefore, the drawer had no right to draw the check, or to expect its payment in current funds. 4 The holder of a check will be exercising due diligence when he presents it for payment in accordance with the usage of the banks in the place where it is made jwyable, and of the persons who have accounts with such banks, provided this usage be lawful and well known or recognized by the mercantile community, and by the parties to the check. 5 One giving a check may expressly, or by implication, extend the time during which he will remain liable for the amount of the check before its presentment for payment. 6 The drawer of a check cannot 1 Clark r. National Metropolitan the next day after its date to prawot Bank, 2 MacArthur (D. C.), 249. it. Veazie Bank r. Winn. 40 Me. 60. 'Ibid. That the discharge of the That a check muni be pmeotcd for drawer of a bank check from liability payment on its date or the day there- will result from neglect of the holder after where all the parties reside in the to present the same for payment same place, ace liank r. Weil. 4 fis. within a reasonable time, and that the Co. Ct. Rep. M6L doctrine applies to all holders, payees Holmes r. Roc. 89 Mich. 1. A* or transferees, see Daniels r. Kyle, 5 to the duty of a bunk in the matter of Ga. 245. poytaS the check* dmwn upon it by s Willetts r. Paine, (1867) 48 111. 482. depositor, are MOM* f. Kranklln Bank 4 n.i.i of Baltimore. 84 Md. 574. Right of ar Marrett t>. Brackett, 60 Me. 624. tion of a holder of a check again* The holder of a check allowed until bonk refusing payment when drawer 660 DEPOSITS AND CHECKS. [ 327 object to any delay in presenting it unless he can show special injury to himself arising from the delay. 1 The drawer of a check will be released by the failure to give him notice of non-payment of the same only to the extent of the injury he may receive thereby. In case of failure of the drawee, then proof of notice of non- payment would be necessary to rebut the presumption of injury arising from the failure ; and when the drawer has no funds in the hands of the drawee to meet the check, demand and notice will be necessary. 2 The drawer of a check, if otherwise liable, will not be discharged because of a failure to present the check at the clearing house in accordance with mercantile usage, even though it would have been paid if presented there, when it has been duly presented to the drawee and payment demanded and refused. 3 Four days' delay in presenting a check has been held not too much. 4 A delay in the presentment of a draft, payable on demand, for eleven days has been held not a reasonable time. 5 has funds in bank. Fogarties . State twenty miles from the place where the Bank, 12 Rich. (S. C.) 518. As to a bank upon which it was drawn was court's preventing the vexatious draw- located, to a merchant whose place of ing of small checks against a deposit, business was twenty -seven miles by see Chicago Marine & Fire Ins. Co. v. rail in another direction; and had to be Stanford, 28 111. 168. there on the following day, 'which 1 Emery . Hobson, 63 Me. 32. was Saturday. On Monday he left * Pack v. Thomas, 13 Smedes & the check at a local bank for collec- Marsh. (Miss.) 11; Graham v. Mors- tion, but the bank on which it was tadt, (1890) 40 Mo. App. 333. drawn failed that day. The court 3 Kleekamp t>. Meyer, (1878), 5 Mo. held that the delay in presenting the App. 444. When presentment of check for payment was not such as check to justify an action against the would release the debt for which it drawer is not necessary, see Gushing was given. v. Gore, (1816) 15 Mass. 69; Franklin 5 Newark Banking Co. v. Bank of Bank v. Freeman, (1835) 16 Pick. 535. Erie, 63 Pa. St. 404. As to reasonable Rules in actions by the holders of delay in presenting a check for pay- checks against the drawers. Ball v. ment, see Chouteau v. Rowse, (1874) Allen, (1819) 15 Mass. 433; Ellis v. 56 Mo. 65. As to time within which a Wheeler, (1825) 3 Pick. (Mass.) 18. check must be paid, see Wear v. Lee, 4 Piece v. Daniel, 16 W. N. C. (Pa.) (1885) 87 Mo. 358. As to the effect of 35. In St. John v. Homans, (1844) 8 delay in presentment of a check, see Mo. 382, where all the parties to the Flemming v. Denny, 2 Phil. 111. As check resided in the same state, a de- to right of action after presentment and lay of eight daj r s iu presenting the demand and failure to pay by drawee check for payment was held sufficient with funds of depositors in hand, see to discharge the drawer. In Freiberg Me Grade V. German Savings Institu- te Cody, 55 Mich. 108, it appeared that tion, (1877) 4 Mo. App. 336; Zelle . a check for a small sum was given German Savings Institution, (1877) 4 late in the afternoon at a lumber camp, Mo. App. 401; Senter . Continental 328] DEPOSITS AND CHECK*, ftf] A delay in presenting a check for payment would be exciued fa case the holder is prevented by any state of things bejond hU control from presenting it or sending it to be presented. Hut in case the delay is protracted to a coi>idfruble length of time the reason must be shown. 1 As to what is a reasonable time within which a check was presented may be submitted to tin- jury under appropriate instructions. 3 Where a drawer has no fundn and makes no provision for meeting a check or withdraws lib fund* before its presentation, he cannot take advantage of a want of diligence in presenting it for payment.* The indorser of a check, drawn for his accommodation, who is bound to provide funds to meet it, will not be entitled to notice of non-payment. 4 The custom of banks in doing business among themselves through the clearing house does not alter the rule that a check must be presented to the bank on which it was drawn, at least during banking hours of the next succeeding day. 5 In an action U|M,M a check by the holder against a bank the burden will be upon tlie holder to show that the sum called for by the check stood to the credit of the drawer when presented. 6 A reply of a bank to which a raised check is sent for information, that it is all right, would be a guaranty of the signature and the state of the draw- er's account, and not of the genuineness of the filling in. T The indorsement of a raised check is in effect a representation and warranty to the drawee that it is genuine, upon which the drawee may rely in making payment, for reimbursement by the indoraer after discovery of the fraud. 8 A bank is entitled to ettlMkh that a raised check was a forgery and to recover Iwk the money paid thereon, notwithstanding its recognition and payment, tlie signature being genuine, under an honest mistake.* 328. When a draft on a bank fails to bind the funds in bank. The United States Supreme Court had Iteforo it a CAM Bank, (1879) 7 Mo. App. 532; State International Bank r. Jones. 18 Savings Assn. r. Boatmen's Savings Bradw. (111.) 594. Bank. (1881) 11 Mo. App. 292. ' Epy r. Bank of Cincinnati. 18 1 Moody r. Mack, (1809) 43 Mo. 210. Wall. 004. * Sclby r. McCullough, (1887) 26 Mo. City Bank r. Flirt National Bank. App. 66. Tex. 208. Moody r. Mack, (1869) 43 Mo. 210; Notional Bank of Commerce r Sterrett r. Roscnorantz, 8 Phil. 54. Uonal Mechanic* 1 Bank. (1873)85 N.Y. Williams r. Hood, 1 Phil. 205. Super. Cl. 288; affirmed In 55 N. Y. Rosenblatt r. Ilabcrmann, (1880) 8 211. Mo. App. 486. 662 DEPOSITS AND CHECKS. [328 in which it appeared that the drawers of a check upon a bank making an assignment for the benefit of creditors just afterwards, immediately gave notice to the bank of this assignment, and requested the bank to hold the funds in its hands for the benefit of the assignee. Virtually, this notice to the bank was prior to the presentation of the check by the payee of the latter, and the bank refused to pay the check. In this action of the payee of the check against the bank for the recovery of the amount of the check, the court held that the check or draft did not bind the funds in the hands of the bank until it had notice of the draft or check by presentation for payment, or otherwise ; and that, until then, other checks drawn afterwards might be paid, or other assignments of the fund, or part of it, might secure priority by giving prior notice. 1 A banking firm of Ohio gave its draft or 'Laclede Bank v. Schuler, (1887) 120 U. S. 511; s. c., 7 Sup. Ct. Rep. 644. Mr. Justice MILLER, speaking for the court, said: "The question of how far and under what circumstances a check of a depositor in a bank will be considered an equitable assignment to the payee of the check of all or any portion of the funds or deposits to the credit of the drawer in the bank, is one which has been very much con- sidered of late years in the courts, and about which there is not a unanimity of opinion. In this court it is very well settled that such a check, unless accepted by the bank, will not sustain an action at law by the drawee against the bank, as there is no privity of contract between them. Marine Bank 0. Fulton Bank, 2 Wall. 252; Bank of Republic 0. Millard, 10 Wall. 152; First National Bank of Washington 0. Whitman, 94 U. S. 343. But while this may be considered as the estab- lished doctrine of this court in regard to the rights of the parties at law, and is probably the prevailing doctrine in nearly all the courts, it is urged in this case, and several courts have so decided, that such a check is an ap- propriation of the amount for which it is drawn of the funds of the drawer in the hands of the bank. Roberts v. Austin Corbin & Co., 26 Iowa, 315; Fogarties v. State Bank, 12 Rich. Law, 518; s. c., 78 Am. Dec. 468; Munn 0. Burch, 25 111. 35; German Savings Inst. . Adae, 1 McCrary, 501. But however this doctrine may operate to secure an equitable interest in the fund deposited in the bank to the credit of the drawer after notice to the bank of the check, or presentation to it for payment, a question which we do not here decide, we are of opinion that, as to the bank itself, the holder of the fund and its duties and obliga- tions in regard to it, the bank remains unaffected by the execution of such a check until notice has been given to it or demand made upon it for its pay- ment." In Schuler t>. Laclede Bank, (1886), 27 Fed. Rep. 424, which was affirmed in the case just cited, BREWER, J., disposed of the contentions of the holder of the check in these words : "This question must be solved in a court of equity upon equitable grounds, and I think that it is equi- table for a bank, upon the day on which a note becomes due, and at any time during the day, having funds of the maker in its possession, to apply those funds to the payment of that 328] DEPOSITS AXD CHECKS. chuck upon a New York bank. They having ma-It- an aign- inent for the benefit of creditors Ix-f.nv it \vii* presented to the New York bank, the latter upon presentation rvfu*cd to pj it, and paid over the funds in its hand* to the assignee of tin* insol- vent firm. The holder of the draft or cheek brought hi* action against the assignee for the amount. In considering the cue brought before them the Supreme Court of Ohio state- 1, in it* opinion, the practical question to be " whether the unaccepted draft for a part only of the amount due the drawer gave the payee or holder priority over the other creditors of the drawer.** Their conclusion was that a check or draft for a part only of the sum due the drawer does not, before acceptance, constitute an equitable assignment of the amount for which it is drawn ; and where, after it is drawn, the drawer makes an assignment of all his property for" the benefit of his creditors, notice of which is received by the drawee before acceptance, the property in the whole amount then remaining to the credit of the drawer pMMt to the assignee for the equal benefit of all his creditors, and the holder of the check or draft has no priority over the other creditors. 1 The court, later in its opinion, said : u While, how- note, although by so doing it leaves of authority i*. we think, the nothing standing to the credit of the way. Mr. Poraeroy, in hto work on maker to apply on checks drawn by Equity Jurisprudcnrr. flection 1284. him. As between the bank, the holder says that. 'An ordinary bill of e- of a note due and the payee of a check change or draft drawn generally and upon that bank the equities are in not upon any part icular fund, whrthsr favor of the bank. Or, at least, if the accepted or not by I he drawer, doe* equities are equal, legal title to the not operate as an equiublcaadgtmu-nt. funds and possession is with the bank, Its operation is not changed even when and it should not be postponed." funds have been placed in the drawee's 1 Covert v. Rhodes, (1891) 48 Ohio St. hands as a mean* of payment; for IkS) 66. Arguendo, it was said by the court: drawee may apply the*? fund* lo " Some cases and text writers, we are another ue. and although thl* art aware, maintain with much earnest might violate bU duty to the drawer. ness the position taken by the counsel the payee would obtain nointerrrt IB or for the plaintiff, that a draft or bank claim upon the apec-idc fund. Accord- check for part of the amount due the ing to the great preponderance of drawer is an equitable assignment pro authority, a check U In Oil* mipert a tanto, giving the payee or holder an bill of exchange, and doe* not art a* equitable property in the fund, which an equitable awdgnmenl of a portion may be pursued as long as it can be of the drawee'* dcpo*h equal In certainly identified, except into the amount to the fact- of the check.' Ac- hands of third persons who have ac- cording to the mine author. In c quired possession of it for value, and that the doctrine of equitable ai|ra without notice. But the great weight ment may apply, there mm* be a 664 DEPOSITS AND CHECKS. [328 ever, we regard it as well settled that a draft or check for a part only of the drawer's deposit or sum due him does not operate as an equitable assignment, a different rule seems to obtain where an order, draft or check is drawn for the whole amount of the deposit, or the exact sum due. There may be in such cases, it is said, a sufficient designation of the specific fund to be transferred to constitute an equitable assignment." l A draft indorsed to a specific fund upon which the assign- ment may operate, and ' the sure cri- terion is whether order or direction to the drawee, if assented to by him, would create an absolute personal in- debtedness payable by him at all events, or whether it creates an obliga- tion only to make payment out of the particular designated fund.'" The Ohio court resumed : " The obligation of a bank to its general depositors is not that of bailee or trustee, but that of debtor simply. It does not agree to pay checks or bills drawn on it out of any particular fund; nor does it retain any particular fund for that purpose. As said by Mr. Justice DAYIS in Bank of Republic v. Millard, 10 Wall. 152, 155, when deposits are received by the bank, ' unless there are stipulations to the contrary, they belong to the bank, become part of its general fund, and can be loaned by it as other money. The banker is accountable for the de- posits which he receives as a debtor, and he agrees to discharge these debts by honoring the checks which the depositor shall from time to time draw on him. The contract between the parties is purely a legal one, and has nothing in the nature of a trust in it.' The authorities are, without exception, to that effect. There is little, if any, conflict of authority upon the proposi- tion that on notice of the drawer's death, before acceptance by the bank, its right to pay the bill or check ceases, and its indebtedness to the drawer becomes assets of his estate. The reason, we apprehend, is not because the bank is the agent of the owner for the disbursement of a particular fund, and the agency is terminated by the death of the principal, but because, before acceptance, the title remains in the drawer, and devolves immediately on his death on his personal repre- sentative by operation of law. The authorities are also nearly uniform to the effect that the holder of such draft or check cannot maintain an action against the drawee without the latter's acceptance. The reason given is, that without acceptance there is no privity between them. It would seem clear that if before acceptance, the check or draft operated as an equitable assignment pro tanto, such an action might be maintained; for an equitable assignment transfers the fund, and the refusal of the drawee to pay would be a conversion by him of the payee's property, for which suit might at once be brought." The court fur- ther cited in support of their views, besides Laclede Bank v. Schuler, 120 U. 8. 515, Grammel n. Carmer, 55 Mich. 201; Dickinson . Coates, Aa signee, 79 Mo. 250; Billiard v. Randall, 1 Gray, 605; Attorney-General v. Con- tinental Life Insurance Co. , 71 N. Y. 325; Kimball v. Donald, 20 Mo. 577; Loyd f>. McCaffrey, 46 Pa. St. 410; Chapman r>. White, 6 N. Y. 412; Dykers . Bank, 11 Paige, 612; Hop- kinson v. Forster, 19 L. R. (Eq.) 74; Moses v. Bank, 34 Md. 574. 1 Covert v. Rhodes, 48 Ohio St. 66. Upon this it was said by the Ohio court: " This- distinction is made by $ 32S] DEPOSITS AXD CHECK* l>;itik f.r collection, with direction* to remit New York exchange, was }>ui U-fore the check was paid. The Tennessee Supreme Court held in neb case that no tru-t existed in favor of the payee of the draft, and he was not entitled to any priority of payment ovrr other cn-dit ore hy the assignee. 1 They also held, there being a contention many well -considered cases. Among account was attached to the draft. thrui Moon- r. Davis, 57 Mich. 251; evidently fur the purpose of bring Bank r. Railway Coinjuiny. 52 Iowa, sent forwanl with It. Wbea thus 878, 384; Mundeville r. Welch, 5 sent forwanl it would explain t Wheat. 277; Kingman t>. Perkins, 10.~> the drawees the account oo which ft Mass. Ill; Macomber r. Doanc, 2 Al- was drawn, but it muxl also have been len, 541; Robbing r. Bacon, 3 Me. 346; understood to serve a further purpose. Gibson t>. Cooke, 20 Pick. 15-17. In namely, to be evidence in (he band* of the opinion of the court in Moore o. the drawees that the account waa paid Davis, 67 Mich. 251, COOLEY. Ch. J., when the drnfi wan taken up by then discussing the distinction between the There could he no sufficient rraaon for two ^classes of cases, says: ' In the attaching it at all. unlca* it waa an recent case of Grammel o. Carmer, 55 dcrstood that payim-nt of the draft Mich. 201, the question whether a draft would IK* payment of the account M was an assignment of the fund in the well. By the general commercial law. drawer's hands to the extent of the as was snid in Grammel r. (fenner, the Rum drawn for. was considered and purchaser of the draft is supposed to I in the negative. That, how- take it in reliance u|xm the responsi ever, was the case of a banker's draft, bility of the drawer, and he ha* no and it was not drawn for the whole other reliance until it U accepted. fund in the drawee's hands. Many This is the gem-mi rule. But If the cases were cited in the opinion filid in drr.ft is for the whole amount of a tii:it r.iM'. and the following, not then fund the d raft may. in connection with cited, aro to the same effect: Shand r. other circumstance*, tend to show an 1 )u B.iisson, L. R, 1H Kq. 283; Lewis r. intent that it should operate as an a* Traders' Bank, 80 Minn. 184: Jones r. signment." The < >bio court thro con Pacific Wood Company. 18 Nev. 859; eluded as follow*: 'Gardner r The Rosenthal . Martin Bank. 17 Blatchf. Nail. City Bank. 89 Ohio Hu 600. be 818; Dolsent*. Brown, 18 La. Ann. 551; longs to thin latter clan* of caw*. Sands t>. Matthews. 27 Ala. 899.' There the draft WM fur the exact COOLET, Ch. J., then distinguished the amount due the drawer, and in the cases as follows: 'But this case dif- opinion Joiuciwix. Ch J.. carefully fers from Grammel r. Carmer. 55 Mich, distinguishes! the caar from those in 201, in the fact that the draft now which the draft wan drawn for a part in question was drawn for the exact only of the amount owing by tfcs amount of a sum claimed to be due drawee." from the drawee to the owner for a ' Akin f. Jones, (Tenn. 18M) f7 bill of merchandise, and that the W. Kep. <. 666 DEPOSITS AND CHECKS. [ 329 contra^ that the delivery of a check against a general deposit was not a legal or equitable assignment of any portion of the fund. 1 329. Forged checks rules. One purchasing a forged check and indorsing it, gives it credit and will be liable to the party paying it. 2 The indorsee of a bank check obtains no title to the 1 Akin v. Jones, (Tenn. 1894) 27 S. of the payee. Until presented and ac- W. Rep. 669. It was said by the cepted, it is inchoate. It vests no title, court: "The case of Imboden v. legal or equitable, in the payee to the Perrie, 13 Lea, 504, involved more of fund. Before acceptance the drawer the features presented in this case than may withdraw his deposits. The bank any other reported in this state. In owes no duty to the holder until the that case the question arose between check is presented for payment, creditors. One creditor held a check Knowledge that checks have been of the debtor against a general deposit drawn does not make it obligatory of the debtor in bank, while the other upon the bank to retain the deposits was an attachment creditor of that to meet them. These rules are indis- fund. The question was fairly raised pensable to the safe transaction of in that case whether the check worked commercial business. * * * ' The an equitable assignment of the fund in case of Attorney-General r. Continen- bank 'to the checkholder before the tal Life Ins. Co., 71 N. Y. 325, * * * presentation of the check or notice to presented the exact state of facts the bank. If so, the check -holding found in this record. In that case the creditor was entitled to priority. If insurance company gave its check not, then the attachment had priority, upon a trust company in payment of a Judge TURKEY, in delivering theopin- loss, the company having at the time ion of the court against the defend- on deposit a sum exceeding the amount ant's theory of equitable assignment, of the check, but prior to its presenta- cited approvingly the opinion of Chief tion a receiver of the insurance corn- Justice CHURCH in Attorney -General pany was appointed who withdrew all v. Continental Life Ins. Co., 71 N. Y. the funds deposited with the trust 325, to the effect that checks drawn in company. In an action by this check - the ordinary form, not describing any holder against the receiver to recover particular fund or using any words of the whole amount of the check out of transfer of the whole, or any part of the funds in his hands, it was held by any amount standing to the credit of the Court of Appeals of New York the drawer, but containing only the that the check, not having been drawn usual request, are of the same effect as upon a particular fund, was not an inland bills of exchange, and do not equitable assignment pro tanto of a amount to an assignment of the funds general deposit, and that the check - of the drawer in bank. ' This doc- holder was not entitled to payment in trine,' he continues, 'accords with full in preference to the claims of other the relations between the parties, creditors." See, also, Risley P. Bank, Banks are debtors to their customers 83 N. Y. 318; ^tna Nat. Bank v, for the amount of their deposits. A Fourth Nat. Bank, 46 N. Y. 87. check is a request of the customer to * Merchants' Bank v. Exchange pay the whole or a portion of such in- Bank, 16 La. 457. debtedness to the bearer or to the order 329] DEPOSITS AND CHECKS. 7 same where the indorsement is a forger}-. 1 Where a hank uj^.n which a check is drawn ha* jmid it to another hank with which ii was deposited by one receiving it with an unauthorized indone- iiK-iit of the name of the payee, tin- hank may, ujx>n discovery of the facts, recover the money which it has paid irrespective of the question as to whether or not it had IK-CM called u|*.n hv the drawee to pay the amount again.' The fact that the drawee of a check may have brought suit against other person* as fraud- ulent receiptors will not release a bank which has paid the check upon a forged indorsement. 8 A hunk taking drafts with forged indorsements from a person wrongfully in possession of them, collecting and surrendering them to the drawees, would be liable to the owners of the drafts for conver- sion. 4 The indorsement of the owners, named M payees of these checks, were forged and the checks passed to a third party or value, who deposited them for collection with a hank. The checks were collected by the bank and the proceeds credited to this third party. The court held that a joint and several action was maintainable by the owners of the checks against this party and the bank for the proceeds of the checks. 9 A depositor in a bank, who, being deceived by his clerk, drew a check in favor of a customer, and his clerk forging an indorsement of the jwyee's name on which the bank paid the check, has been held not to be precluded from disputing the bank's right to charge the check to his account because of entry of the check in his pass book, its return by the bank with the vouchers, and retention by the depositor, without objection for several month*.' It in not tin- duty of a bank depositor to examine his pass book or returned checks with a view to detect forgeries in the indorsements. He may assume that the bank ascertained the genuineness of the indorsements before payment. 7 A bank is bound also to ascertain the genuineness of an indorsement upon a check, and a drawee of 1 Indiana National Bank r. Holta White r. Mechanic*' National I Wok claw, (1884) 98 Ind. 85. (Wl) 4 Dalj, ft. Central National Bank r. North Wcl*h r German- American Bank. River Bank, (1887)44 Hun. 114. <1K7H73 N Y. 4S4; r . Am llrp. August v. Fourth National Bank, 175. (Sup. Ct. 1888) 15 N. Y. St. Itepr. ' Ibid. Sec. abw. Bank of British 950 North America r. Merchant* National 4 People 9. Bank of North America. Bank of New York. (18B1) IS N. Y. (1879) 75 N. Y. 547. Wkly. Pi* 374. 008 DEPOSITS AND CHECKS. [ 329 a check, payable to the order of the payee, will not be bound by a payment made by the bank on a forged indorsement of the payee's name. 1 The responsibility of the drawee, who pays a forged check, for the genuineness of the drawer's signature, is absolute only in favor of one who has not by his own fraud or negligence contributed to the success of the fraud or to mislead the drawee. So, if a payee take a check drawn payable to his order, from a stranger or other third person, without inquiry, although in good faith and for value, and give it currency and credit by indorsing it before securing payment of it, the drawee may recover back the money paid on it. 2 In case a bank has paid out a depositor's money on forged checks, the fact that the depositor may have obtained collateral security to reimburse him for the acts of the forger, would be no reason why a recovery may not be had of the bank, where nothing has been realized out of the security. 3 If the drawee of a bank check pays a forged check to the holder, he will not be entitled to recover back the money so paid, where there has been no fraud practiced upon him. 4 But the drawee or payer of a forged bank check may 1 Welsh v. German- American Bank, depositor to the officers of the bank as (1878) 73 N. Y. 42i; s. c., 29 Am. Rep. the person who was authorized to re- 175. That a bank pays a check, the ceive money on the depositor's checks, signature of which is forged, at its * North America Bank v. Bangs, peril, see Frank v. Chemical National (1871) 106 Mass. 441. In Belknap v. Bank of New York, (1881) 84 N. T. North America Bank, (1868) 100 Mass. 209, affg. 45 N. Y. Super. Ct. 452. In 376, a drawer of a check payable to Mackintosh v. Eliot Bank, (1877) 123 A. B. or order, who sent it by his clerk Mass. 393, the bank which had paid to the post office to be mailed inclosed out money on a check purporting to in a sealed letter, was held not guilty be signed by one of its depositors, but of negligence which would render the signature on which was in fact him liable on the check in the hands forged by the depositors clerk, was of the holder in good faith for value, held, in the absence of evidence that to whom the clerk, after abstracting it that the clerk had or was supposed by from the letter, passed it altered by the bank to have any authority to sign forging the words ''or bearer" after the depositor's name, not exempt from A. B. and before "or order," and ob- liability to the depositor by proof that literating the latter words, the forgery was committed on a blank J Bank v. Green, 3 Pennypacker form taken from the depositor's check (Pa.), 456. As to a bank paying a book, which was left lying about in forged check and being bound to know his office during the day ; that the check the signature of its depositors, see Corn- was stamped with a hand stamp some- mercial & Farmers' National Bank times used on his checks, and which r>. First National Bank, 30 Md. 11. was accessible to any one in his office; 4 First National Bank of Quincy v. that the clerk was allowed to fill up Ricker, (1874) 71 111. 440. The court checks, and was introduced by the said: " Bankers are supposed to have 329] i.i i-oerre AMD CHECK*. recover the amount paid by him on it, where the holder or J*yee is himself at fault, or hat) been guilty >f fraudulent practice* which may have thrown the drawee off bin guard. 1 The court further held that where the holder of a forged cheek presented it to the drawee, and received payment in less frequency, and are, perhaps, held Price P. N title, has certainly been very to a higher degree of diligence in that much limited by more modern decftft- regard. The principles applicable to sinus. The difficulty doea not lie ia checks and to bills are regarded as the general rule itself, for it U un- sufficiently analogous to make a decis- doubtcdly supported by reason and ion rendered upon one instrument a the weight of authority, but in its ap- precedent for a case arising on the plication to particular ease* only." other. Hence, we find the case of ' First National Bank of Quincy r. Price r. Neal, 8 Burr. 1354, is referred Kicker. (1874) 71 111. 489. It appeared to in nearly or quite all the decisions in this case that the holder of tbo on this question. That was an action forged check, which be had noalvad to recover back money paid on two and paid for without knowing that it forged bills. It was declared the plain- was a forger)', afu-r acquiring know! tiff could not recover for the reason edge of facts calculated to arouse su- the defendant had received the money picion tliat it was a forgery, presented on the bills indorsed to him for a it at the bank on which it was drawn valuable consideration without any and demanded |uiymrnl. without dU suspicion of forgery, and that it was closing the facts which aroused hfe incumbent on the plaintiff to be satis- suspicion; be was told by the teller of fled the bill drawn on him was in the the bank that ho did nol certainly drawer's hand before he accepted or know the signature to the rbeck. and paid it, but it was not incumbent on would only pay it on condition thai tli. defendant to inquire into it. The the holder would indorse it; thereupon doctrine of this case, so far as it holds the holder did indorse it and received the drawee is bound to know the the money on It. and tbe bank, within handwriting of his correspondent, a few hours, diicovered the forgwy when applied to the case of a bill ac- and then ordered that the money be cepted or paid by him, where the refunded. drawer's name lias been forged, has drawee couki recover the mooey paid seldom, if ever, been debited from, tinder this state of facU. It is said to have its foundation in a First National Hank of Quincy f sound public policy, and considerations Ricker. (1874) VI III. of convenience in commercial transac- also said: " It to contended there h no 670 DEPOSITS AND CHECKS. [ 3L' a savings bank pay out money on a forged order, without requir- ing a compliance with the by-laws printed in a depositor's pass book, the payment would be in its own wrong, though the pass book may have been produced at the time. 1 If, however, it duty resting on the innocent holder of a check, on presenting it for payment, to communicate to the bank suspicions he may have as to its spurious char- acter, if at the time he took it he had no reason to suspect it was a forgery. The cases of The Bank of St. Albans v. The Farmers' Bank, 10 Vt. 141, and Ward v. Allen, 2 Met. (Mass.) 53, are cited in support of this proposition. We have looked into these cases, but we do not think they sustain the doc- trine to the extent asserted. While we have the highest respect for the courts that rendered those decisions, we must be permitted to express our dissent from the principle insisted upon, as being unsound in law and in good con- duct. No warrant can be found for its introduction in the exigencies of bank- ing or commercial transactions. Such a doctrine, in our opinion, would tend rather to debase than maintain com- mercial integrity. Where exceptional circumstances and excusing facts are made clearly to appear, courts have permitted a recovery, and in some in- stances very slight palliating circum- stances have been declared sufficient. The case of Wilkinson v. Johnson, 3 B. & C. 428, is a well-reasoned case on this point. The case of Goddard v. Bank, 4 Comst. (N. Y.) 147, is a still stronger case illustrative of the excep- tions to the general rule. In that case the plaintiffs were informed a draft had been drawn by their correspond- ent, a bank in Uhio, on the American Exchange Bank at New York, which had been protested, and was then in the hands of the notary. The plain- tiff called to see the notary about taking up the draft, but, owing to his absence, did not see the draft. On this information the plaintiffs acted, and supposing his correspondent (the Canal Bank) had, by mistake, drawn on the Exchange Bank with which it had just before kept an account, in- stead of drawing on the plaintiffs, and wishing to protect the credit of the drawer, he left a check with a party in the office, to be delivered to the notary, to take up the draft, and gave directions to have it sent to his office .that day. The notary took the check and paid the money to the defendants, but failed to send the draft as requested. When the plaintiff called the next day on the notary for the draft, on its production he immedi- ately pronounced it a forgery, and thereupon went to the defendant bank and demanded the money back. On this state ,of facts the plaintiffs were permitted to recover on the ground they were guilty of no negli- gence, as the notary, when he received the check, and handed it over to the defendant, both he and they honestly affirmed the draft was genuine. In McKleroy v. Southern Bank of Ken- tucky, 14 La. Ann. 458, while admit- ting the full force of the general rule, it was, nevertheless, ruled, where a party becomes the holder of a forged draft before it had been accepted, and the loss had already attached before payment by the acceptors, who im- mediately, on ascertaining the spurious character of the . paper, gave notice to the holder, such a case was an excep- tion to the general rule, and the ac- ceptors were not estopped from prov- ing the forgery and recovering the money back. The principle upon which the case is decided is, the holder had suffered no loss, it having already occurred, and he ought not to be per- mitted to profit by the mere accident of payment." 15 Bank v. Cupps, 91 Pa. St. 815. I" I .-hould make :i payment mi Mid. an .,nl.-r in met accordance with .-ueh by-law, the depositor would be bound bv it. 1 ;< 330. Payment of forged checks or payment of checks on forged indorsements. In view of tin- relation U-twwu the hanks and their depositors and of their rights and obligation*, the principle is universally maintained that hank* and banker* art* bound to know the signatures of their own customer*, and that they p:iy ehenks purporting to be drawn by them at their jn-ril. 1 Where a bank, holding deposits, subject to checks, pays a forged check, it will IMS liable for the amount, witli legal interest from judicial demand. 8 If, when the bank Ijook of a depositor u bal- anced and returned to him together with the canceled chock* or vouchers, he has knowledge of facts from which ho could, by the exercise of reasonable care and inquiry, have discovered forgeries, and if, owing to his failure to make the discovery and communi cate it, the bank suffers loss or is placed in a worse position than it would otherwise have occupied, the dc|>ositor would IMO hi* right to recover money paid by the bank on forged indorsement* of his checks. 4 Such loss or disadvantage to the hank would not be presumed ; it would be required to prove it. t'nless it be affirmatively shown, the depositor would not be estopj>ed to recover the amount of such payments. 5 A Iwnk having paid a check drawn upon it cannot recover the money from the person 1 Burrill r. Bunk, 92 Pa. St. 134. pnyev. presume-! to be flcUtiou*. Ttx> As to the effect of payment of a check names of the drawer nd acceptor upon a forged indorsement, see Dodge were forged. In payment, the broker r. National Exchange Bank, (1870) 20 gave upon n hank, of which be had Ohio St. 286. for many yearn IM-CII n cuKtomcr. a 'Commercial & Farmers' Nat. Bank c luck to the order of the accrpton. v. First National Bank, HO Md. 11. The names of the acccptont were again * Laborde r. Consolidated Associa- and very badly forged on the check. tiou, 4 Hob (La.) 190; Rtting r. Com- and the check wan prorated to the mertial Bank, 7 Hob. (La.) 459. bank and paid. The broker bad fft> 4 Wind r. Fifth National Bank, erally drawn hiKrlxt-kft to the order of (1889) 39 Mo. App. 72. thotw for whom he di* ..uni<. Merchants' National Bank of New to charge the broker's check to his York, (1883) 91 N. Y. 106, affirming debit in account. The court was di- 48 N. Y. Super. Ct. 1. See, also, vided, and the justices each discussed Thomson, v. Bank of British North, the questions involved very fully and America, 82 N. Y. 1. That a bank interestingly in their several opinions, paying a certificate of deposit upon a 1 National Bank of the Common- forged indorsement of the payee may wealths. Grocers' National Bank, (1867) recover the amount from the bank 2 Daly, 289; s. c., 35 How. Pr. 412. through which it had passed for col- * Leavitt v. Stanton, Hill & D. lection, see Merchants' Bank v. Marine Supp. 413. Bank, 3 Gill (Md.), 96. That a bank 3 Johnson v. First National Bank of is not bound by the admission of its Hoboken, (1875) 6 Hun, 124. As to cashier that a forged bill is genuine, payment of forged checks, see Stuy- see Merchants' Bank v. Marine Bank, 3 vesant Bank v. National Mechanics' Gill (Md.), 96. Banking Association, (1872) 7 Lans. Hardy & Bros. v. Chesapeake 197; Allen v. Fourth National Bank Bank, (1879) 51 Md. 562, 586- of New York, (1874) 37 N. Y. Super. Ct. 137; affirmed in 59 N. Y. 12. 330] DEPOSITS AND CHECKS. 01 refrain from doing any act that would reasonably have the effect of mislead ing the hank to its hurt ..r injury, and not fail t any act that positive duty requires him to do for the protection of the bank. Should a bank account l)e balanced on the deposit- or's bank book, and the book and canceled checks returned to the depositor, after the lapse of a reasonable time, within whieh the checks and account might be compared, without ol.j.-.-tinn being made, a presumption will arise that the account a* balanced and the checks charged in the account are correct. ThU presump- tion proceeds upon the ground simply of an implied admiaakra, and is only prima facie in its effect. 1 It arises from the natural and usual habits of careful business men to examine and scru- tinize such accounts when rendered ; but it is liable to be repelled by showing that the error or fraud complained of was not discov- erable by the exercise of reasonable care and diligence, or that there was no such appearance of things as to excite the suspicion of a reasonable man, or that, for any reason, the dej>ocitor had not had an opportunity to examine the accounts. 1 If a depositor who is in the habit of drawing checks upon his deposit account, should, by word or acts, cause the hank, the latter acting upon such reasonable grounds as prudent business men generally act, to make payment on a forged check, the depositor would not be allowed, as against the bank, to set up the forgery that he, br his conduct, had induced the bank to act on as a genuine check. 1 Where on a forged indorsement a bank has jwiid a cheek, the bank is not responsible to the drawer where the jxirson who com- mitted the forgery is identified to the bank by one who Mievea him to be the payee, and is in fact the person to whom the drawer had delivered the check, and whom he U'lieves to bo the payee. And should the drawer of such a cheek, for more than ft month after discovering that it had been jwiid upon * forged indorsement, neglect to notify the bank that he will hold it respon- sible therefor, the bank will be released from liability even though it had notice of the forgery as soon as the drawer had.' In a depositor's suit against a bank in Maryland, aomo of the checks paid by the bank were forged by a confidential clerk intrtwted by 1 Wiggins t. Burkham, 10 Wall. 120. United SUU r. National Es Weisser v. Dcnison, 10 N. Y. 08, change Bank. (1891) 44 Fed. Hep. 188 76; National Bank r. Whitman, 94 U. A ustaining the flnt point. M 8. ::i::. 346. Gloucester Bank t. Salem Bank, 8 Hardy & Bros. r. Chesapeake Mas*. 88; Bank of U. a r. Bank Bank. (1879) 51 Md. 089, 088. Georgia, 10 Wheat 888; PrU t. Neal. 85 674 DEPOSITS AND CHECKS. [ 330 them to make the entry of all checks in their bank book. In making the fraudulent entry of these forged checks in the depos- itor's bank book the Court of Appeals held that he was not the agent of his employers for any such purpose ; also, that the clerk's fraudulent knowledge in regard to acts and transactions outside of and beyond his employment could not be imputed to his principal. The court also held that in this case the jury should have been required to find either that the depositors had knowledge in fact that the forgeries had been committed, or that, from carelessness and indifference to the rights of others, they failed to inform themselves from sources of information readily accessible to them, and which, by the exercise of ordinary dili- gence of business men, would have disclosed to them the fact that the forgeries had been committed. If such facts were found to exist, then it must be also found, in order to work an estoppel upon the depositor to claim that the checks paid were forged, that the bank acted in honoring and paying forged checks presented after other forged checks had been returned with the balanced bank books to the depositors, in reference to the conduct of the latter in failing to make known an objection to the account, as stated and balanced in the bank book so returned, and that such omission and neglect of the depositors did in fact mislead the bank into the error of paying the forged checks presented after the other forged checks had been returned with the bsilanced bank book to the bank. The court distinguished De Feriet v. Bank of America, 23 La. Ann. 310, in these words : " There, when the first check was forged by the plaintiff's confidential clerk, and paid by the bank, the plaintiff was notified of the draft upon his account and went at once to the bank, and upon being shown the 3 Burr. 1355. As sustaining the sec- tained out of money due the collecting ond point, see Redington v. Woods, bank from the United States the 45 Cal. 406; Cooke . United States, amount of the check. In this action 91 U. S. 396; United States v. Bank, 6 by the collecting bank against the Fed. Rep. 134. It appeared in the United States for the money retained case of Wells, Fargo & Co. v. United by the assistant treasurer, it was held States, (1891) 45 Fed. Rep. 337, that a that the money collected by the col- pension check, drawn by mistake for lecting bank upon the pension check $1,280.20 instead of 18, was indorsed which it had paid over to its principal, by the payee to a bank, and by that the forwarding bank, could not be re- bank indorsed for collection to another covered from the collecting bank, and which indorsed it to the assistant the Intter, therefore, could recover the treasurer of the United States, who money due it which had been retained paid it. The assistant treasurer re- from the United States. 331] DEPOSITS AJJD CBKCKB. 675 check, while he stated that hi- had not signed the check himself, lie refused to denounce it as a forgery. After seeing the clerk, the plaintiff reported Lack to the Unk that tlio check WM ail right. The clerk made deposit.-, to i,, a k.- tin- <-hcrk good, and the plaintiff himself drew upon the deposit.-, thu- made, ] ued the forger in his employ; and, subaequriitly, the saint forged another eheck which the bank paid ; and, upon discovery of the second forgery, the plaintiff denounced it. But it wat held that, by his conduct in ratifying the act of the clerk in drawing the first forged check, the plaintiff was precluded from holding the bank liable for the payment of the second ; that the bank was misled by the approval and ratification of the first forgery, and that it was, therefore, excusable for paying the second forged check drawn in all respects similar to the first. In that cast' was no question as to the want of knowledge on the part of the plaintiff of the first forgery committed by the clerk, and hu full ratification and adoption of the act, nor was there any in regard to the fact that the bank had been misled." 331. Payment of raised checks. The United State* Supreme Court reversed the judgment of the Circuit Court in favor of a depositor against a bank, holding that a debitor in a bank, who sends his pass book to be written up and receive* it back with entries of credits and debits and his paid check* M vouchers for the latter, is bound personally or by an authorized agent, and with due diligence, to examine the pa** book and vouchers, and to report to the bank, without unreasonable delay, any errors which may be discovered in them ; and if he fails to do so, and if the bank is thereby misled to its prejudice, he can- not afterwards dispute the correctness of the balance shown bj the pass book. Further, it held that if a dejiositor in a hank delegates to a clerk the examination of his written-up paw book and paid checks returned therewith as vouchers, without proper supervision of the clerk's conduct in the examination, he doe not BO discharge his duty to the bank as to protect himself from loss, if it turns out that without his knowledge the clerk com- mitted forgery in raising the amounts of some of those check*, and thereby misled the bank to its prejudice, in spite of doe care on the part of its officers. 1 1 Leather Manufacturers' Bank r. well and fully considered opinion. Morgan, (1886) 117 U. 8. 96. In a HARLAX, J., for the court iylewn nary cases, it must apply with greater the doctrine, it is said: "Upon this strength to cases where the forgery doctrine substantially rests the decis- has not been detected until after a coo- ion in Bank of United States t>. Bank of sideruble lapse of time. Even.' he Georgia, 10 Wheat. 333, 343, where the added, 'in relation to forged bilb of question was as to the right of the third persons received in payment of a Hank of Georgia to cancel a credit debt, there has been a qualification em- given to the Hank of the United States .unified on the general doctrine that in the general account the latter kept the notice and return must be within a with the former for the face value of reasonable time; and any neglect will certain kink notes, purporting to be absolve the payor from responsibility.' genuine notes of the Hank of Georgia. It was, therefore, held that, as the and which came to the hands of the Hank of Georgia could by ordinary other batik in the regular course of circumspection have detected the business and for value. The notes fraud, it must account to iu depositor were received by the Hank of Georgia according to the entry made in ila as genuine, but being discovered nine- books at the time of receiving the teen days thereafter to be counterfeits, notes. Further on it was said: Thb they were tendered back to the Bank court, in the [cases Bank of United of the United States, which refused to States r. Bank of Georgia. 10 Wheat. receive them. The court held that the 883, and Cookc r. United State*. 91 U. loss must fall upon the Hank of Geor- 8. 889, recognizing the same principle) gia. Mr. Justice STORY, who deliv- refers, with approval, to Gkwrertrr ered the opinion of the court, after Bank r. Snlem Bank. 1? Mas*. 88. 43. observing that the notes were received In that case it appeared Uml the Salem and adopted by the Bank of Georgia as Bank exchanged with the Gloucester its genuine notes, and treated as cash. Bank, for value, certain bank notes and that the bank must be presumed which purjxuted to be, and which to use reasonable care, by private l>oth banks at the lime believed t marks and otherwise, to secure itself the genuine notra of the Gloui-eeter against forgeries and imjKwitions. said: Bank, and which the latU-r bank dW Under such circumstances, the re- not. until about flfty days aflrr tho ceipt by a bank of forged notes, pur- exchange, discover to be forgerba, porting to be its own, must be deemed The question was whether the Salem an adoption of them. It has the means Bank wa bound to account for tb* 678 DEPOSITS AND CHECKS. [331 value of the notes so ascertained to be counterfeit. Chief Justice PARKER, speaking for the whole court, observed that the parties being equally innocent and ignorant, the loss should remain where the chance of business had placed it, and that in all such cases the just and sound principle of decision was that if the loss can be traced to the fault or negligence of either party, it should be fixed upon him. He safd : 'And the true rule is that the party receiving such notes must examine them as soon as he has opportunity, and return them immediately. If he does not, he is negligent; and negli- gence will defeat his right of action. This principle will apply in all cases where forged notes have been re- ceived, but certainly with more strength where the party receiving them is the one purporting to be bound to pay. For he knows better than any other whether they are his notes or not, and if he pays them, or receives them in payment, and continues silent after he has had sufficient opportunity to examine them, he should be considered as having adopted them as his own.' These cases are referred to for the pur- pose of showing some of the circum- stances under which the courts, to promote the ends of justice, have sus- tained the general principle that where a duty is cast upon a person, by the usages of business or otherwise, to disclose the truth which he has the means, by ordinary diligence, of ascer- taining and he neglects or omits to discharge that duty, whereby another is misled in the very transaction to which the duty relates, he will not be permitted, to the injury of the one misled, to question the construction rationally placed by the latter upon his conduct." The court then applied the principle just referred to to the facts in this case, and said: " It seems to us that if the case had been submitted to the jury, and they had found such negligence upon the part of the de- positor as precluded him from disput- ing the correctness of the account ren- dered by the bank, the verdict could not have been set aside as wholly un- supported by the evidence. In their relations with depositors, banks are held, as they ought to be, to rigid re- sponsibility. But the principles gov- erning those relations ought not to be so extended as to invite or encourage such negligence by depositors in the examination of their bank accounts, as is inconsistent with the relations of the parties or with those established rules and usages sanctioned by busi- ness men of ordinary prudence and sagacity, which are or ought to be known to depositors. We must not be understood as holding that the ex- amination by a depositor of his account must be so close and thorough as to exclude the possibility of any error whatever being overlooked by him. Xor do we mean to hold that the de- positor is wanting in proper care when he imposes upon some competent per- son the duty of making that examina- tion and of giving timely notice to the bank of objections to the account. If the examination is made by such an agent or clerk in good faith and with ordinary diligence, and due notice given of any error in the account, the depositor discharges his duty to the bank. But when, as in this case, the agent commits the forgeries which, misled the bank and injured the de- positor, and, therefore, has an interest in concealing the facts, the principal occupies no better position than he would have done had no one been designated by him to make the re- quired examination, without, at least, showing that he exercised reasonable diligence in supervising the conduct of the agent while the latter was dis- charging the trust committed to him. In the absence of such supervision, the mere designation of an agent to 331] DEPOSITS AXD CHECKS. discharge a duty resting primarily upon the principal, cannot be deemed the equivalent of performance by the latter. While no rule can b laid down that will cover every transaction between a bank and its depositor, it in sufficient to say that the latter' s duty is discharged whm In exercises such dili gence as is required by the eireuin stances of the particular case, iii< hid ing the relations of the parties, and the established or known usages of banking business." The court, refer- ring to Weisser r. Denison, 10 N. Y. 68, 70; Welsh r. German-American Tiank. 78 N. Y. 434; Frank r. Chemical Bank, 84 N. Y. 209, 218. which showed a settled course of decision in the highest court of the state of New York sustaining the grounds UJKHI which the Circuit Court proceeded in giving its judgment, said : " Then- (ire, it must be conceded, some expressions in the first two cases which, at first glance, seem to justify the position of counsel. But it is to be observed, in reference to the case of Weisser v. Denison, that it is said in the opinion of the court that, as the bank had not taken any action, nor lost any rights, in consequence of the silence of the depositor, the only effect of such silence was to cast the burden upon him to show fraud, error or mis- take in the account rendered by the bank. From Welsh r. German- American Bank, it is clear that the comparison by the depositor of his check book with his pass book would not necessarily have disclosed the fraud of his check, for the check when paid by the bank was. in respect of date, amount, and name of payee, as the depositor intended it to !>-. and the fraud was in the subsequent forgery by the clerk of the payee's name. As the depositor was not pre- sumed to know, and as it did not ap- pear that he in fact knew, the signa- ture of the payee, it could not be said that be wa guilty of oegttgencr In not discovering, upon receiving his pus book, the fact thai ok derk. or some one else, had forged ibe payee's name In the indorsement. The latest expression of toe views of the Court of Appeals of \. * York is in Prank r. Chemical National Bank. From what U there wid it U evident thai that learned tribunal does not give lu sanction to tbe broad proposition that a depositor who obtains periodical state- ments of his account, with tbe vopchsra. is under no duty whatever to the 1 to examine them, and give within a reasonable time, of errors dis- covered therein. Tbe court in thai case, speaking by Judge Axourwa. who delivered the opinion In Welsh e. German- American Bank, refers to Weisser e. Denison. After obsrrving that it was unnecessary to restate the ground of that decision, and ad verting to the argument that where a pass book was kept, which was balanced from time to time and returned to tbe depositor, with the Touchers for tbe charges made by the bnnk. Including forged checks, the latter U under a duty to the bunk to ^f"**"* the ac- count and vouchers, with a view to as- certain whether the account U correct. he proceeds: ' It does not serm to be un- reasonable, in view of tin* mur business and the custom of banks to surrender their vouchers OB Ibe peri- odical writing up of tbe accounts of depositors, to rxact from the some attention to the account when it is made up. or to bold that the neftt- gent omission of all examination may. when injury has resulted to the bank. which it would not bate suffered if such examination had been made and the bank bad received timely nolle* of the objections, pm-lude the depositor from afterwards queiuioning Ha cor rectnesa. But where bogus check* have been paid and charged In the ar count and returned to the depositor. 680 DEPOSITS AND CHECKS. [ 331 he is under no duty to the bank to so exercising due diligence to give it in- conduct the examination that it will formation that the payment was un- necessarily lead to the discovery of the authorized; and this included not only fraud. If he examines the vouchers due diligence in giving notice after personally, and is himself deceived by the forgery, but also due diligence in the skillful character of the forgery, discovering it.' If the plaintiffs knew his omission to discover it will not shift of the mistake, or if they had that no- upon him the loss which, in the first tice of it which consists in the knowl- instance, is the loss of the bank. Banks edge of facts which, by the exercise of are bound to know the signatures of due care and diligence, will disclose their customers, and they pay checks it, they failed in their duty; and adop- purporting to be drawn by them at tion of the check and ratification of the their peril. If the bank pays forged payment will be implied. They can- checks it commits the first offense. It not now require the defendant to cor- cannot visit the consequences upon the rect a mistake to its injury from which innocent depositor, who, after the fact, it might have protected itself but for is also deceived by the simulated paper, the negligence of the plaintiffs. So, if the depositor, in the ordinary Whether the plaintiffs were required, course of business, commits the ex- in the exercise of due diligence, to read amination of the bank account and the monthly statements or to examine vouchers to clerks or agents, and they the checks, and how careful an ex- fail to discover checks which are amination they were bound to make, forged, the duty of the depositor to the and what inferences are to be drawn, bank is discharged, although the prin- depend upon the nature and course of cipal, if he had made the examination dealing between the parties, and the personally, would have detected them, particular circumstances under which The alleged duty, at most, only re- the statements and checks were de- quires the depositor to use ordinary delivered to them.' So in Hardy v. care; and if this is exercised, whether Chesapeake Bank, 51 Md. 562, 591, by himself or his agents, the bank can- which was also a case where checks not justly complain, although the for- forged by the confidential clerk of the geries are not discovered until it is too depositor had been paid by the bank, late to retrieve its position or make and, as shown by the pass book, reclamation from the forger.' The were charged to his account, the court distinguished Manufacturers' court, upon an elaborate review of the National Bank v. Barnes, 65 111. 69, to authorities, said, upon the general which they were referred in behalf of question, that ' there is a duty owing the depositor. Afterwards, there was from the customer to the bank to act a reference to other cases, as follows: with that ordinary diligence and care ' An instructive case is that of Dana r. that prudent business men generally Bank of the Republic, 132 Mass. 156, bestow on such cases, in the examina- 158, where the issrfe was between a tion and comparison of the debits and bank and its depositor in reference to credits contained in his bank or pass a check which the latter's clerk altered book, in order to detect any errors or after it had been signed, and before it mistakes therein. More than this, un- was paid by the bank. The court said der ordinary circumstances, could not that the plaintiffs, who were the de- be required.' " positors, owed to the bank ' the duty of rilAI'TKIi XII. COLLECTION- 882. General rules. 333. Duty of bank. 884. Rules as to notes payable at bank. 335. When a bank is liable for failure to collect notes. 336. What action on its part will re- lieve a collecting bank from liability. 887. Rolea M to draft*. Ml Negligence of a bank M to check held for collection. 889. When a bank collecting draft U liable to the owner. 340. When tndoner of check licved from liability. 332. General rules. An indorsement of a promwory note " for collection '' makes the indorsee an agent for the collection of the note. 1 Such an indorsement is restrictive and cannot be shown, by parol, to be absolute. 1 A bank, though it may have no interest in it, for certain purposes must be considered the holder of a note left with it for collection. 8 A bank has authority onlv * * to receive payment of a note placed with it for collection ; it can- not sell or transfer it. 4 A bank receiving notes for collection from its regular correspondent, cannot apply them to balancing the account between them where it knows the notes were cnl for 1 Rock County National Bank r. upon Bank of Washington r. Triplet! Hollister, 21 Minn. 385. & Neale, 1 Pet. 20. and Van Waft r. Third National Bank r. Clark, 23 Woolley. 8 B. A C. 489; Hamilton *. Minn. 263. As to kind of agency Cunningham. 2 Brock. 850; Stowe a bank has when a note or bill is placed Bank of Cape Fear. S Der. 408; Brat* h with it for collection, its duty and it. Bank at Montgomery r Knox. 1 Ala liability for negligence in the ii- 148 They differ with the LooMMft charge of that duty, sre Bank of Mo- Supreme Court in Durnford r. Pair bile t. Huggins, (1841) 8 Ala. 206. In tenon. 7 Mart. 460; Crawford e. this case the Alabama Supreme Court luixiana Slate Bank, 1 Mart. (X. t differs as to the duty to cause the 214; Montillet r. Bank of the I note to be protested with the New Stale*). 1 Mart. (N. 8.) 865; Pritchanl York courts in Smedcs r. Him Bank. r. IxMiiaUna State Bank. 2 I* 41V 20 Johns. 872: s. r., on error. JJCowen. Miranda r. City Bank. 6 La. 741. They 668; McKtnater r. Bank of Utica. 9 comment on Allen r. Suvdam. 17 Wend. 46; B. c., on error. 11 Wend. Wend. 868; 8t. John r. O'Ooael. 1 478. They refer to Colt r. Noble, 5 Port, (Ala.) 464. Masa 187; Tunno v. Lague, 2 John*. Burnham r. W t Cas. 1. The question of damapea In 4 Wolff r. Walter. such cases is fully discuaaed by the 8W; Fuller r Bennett. M Mkk Vtt. Alabama courts, and they comment 86 682 COLLECTIONS. [ collection and that they belonged to a third person. 1 Paper coming from one bank to another indorsed, and with directions to collect it, and there being nothing to indicate jthat the paper does not belong to the bank remitting it, may be regarded the paper of the latter, although it may have been deposited by the indorser in the remitting bank for collection. 2 One depositing with a bank for collection negotiable paper payable at a distant point, is charge- able with knowledge of the custom of banks to intrust the paper to other banks for collection at the place where payment is to be made. The bank receiving such paper becomes responsible to the depositor as agent, with authority to employ another bank to collect it, and will not be liable for the negligence of its corre- spondent in making the collection, if it has used reasonable care in the selection of its correspondent. 3 A bill of exchange or note received by a bank for collection which is payable at a distant place, must be seasonably transmitted by the receiving bank to a suitable bank or other agent at the place of payment. 4 A bank should neither send a check received by it for collection directly to the bank on which it is drawn, nor accept in payment a draft of the latter on another bank. But the collecting bank's negli- gence would be condoned by an order from the depositor to hold such a draft for a few days. 5 A suitable agent must be some other than the one who is to make the payment. 6 In receiving a note for collection a bank assumes the duty of taking the proper steps to fix the liability of the indorser, and for a neglect of that duty is responsible to the extent of the damages suffered thereby. 7 Commercial paper having been received by a bank for collection, there is an implied undertaking on its part that in case of its dis- honor, the bank will take all steps necessary to protect the hold- ers' rights against all previous parties to the paper. 8 A bank 1 Sweeny v. Easter, 1 Wall. 166. 5 Hazlett t>. Bank, 132 Pa. St. 118; 'Cody . City National Bank, 55 s. c., 25 AY. N. C. 282. Mich. 379. 6 Ibid. Bank v. Goodman, 109 Pa. 3 Guelich v. National State Bank, 56 St. 422. Iowa. 434. As to the duty of a bank 7 West v. St. Paul National Bank, when a note is placed with it for col- (1893) 54 Minn. 466; s. c., 56 N. W. lection, see Fabens v. Mercantile Bank, Rep. 54; Borup c. Niniuger, 5 Minn. (1839) 23 Pick. (Mass.) 330; Phipps v. 523; Jagger v. National German- Millbury Bank, (1844) 8 Met. (Mass.) American Bank, 53 Minn. 386; s. c., 79; Steele v. Russell, 5 Neb. 214. 55 N. W. Rep. 545. 4 Drovers' National Bank v. Anglo- 8 Jagger r. National German- Ameri- American P. & P. Co., 18 Bradw. (111.) can Bank of St. Paul, (1893) 53 Minn, 191. 386; s. c., 55 N. W. Rep. 545. COLLECTIONS. , . ; reasonable care and hkill in Delecting an agent to pits sent paper ivc<-ivrl its seasonably transmitting it to that they tbert-hy fully diaclttrgv tbrir a suitable bank in that place for col- duty and incur no further liability, lection, and the transmitter not bring In nup|>ort of the rule the court rrfer* li.-il'lc for any negligence of the latter, to the cafiea of EMt-Iladdam Hank r. ihnis ' . Mercantile Bank, (1889) Scovil. 12 Conn. 808, and FabetM . 2.; I'i.-k. 330; Dorchester & Milton The Mercantile Hank. 83 Pick. 90. Hank r. New England Bank, (1848) The court also refer to and approve 1 Cush. (Mass.) 177. of the ca*e of Allen r. Mm-haoU" 1 JEtna. Insurance Co. r. Alton City Bank of X. Y., 15 Wrod. 482. when Bank, (1861) 25 111. 243. As to the the saint- doctrine U announced iotbcM question of liability of a bank, occur- words: ' And we find, on an examina- ring from the acts of its correspond- lion of these caae*. they fully sustain tho ent.s, the Illinois court said: "Upon rule announced in thi* cue.' Hi* true examination of the adjudged cases it that the caae of Allen r. UM Her- will be found tlmt entire harmony upon clmnt.V Bank, 22 Wend. '.M.V decided this question does not prevail. In the by the Court of Krror*. announce* case of The Mechanics' Bank r. Earp, different rule and reverae* thcdecMoa 4 Kuwle, 384, it was held that a bank of the Supreme Court. In that COM in which bills had been deposited, the decision wan by a divided court, having only received them for trans- the chancellor delivering a di**enlinff mission to their agents for collection, opinion. The Ia*t caae extrnd* UM at the place of the residence of the rule, ao that a bank receiving con drawees, with the instructions of the mercial p|>er for collection i liable depositors, was not liable for the fail- for losa mulling from atffect, to uro of the bank to whom the bills were banks receiving *uch paper for Iran*- tninsniittccl to collect the money. In nibwion. where IOM occur* by ocgUxt that case the court refers to the oaaea of the agent Ui whom ft to Umnati. of Lawrence t. Stonington Bank, and make* no distinction in UM iwo Conn. 528, and The Bank of Wash- claam of ca. Wbcrr a bonk w- ington t>. Triplett & Neale, 1 Pet. ccivca a bill or noCr for collcctioa 25, and Jackson . Union Bauk, 6 again* a drawer or maker, raddcal at Harr. & J. (Md.) 148, as sustaining the place of the bank, or worn- the the rule announced. Again, in the bink undertake* for (to roUrrUoa by case of The Bank of New Orlcana r. their own officer*, lucre out or no Smith, 8 Hill (N. Y.). 560. the court douU thai It would be Habfe for any held that when a bill is left with a low that might reul! from 684 COLLECTIONS. [ 332 failure of its correspondent, the transmitting bank, credit the proceeds of a draft or note, sent to it for collection, to its own account. It is liable to the owner. 1 A bank will not be ren- dered liable for its omission to have a negotiable note, deposited with it for collection, protested, where a by-law of the bank required the costs of protesting to be deposited with it, which had not been done. 2 If bankers undertaking to collect bills, checks or notes for others neglect to give notice of the default of the makers, where it is the usage of banks to give such notice, they will be liable to the holders in damages. 3 A banker cannot hold the proceeds of a note, sent to him for collection and credit by a correspondent, against the real owner of the note to apply on the credit of collections sent him by this correspondent, because he may keep an account with that correspondent for his convenience, made up of money put there by him to draw exchange against it. 4 Where banks had kept account current with each other for years, crediting the one the other with paper received, etc., and the paper appeared to be the property of the bank remitting it, it has been held that there was a lien for general balance on the paper so transmitted, no matter who was the owner. 5 The bank, to which was originally transmitted, for collection, drafts drawn on a corporation, sending them to a third bank for collection, and the latter taking acceptances from the officer on whom they were drawn, instead of the corporation itself, has been held liable to the bank originally transmitting the drafts for the damage ensu- ing from the act of the third bank. 6 The accidental loss or dis- appearance in a bank of a bill sent to it for collection would be presumptive proof of negligence. 7 Where one places in a bank, for collection, notes and drafts on third persons, giving no instruc- tions as to the kind of funds in which it may collect them, should As to a bank being relieved of re- Johns. 372; Bank of Utica v. McKin- sponsibility by using due diligence in ster, (1833) 11 Wend. 473; Curtis v. the selection of the correspondent to Leavitt, 15 N. Y. 9, 167. which it transmits for collection a bill 4 Bury T. Woods, (1885)17 Mo. App. or note left with it for collection, see 345. . Daly v. Butchers & Drovers' Bank, 6 Bank of Metropolis v. New Eng- (1874) 56 Mo. 94. land Bank, 1 How. 234. "Hackett v. Reynolds, 114 Pa. St. Exchange National Bank*. Third 328. National Bank, 112 U. 8. 276. 1 Pendleton v. Bank of Kentucky, 7 Chicopee Bank v. Philadelphia (1824) 1 Mon. (Ky.) 171. Bank, 8 Wall. 641. "Smedes v. Utica Bank, (1823) 20 333] OOLLBCnoXa. the bank m-civr piivim.-nt in a rum-nrv thru in general u a depreciated character as compared with g>ld, the bank wil held liable only for the real value of Mich depreciated currency. 1 A bank receiving a elu-ck in ja\iiu-nt nf a n..t- hi-ld lv it again*! the drawer, after the check has been paid, <-uniiot refute to deliver up the note for cancellation on tin- ground tlmt it had n->i matured. 3 A collection made by a hank after it hac appended, must be held by it as agent in trust for the owner.' The negli- gence of a collecting bank in not presenting a draft fur payment, is the negligence of the holder. 4 A bank's duty, where a note is left with it for protest, is to exercise ordinary and reasonable diligence in giving notice. 5 A known custom to demand |>ay- ment of a note, left with a bank for collection, without actually presenting the note to the maker in person, would be binding upon indorsers. 6 A known custom of a bank to demand pay- ment on the day before, or the day after, a note falls due, would be binding on an indorser. 7 333- Duty of bank. When a bill or note is received by a bank for collection in the ordinary course of business, without any special agreement on the subject, and the bank in duo time 1 Henry r. North. Bank of Ala., 63 in the matter of demand and prot*t,M Ala. 527, in which the collections were Warren Bank r. Suffolk Bank, (1691) made in confederate money. 10 Cuu. (Mam.) 582. * Union Savings Association e. Jones r. Fale-a. (1808) 4 MMK. W5; Clayton, (1878) 6 Mo. App. 587. Whitwell r. Johnson, (1821) 17 MM*. Jockusch v. Towscy, 51 Tex. 129. 452, City Bank r. Culler. (18M) 4 Harvey t>. Bank, 119 Pa. St. 212. Pick. (Mass.) 414. Mount r. First National Bank, 87 'Jonea r. Falo. (1H08) 4 Matt, t Iowa, l"7. As to liability of a bank, City Bnnk r. Cutter, i receiving note for collection and fail- (Maw.) 414. What I* a *ulBHmt de- ing to notify indorsers of its protest, mand for |yracnt of a mile left and thereby discharging them, for the a bank for ailleciion. re Trwll holder's loss, see Bunk of Washington r. Wendell, 1 N. II. I Triplett, 1 Pet. 25; Bird t. Louisiana usage on the pnrt of bank State Bank, 93 U. S. 96. As to the ,1 mandn on maker* of iM*e. and duty of bankers in such cases, see Brit- Ucen to lodonrra. nee Uoroln A Keni ton r. Niccolls, 104 U. S. 757. A to beck Bank r. Page, (1H liability for neglect on the part of a Smith r Whitin*. bank receiving a note for collection, BOO Blanchanl r. llilUanl. i Thompson r. Bank, 3 Hill (S. C.). 77. 85; Central Iknk r. Ifcrta, As to a bank's being protected from Pick. (MM.) f Kability by its iwagc. and not bdng E*ger, (1M6) 9 Mat. (MM* liable for the negligence of a notary COLLECTIONS. [333 delivers it to the notary usually employed by it in such matters so that the necessary demand, protest and notice may be made and given, the bank will not be answerable for loss resulting from the failure of the notary to perform his duty. 1 Personal notice to the indorser may be dispensed with, and he will be charged by the bare deposit of notice in the post office, even if it never comes to hand. 2 In case a note payable on demand, at a particu- lar place, be lost, a court of equity affords no remedy to the owner before a demand for payment has been made at the place designated. 8 A notice to a distant indorser of the protest, etc., of a note payable at bank must ordinarily be sent to his nearest post office, but this rule may be dispensed with if shown that the notice was sent to the place where the indorser would get the earliest intelligence. 4 In case the holder of a note delivers it to a bank with the understanding that this bank shall forward the note to another bank for collection, and it is so forwarded and received, the latter bank will be responsible to the owner of the note for any negligence in its collection whereof the owner of the note may suffer loss. 5 So where the latter bank delivers such note to the notary public for demand, protest and notice, such notary was the attorney of the bank and was incompetent for the purpose of making such demand and serving such notice, and the demand was not properly made and notice was not properly served, so that the inclorsers of the note were entirely discharged, the bank was held responsible to the owner of the note. 6 A bank having received a note for collection with direction that it should receive payment of the note in New York exchange, it being a bank of exchange as well as of deposit, the Iowa Supreme Court held the acceptance in payment by the bank of its own certificate 1 Citizens' Bank of Baltimore v. for neglect in protesting, etc., notes Howell, 8 Md. 530. deposited with them for collection, 1 Bell v. Hagerstown Bank, 7 Gill see Chapman v. McCrea, (1878) 63 Ind. (Md.), 223. 360. As to available defense of bank 3 Streater V. Bank of Cape Fear, 2 when charged with such neglect, see Jones Eq. (N. C.) 31. Locke v. 'Merchants, National Bank, 4 Bank of the United States v. Lane, (1879) 66 Ind. 353. Liability of bank 8 Hawks (N. C.), 453. An illustration for failure to present a bill to the of a lack of diligence on the part of a drawee, see Tyson v. State Bank, (1842) bank in sending notice of dishonor of 6 Blackf. (Ind.) 225. a protested bill of exchange to the 5 Bank of Lindsborg v. Ober, (1884) indorser. Runyon v. Montfort, Busb. 31 Kans. 599. (N. C.) 371. As to liability of banks Ibid. OOLLJSCTIOKS. ' - 7 <>f deposit payable on demand wait a discharge of the . notwithstanding it> 1'nilun- i.. n-mit the amount to the cred- itor and afterward* becoming iiiHilvi-nt, it appearing tliat on the lav it ivcciv.-d tlii- payment the Kank wa paying it* obligation* ami had in. .in v on hand with which tin- certificate could have IH-.-II paid in cash if demanded, although it wa actually insolvent, that tact in )t being known to the holder of the certificate. 1 Tlie measure of damages in an action against a hank with which a bill has been deposited for collection, and it ha* failed to take j roper steps to charge the drawer or indorsee, whereby the holder of the bill was unable to collect it, is the fare of the bill, with interest. 2 By delivering a bill held, by it for collection to a notary with instructions to protest on the wrong day. a liank would ren- der itself liable to the owner of the bill. 1 It seem* though thai where negotiable pa{>er is delivered to a hank for collection merely, the bank's duty will be discharged by a proper demand of payment, and by giving notice of its non-|>ayinent to the bank's principal only, without giving the projier notice al*o to otlu-r indorsers, unless sonic contract or commercial linage bo shown to raise a more extended obligation. 4 In a Ma**achuMtt* case it appeared that a bank, holding a note for collection, received the amount from an agent of the maker, ami by mwtake gave up to him a similar note of another person and returned the first note to its owner, to whom the maker jrnid it on demand, and immediately, though four days after the jwyment to the bank, examined the note in his agent's hands, and, discovering th* mistake, returned it to the bank and demanded Iwck hi* money. The Supreme Court of Judicature held that he was entitled to recover it back, with interest from the time of the demand. although the bank had meanwhile juiid the amount to the owner of the other note, the maker of which was insolvent and the 1 British & American Mortgage Co. * Commercial Bank of Kroiu- . v. Tibballs. 68 Iowa, 46H. Varnum. (1M73) 4l N Y. M* As to * American Ex pram Co. r. Haire. the liability of colkrUof bank tak (1868) 21 Ind. 4. For an illustration ing a draft which may be dbhoaond. of the owner of n promissory note Flrrt National Rank of MradrilW placed for collection through a bank r. Fourth National Iknk. and it correspondent not sustaining 890; a. c.. W Am Itrp 61* damage, see Indig r. National City State Bank of Tmy r Bank of Bank of Brooklyn, (1880) 80 N. Y. the Capitol. (IH68) I? Abb. Pr *4. a 100 c.. 41 Barb. 849: S7 ilow IT. W. 688 COLLECTIONS. [ 333 indorsers discharged for want of demand. 1 A contract to be so responsible, expressly proven or inferable from an unequivocal course of dealing, is necessary to hold a banker receiving paper for collection absolutely responsible for the amount previous to collection. 2 A bank will not be discharged from its obligations to procure a proper presentment and notice in case of non-pay- ment of a note deposited with it by one of its customers for col- lection with a request to have it protested if not paid, by merely employing a notary for the purpose of making a demand. 8 Where presentment is not necessary to charge the parties, and would be useless if made, a bank with which a draft is placed for collection would not be liable for neglect to present it. 4 A maker of a note paying it to the bank holding it for collection cannot recover the payment from the bank on the ground that the bank has failed to remit to the owner. 5 A bank will not be held liable for an omission to protest notes deposited with it for safe-keeping and not for collection. 6 The plaintiff bank in a Connecticut case brought its action to recover of a national bank in the hands of a receiver the amount of notes or bills sent by it for collection to this bank. The circumstances were these : Its cashier had given notice to the cashier of the defendant bank to protest and return all paper not paid. The notes, drafts and checks of one of the makers which had been sent by the plaintiff bank to the cashier of defendant bank for collection and charged 1 Andrews v. Suffolk Bank, (1859) quired of a bank receiving a note or 12 Gray (Mass.), 461. bill for collection, and its liability in 1 Scott v. Ocean Bank, (1861) 23 N. default of such diligence, see Capitol Y. 289, affirming 5 Bosw. 192. State Bank T. Lane, 52 Miss. 677. As 1 Ayrault v. Pacific Bank, (1868) 6 to the rules governing as to demand Robt. (N. Y.) 337; affirmed in 47 N. Y. and presentment of notes payable at 570. bank, see Lewis v. Planters' Bank, 3 4 Mobley v. Clark, (1858) 28 Barb. How. (Miss.) 267; Ellis n. Commercial 390. In Jacobsohn v. Belmont, 7 Bank of Natchez, 7 How. (Miss.) 294; Bosw. 14, a banker, who, under pecu- Harrison v. Crowder, 6 Smedes & liar circumstances, acted with the Marsh. (Miss.) 464; Barlow v. Plant- knowledge and concurrence of the ers' Bank, 7 How. (Miss.) 129. When owner of the paper in delaying to pre- the note remains during the whole day sent it for collection was held not of the day it falls due, allowing days liable for negligence. of grace, see Duncan r. Watson, 6 6 Smith v. Essex Co. Bank, (1856) Cush. (Miss.) 187; Goodloe v. Godly, 22 Barb. 627. 13 Smedes & Marsh. (Miss.) 233; Bland 8 New Orleans Canal Co. v. Escoffie, v. Commercial & Railroad Bank, 3 2 La. Ann. 830. As to diligence re- Smedes & Marsh. (Miss.) 250. ; ^1 COLLECTIONS. to the latter and posted in the account against the defendant l)iink. were not paid by him or the acceptor- an.l were protected or returned, and no notice of their non-payment WM given t- plaintiff. A semi-monthly statement of the account WM tent b\ the cashier of the remitting bank to the ea>hi.-r of tlie collecting lnk and its correctness acknowledged by the Utter. The Supreme Court held that the remitting Iwuik had a right, after a reasonal.lf time had elapsed without notice of non-payment or a return of the papers, to charge the amount of the notea, bill- and checks to the defendant bank and to recover maaranipit fr an account stated. 1 In case the holder of a note deliver* a bank, with directions as to the appropriation, but not the manner of realizing the proceeds, the Iwink will be authorized to discount the note or collect it at maturity.* 334. Rules as to notes payable at bank. The preaump- tion is proper that when a note is made payable at a bank the parties expect collections to l>e made through the bank, and. though the bank holding the money is technically the agent of the depositor, yet the money that may lie deposited to meet nucli a note is deposited for the holder of the note, and it would require no act of the depositor to authorize the bank to jwy it.' Where a note was made payable at a bank and the maker d|iu*- ited witli the bank the amount necessary to fully dix-liarge it, and the bank afterwards failed, the Iowa Supreme Court held 1 National Pahquioque Bank r. First luding with Sccley. to permit bU National Bank of Bethel, (1870) 86 paper to accumulate in the bank tin Conn. 325. In this case the bank de- paid, by failing to enter the pP* fended partly on the ground of fraud- upon the book* of the bank, ami to ulent practices of its cashier in col- inform the director* of iu poaMaria* lusion with the drawee. Of this and non-payment, and in permitlUtj; branch of the defense, the court said: the account of the plaintiff to arcti "It is perfectly apparent that the raulntc in uch an unu*u! mmnort cashier of the defendant bank received and totmch an unuMial extra! without tli. notes, drafts and checks sent by informing them of iL ll abo abow* tin- plaintiffs for collection; that he grosw negligence in the otHerr* of the had ostensibly the powers usually defendant bank in intrmting It* ratlf* trhrn to the cashier of such an aaso- management to (the owhicr). ciation; that it was his duty to collect these fact* do not ...n-tituie defaaae. them or to protest and return 'them; unlew knowledge of ihm :iii. Crowder, 6 Smedes & r. Hamer. 7 How. iMU.) 44*. H w , (Miss.) 464. held that generally a n<*c payable la Cohea r. Hunt. 2 Smedes & Marsh, bank ithould be presented for pay meat (Miss.) 227. In Mount r. First Na- during banking hour*, but wbcrv U Unhid Bank, 37 Iowa, 457. the note wan the custom of the bank to keep h was left with the bunk for protest back door o|cn. with iU U H. r without direction as to where notice after banking hour* to an*w< to the indorser was to be sent. The then made, ami a n*o wa notice was sent by mistake to a pcrnon rented, and the idler aiwwemt. of the same name as that of the in- cording to lh* truth of lh* tmm, dorscr and living in the neighborhood, there were then no fund* tod bad I The court held that the bank wa not been during the day to pay (* aoU liable for negligence. tbe prwenlmenl waa food. * U S Bunk r. Caracal. 2 Prt. * Bank of Columbia r Me Kuiy. 543 8 Crancb Cir. (1. 861. 692 COLLECTIONS. [ 335 would not be liable to damage for omitting to demand payment on Saturday. 1 335- When a bank is liable for failure to collect a note. An Ohio bank having purchased a note payable at the bank- ing office of another bank, from the payee, the payee indorsing the same, sent it to the bank, at which the note was payable, for collection. The note was not paid when it matured, and the bank owning the note brought its action against the bank, its agent, for collection, upon the ground that by its negligence the owner had lost its right to hold the indorser liable. The trial court rendered a judgment in favor of the defendant. This judg- ment was reversed by the Supreme Court of Ohio, which held that the bank which held the note for collection had been guilty of negligence in the matter and was thereby liable to the owner of the note. 2 'Patriotic Bank v. Farmers' Bank and shows such a statement of the of Alexandria, 2 Cranch Cir. Ct. 560. facts which explain its ruling, that we As to liability of bank for negligence in give it in the words of the court. It such matters, see Bank . Burns, 12 was said: "The real contention be- Colo. 539; s. c., 21 Pac. Rep. 714; tween the parties was whether [the Drovers' Nat. Bank v. Anglo-American payee], the indorser of the promissory Packing & Prov. Co., 117 111. 100; s. note, had been discharged from liabil- c., 7 N. E. Rep. 601; Bank v. Good- ity to the [plaintiff] by reason of the man, 109 Pa. St. 424; B.C., 2 Atl. Rep. negligence of the [defendant]. The 687; Farwell v. Curtis, 7 Biss. 162; note had been transmitted to the [de- Indig . Bank, 80 N. Y. 100; Briggs fendant] for collection and was not v. Bank, 89 N. Y. 182. In Holmes . paid at maturity. If [defendant] by Roe, 62 Mich. 199, it was held that its negligence had discharged the in- where the person receiving a check dorser, then it should be held liable for upon a banker and the banker on the damage it thereby caused; but if, whom it is drawn are in the same notwithstanding the alleged negli- place, in the absence of special cir- gence, [the indorser] remained liable, cumstances it must be presented for it should be exonerated, for all the payment the same day or, at least, the duty it owed to the [plaintiff], in case day after it is received; but, if in dif- the note was not paid, was to take f erent places, the check must be for- such action as would charge the in- warded for presentment on the day dorser. AVhen the note matured the after it is received at the latest. See, [defendant] in error notified the makers also, Hamilton v. Winona Salt & Lum- and one of them came to its banking ber Co., (1893) 95 Mich. 436. house. A plain and simple duty then 8 Bank v. Bank. (1892) 49 Ohio St. confronted the [defendant]: Either to 351. The opinion of the court evinces require payment of the note, or, in de- a full and careful discussion of the fault thereof, to take such action as law relating to the questions involved, by the law merchant was necessary to COLLECTIONS. 336. What action on its part will relieve a collecting bank from liability. -Tin- fait,-,! State Circuit Court .,f A|.|>c:il> for tin- sixth circuit has held tlmt a bank retiring aoer- titicato i.f li-|Hi>it tamed by a bunk f-r eiilleetiun nnd until to the bank which itwued it, with a nijucMt for a remittance, WM guilty of in rli-rence. But in thia particularcafte it a||ieaivd that tlie plaintiff bank on May 8, 1888, mailed to the defendant bank the certificate of deposit for collection, and on May ninth the lai~ charge tin- indorscr. It did neither, indoner. 1 Panon* oo Note* A That the note was conditionally paid is HilU. 514; Dobree r. EM! wood. suggested; what that may mean in this & P. 230; Simpna r Tun connection is not clear. No doubt. Hump. 419; Ituwe r. Tipper. |:: that, as between the holder and the '.M'J; Mania r. Maxwell, t CVunp. SIO. maker of a promissory note, a condi- Therefore. If the letter of [the maker*) tiniial payment may be made; but the had been ttunVii-nt in form and tib- rules of the commercial law require a stance to fix the liability uf (the payee holder, who intends to hold an in- indorser] it WM mailed i* Utc ami dorser liable, to give notice to the tat- for tlmt rcaiton he WM dWbarged. ter of the default of the maker. Any- This release of [the indoner) WM MI tiling less than a full and absolute accomplished fact befurv UK* nwkm payment is a default, but nothing less of the note applied to him to extra*! than that measures the duty of the the time of payment. The omiMian ni:ikcr. In this case, however, there of the bank to require payment, or la was no conditional payment made, default thereof to pive the nrmury True, the [defendant] had in its hands notice to charge [the indomrr) * the means of enforcing payment, but caused by the BolirilMion of tbo did nothing; it simply accepted the makers. * * * The mcwt careful maker's promise that, if [the payee] scrutiny of the record fail* to dtadon did not give further time, they would that (the indorM-r]. up to thb Ume. pay the note. If the [defendant] had Raid or did anything to tni*Ir>l the iris ii notice to the [plaintiff] of the bank or to induce it to relax it* vigil- default of the maker, it would have ance, or omit any *t*-p nmmmrj la discharged its duty, for it would have law to charge hint a indonrr. (Th afforded the latter an opportunity to indorwr]. therefore, had a perfect 4* give notice to [the indorscr]. I^awson fenuc againxt any actlm taken to r. Hank, 1 Ohio St. 206. Where, how- charge him an an Indorwr. uulcM by ever, a holder of a promissory note hU ubk'quenl conduct be ha* for- - by an immediate indorser. and feitnl hi* right to rt up tbfal d serves notice of non-payment upon one fetue." After dbruMlng whether more remote, he cannot avail himwlf there wa* u(Brienl nollrr to the In- of the time the immediate indoracr dorner and whether be wa* e would have had to serve the remote to defend. Ibe court then OMM! one if the holder had given notice to query: " WM due Uilifvoor abowa la the former; but the holder In that ease giving thU notice T" TM WM Mi- ni list give notice to the remote Indower awercd followg: "Tb* but djr of within the same time that he In re grace WM October 17 aixl tbe IrtUr quired to give it to the immediate wa* not mailed until Ibe 1Mb. IWQ G94 COLLECTIONS. [33G ter mailed it to the bank issuing it. On June first the defendant bank credited the plaintiff bank with the item in the account current for May, and wrote that nothing had been heard from the bank issuing the certificate after repeated inquiries, and requested that the matter be investigated and a duplicate or a days later. To constitute due dili- gence it should have been deposited in the post office in time to have de- parted in the earliest mail to the resi- dence of [the indorser] that departed after business hours on the 18th. Law- son v. Bank, 1 Ohio St. 206. It is true that if the [defendant] had chosen to give notice of non-payment to the [plaintiff] that the [plaintiff] would have had one day after it re- ceived notice within which to give notice to [the indorser] and in that case a notice to [by?] the [plain- tiff] to [the indorser] on the 19th of October would have been in time. 1 Pars, on Notes & Bills, 513; Lawson v. Bank, 1 Ohio St. 206. On October 17, 18S8, the day after the note ma- tured, one of the makers * * * was called into this bank and his at- tention was directed to it; the makers then had funds in the bank which could have been applied to its pay- ment, but upon [this maker's] repre- sentation that his firm was pressed for means it was induced to indulge them until they could apply to [the payee] for a short extension of the time of payment, promising to pay it if [he] refused to extend the time. After two days' delay, they mailed the letter of October 19, to which he re- ceived in answer [the payee's] letter of the 20th, granting the favor, of which the bank was at once advised; it there- upon continued to receive and pay out for the makers large sums of money imtil November 1, 1888, on which day the makers assigned their property in trust for their creditors, having assets sufficient to pay only a few cents on the dollar of their indebtedness. No doubt but for this letter of [the payee's] the bank would have charged this note against the maker's deposits, and in that way demand its payment. If [the indorser] had been influenced by the facts, and chose to grant an exten- sion to the makers, and the bank relying thereon had paid out all the funds of the makers before the assign- ment was made, and thus lost its means of indemnity, he should be held to abide the consequences. But he had no such knowledge. He neither knew that he had been discharged by the bank's neglect, nor that the bank had indemnity within its control. His granting the extension was an indis- creet act in itself, and he should not be charged with consequences that he had no reason to suspect would flow from it. On the contrary, this bank [the defendant here] was an actor in the entire transaction. With means of payment in its hands, it chose to indulge the makers in direct violation of its duty to the [plaintiff]. It knew this indulgence was granted to the makers of the note, expressly, to enable them to apply for an extension of payment to one who, upon the face of the paper, was only liable in case it did the very duty that it must of necessity violate to grant the indulgence. And when the letter from [the indorser] was made known to it, and it proceeded to act upon the extensions granted, it had no reason to believe that he had granted the extension with knowledge of the facts, and it took no action to ad vise him of their existence. Under these circum- :;; 57J COLLECTION*. remittance obtained from the ugnee of the certificate. On June twenty-si-eond, having received no n: . thia letter, the werable to the remitting bank for neglect in the discharge of its duties as agent, \\hereby that bank sustains loss or damage.* It is the duty of a bank receiving for collection a bill payable at a future time tonao due diligence in presenting it and in giving notice of a failu: due acceptance, or where a Iwnk receive* a bill for eol lection, pre- sents it for acceptance, and gives no notice of non-aceeptui: stances [the defendant] mut be held ' Fin* Nat. Rank of Bvaacvflb to have assumed the risk* that natu- Fourth Nat. H*k of IxMibrillr. (!> rally flowed from it* actions, one of 5 Fed. Krp W7 which was that [the indorser) mi*hl Commercial Baak r l'*oa BMk. avail himself of a defense thus af- (1H54) 11 N. Y. ' forded to him by its own negligence." GOG COLLECTIONS. will be held liable to the owner for the amount of the bill in case the acceptance be defective. 1 A bank acting merely as collecting agent of drafts, without knowledge that the money collected was to be received in any way for its own benefit, or to be applied on an indebtedness to it, or on its own account, will not be held to have received the money in payment of its indebtedness or on its account. 2 A bank receiving a draft for collection, with instructions from the holder of the draft to collect the money due on it and hold the same until called for, by crediting it to the account of another in violation of the instructions, will become liable to the holder for whom collection was made. 3 Where a collection of a draft is made for the owner under a direction of himself, or some one accompanying him, given in his presence and hearing, to hold the money until one or the other of the two should give further directions as to the disposition of the money, and this other person afterwards have the money paid to himself or placed to his credit to make good an overdraft on his own account, the bank would not be liable to the owner for the sum collected. 4 It is the duty of the bank with which a check or bill is deposited for collection, to transmit it to a suitable agent to demand pay- ment in such a manner that no loss may happen to any party to the check, whether the drawer, indorser or indorsee. 5 The acceptor of a bill of exchange, discounted by a bank, with bill of lading attached, which the acceptor or other bank regarded as genuine at time of acceptance, but which proved to be a forgery, has been held bound to pay the bill to the bank at maturity. 6 The rule upon which this holding was made was that bad faith in taking negotiable paper, which will defeat recovery thereon, must be something more than failure to inquire into their considera- tion, because of rumors or general reputation as to bad character of maker or drawer. 7 The words " for collection," appended to 1 Walker v. Bank of State of New * Goetz v. Bank of Kansas City, 119 York, (1854) 9 N. Y. 582, affirming 13 U. S. 551. Barb. 636. ' Ibid. When the holders of drafts 8 Merchants' Bank of Canada v. must bear the loss where they have not Union R. R. & Transportation Co., been returned or presented in a rea- (1877) 69 N. Y. 373. sonable time and the drawer has be- 3 International Bank r. Ferris, 118 come insolvent. Collingwood v. Mer 111. 465. chants' Bank, 15 Neb. 121. 4 Ibid. 6 Drovers' National Bank v. Provis- ion Co., 117 111. 100. COLLECTIONS. , . an indorsement up,,,, a .-1,,.,-k. limit the effect which the indone- iiu-iit would have without thi-in ami give authority t., t!,,- holder only to collect for tin- brut-fit of tin- im|,,rM-r.' It'mav be shown by :i bank taking a certified check mi another bail k, either m a payment, .>n account, or for tint pur|*K.. only of collection, that the check ha.l availed nothing where the bank o receiving the check may have discharged its duty by an effort to oolle- A bank receiving a check for collection and retain four days without presenting it for payment, or nmkin- its collection, or giving any notice to the d,-; f iu non- payment, has been held in North Carolina liable for U ensuing therefrom. 8 Where a bank received a check u|n it.M-lf for col- lection, being at the time a largo creditor of the drawer, and failed without excuse to notify the depositor of the mii-|ia\ : of the check, it was held guilty, in law, of negligence, and that by its action the bank had made the check its own and wa* liable for its whole amount. 4 A bank receiving a check for p. ,11, . payable at a day subsequent, would bo liable to the owner f.-r failing to present it at the proper time where it had present for payment without allowing days of grace. 8 A bank receiving 1 Hoffman r. First National Hank of required t. . M ml it lo the principal of- Jersey City, 1? Vroora (N. .1.). 604. fire in New York city. Two day* * Drovers' National Bank r. Provis- aft, r the chcx k wa* given It wa rr- ion Co.. 117 III. 100. In Bickfonl r. turned in due counvo of collection to First National Bank of Chicago. (1M66) the Newark bank, which had nxmn VI 111. 288, tbc check was drawn and while failed. It wa* hrld that tfcSf* rrtiiinl and di>|M>sit,-d in a Imnk after was no negligence in the pmrotaUn* t'-n o'clock A. M., and before three of this check which would prrreotlB* o'clock r. M. on a rcrtain day, where it company recovering the amouat of remained until next tnoniing, when it tbc cheek fn,m tin- drawer was taken in the usual course of busi- ' Hank of New llanovrr r. Keaao. ness to the bank on which it wan 76 N. ('. Jt4i York, etc.. R. K. Co. r. Smith. 4 N. J. meiu. are Stewart r. Smith. (1H7) 17 L-iw J. 84, a ccrtilied check wan Ohio St. 88; McOfvgor r. given on a New York bank U> the agent ( 1H.V)) 1 IMnnry (Ohio). 947. of the milrood company in Newark. Ivor)- r liank of MlMouri. By a rule of the company the agent 8* Mo. 47V could not indorse the check, but wa 88 C98 COLLECTIONS. [ ''>'>' from a depositor a check upon another bank for collection, should the collection fail, without fault of the bank receiving the check for collection, has a right to return the check and cancel the credit given the depositor for the amount. 1 The bank in an Indiana case, holding a check drawn in its favor, indorsed it to a bank " for collection for account of " itself, and sent it by mail to this bank with a letter from its cashier, stating, " I inclose for collection and cr., as stated below " (specifying this and other checks and drafts sent). The check was placed by this bank on its collection register, where were entered only such checks received for collection as were treated as the property of the parties sending them, no credit being given therefor until they were collected. The cashier of this bank indorsed the check for col- lection and transmitted it to a third bank, with authority by letter to credit the second bank with the proceeds when collected. On the same day the transmitting bank failed and went into the hands of a bank examiner. Two days afterwards the third bank collected the check, with notice by newspaper report of the failure of the second bank, but not notifying the drawee of this fact of which they had no notice. The collecting bank then credited the failed bank with the amount collected on the check, it being then, on account of previous dealings, legally indebted to it. The bank examiner also having in charge the books of the failed bank, without the consent of the remitting bank, credited it and charged the collecting bank with the amount of the check on the books of the failed bank, which, at the time it received the check, was largely indebted to the remitting bank. In this action, brought by the latter against the collecting bank, the court held that it was entitled to recover ; that the indorsement of the check to the failed bank did not vest title in it, or give it any right to the proceeds ; that the accompanying letter meant that it should collect for the remitting bank and place the proceeds to its credit and not that the failed bank should treat the check as its own or credit the remitting bank therewith before collection ; that the transaction did not make the former the debtor of the latter before the check was collected, or deprive the latter of its rights to the check or its proceeds before its collection by the former ; 1 Decatur National Bank v. Mur- aid, 51 Cal. 64; Boyd t. Emerson, 29 phy, (1881) 9 Bradw. (111.) 112. See, E. C. L. 68. also, National Gold Bank v. McDon- '"1 OOLUWTIOSIt. that the collecting bank wa* the agent of the failed bank, and liein;r notified liy tin- indor~-iiir!it on tin- eheek that the latter was not the owner of it or entitled to iU proceed*, the former had no right to credit the amount to the latter on it* indebted- ness to the former; that the n..tii-- it hne entitled to the specific fund, and the collecting bank, being an agent of the failed Iwink, had no more (tower or right as to the specific fund than its princijwl ; tliat tlw rig! the remitting bank were not injuriously affected by anything done bv the bank examiner with its knowledge or consent, and that the fact that the collecting bank had credited the amount collected upon its debt against the failed bank, did not dincliaryv it from liability. 1 A bank to which an inland bill of exchange w tnui.-mitted for collection through the intervention of Another bank, becomes the agent of the payee and is answerable to htm alone for any breach of its duty in relation to the bill Where accounts are kept between different lanks and one of tlicni fails to pay over money received on drafts or bilU of exchange collected for the other, the remedy i* againut the defaulting bank, and not against the drawer of the hill or draft Should a l>ank receive a bill for collection and omit to preM*nt it at the proper time or place for payment, and a bat be MlrflilMd in consequence of such an omission to prwent it for payment, tlie bank would be liable to the extent of the low*. 1 And tin* ri^ht of action against the bank would not be waived by the owner o the bill withdrawing it from the custody of the bank ; nor would ' First National Bunk r. Fin* N- Kupfer r. lUnk of Otka*. tional Bank. (1881) 76 Ind. 561. W III. *. Farmers' Bank r. Owen. 5 Cranch * Branch lUnk ! Cir. Ct. 504. 700 COLLECTIONS. [ 337 the bank be discharged from its liability to answer for its negli- gence by the pursuit of any of the parties liable upon the bill. 1 The facts of a case in the federal court for the district of Colorado were as follows : The bank sued here received from the plaintiff bank a sight draft for collection, drawn by the plaintiff bank on a third bank against funds actually to the credit of the drawer ; the defendant received this draft for collection January tenth, and transmitted it directly to the drawee, its correspondent, on the same day ; it should have reached the drawee in two days ; the drawee continued good until January twenty-ninth, when it failed. The drawee did not acknowledge the receipt of the draft, and, in fact, the draft miscarried and never reached the drawee ; the defendant made no inquiries about it until February ninth ; the plaintiff and defendant both supposed, meanwhile, that the draft had been paid ; the defendant gave the plaintiff no notice of any kind in respect of the draft until February eleventh. In its action against the collecting bank to recover the amount of the draft, the collecting bank was held liable on the ground that, by its negligent omission of duty, a loss had resulted to the plain- tiff. 2 The measure of damages in such a case was held to be the 1 Ibid. As to the time within which in respect to inquiry and notice. The the holder of a bill of exchange must defendant bank allowed an unreason- present it for acceptance, see Bank of able time to elapse before it made in- Bennington v. Raymond, 12 Vt. 401. quiry concerning the draft, and more 2 First National Bank of Trinidad than a reasonable time had elapsed be- v. First National Bank of Denver, fore the failure of the Kansas City (1878) 4 Dill. 290. DILLON, C. J., Bank occurred. It was this negli- said: " I have fully examined the ad- gence that caused the loss, since it is judged cases relating to the duty and established by the evidence that the responsibility of a bank which under- draft would have been paid if it had takes to act as a collecting agent for been presented at any time before the its customers or for other banks. They suspension of the drawee on the clearly show that the defendant bank 29th day of January. Here, then, ought to have ascertained, within a was an unexcused delay for fifteen or reasonable time, whether the draft sixteen days to make any inquiry or transmitted had been received by its give any notice. Aside from the cus- correspondent, and if not to have ad- torn or usage pleaded in defense * * * vised the plaintiff thereof. The prac- the decisions in England and in this tice of banks to send such checks or country are uniform that such delay to drafts directly to tJie drawee (as in this make inquiry and omission to notify case) is attended with some obvious the party interested, as occurred in additional peril, and does not weaken, this case, impose a liability if loss is if indeed it does not increase, the dili- thereby occasioned." gence required of the collecting bank 337] COLLECTIONS. 701 full amount <>f the draft. 1 In an early Connecticut can it ii]>]>e;iivd that the plaintiff had drawn a hill of exchange, payable t<> his order, upon a person residing in the citv win-re the defend- ant hank aid Into arc Inappropriate to the one brforv u his house, and of course a right to re- The transaction of sending not for tain it for his general balance. The collection from one bank to ootbrr doctrine more clearly appears from the has BO analogy to the payment oC notaa case of Davis t. Bowshcr. 5 Term Hep. to a hanker and obtaining dbcount on 488. A customer lodges bill* of ex- a part of them." chan ge in the bands of his banker gO- "Lawrence r. Htoninftoa Rank. erally. and when the banker advance* (1837)8 Conn. 591. Thai Wlb of c money to him he applies it to the din- change miwl be pcwotod count of such of the bills as happen drawn* in a rmauoablc ttmr. and that 7 1 ''2 COLLECTIONS. [ 337 iii a bank without directions that it should be treated as a separate fund, and was forwarded for collection to another bank, which failed, and the drafts and deposits between the two banks had been constantly changing, it has been held that the owner of the draft should share pro rata with other creditors. 1 "Where shown in an action against a bank for money received to its credit that the bank was employed to collect certain drafts, and that the money was paid to its correspondent, a bank in the place where the drawee lived, and that the correspondent forwarded a draft for the money to the defendant, it would devolve upon the latter to show that, through no default or want of diligence on its part, the draft was not paid. 2 Where acceptance of a draft is refused, it is not necessary to present the draft for payment. 3 A bank receiving a bill for collection becomes the agent of the owner, and in the discharge of its obligations as his agent is bound to present it for acceptance without reasonable delay, and to present it for payment upon maturity ; if not accepted or not paid when presented the bank should take such steps by protest and notice as are necessary to charge the drawer and indorser. Otherwise, what is a reasonable time depends upon ent in settling the latter's indebtedness the facts in each case, see Montelius D. to it, see Millikin v . Shapleigh, (1865) Charles, 76 111. 303; Walsh t>. Dart, 23 36 Mo. 596. Wis. 334; Knott v. Venable, 42 Ala. 3 Exeter Bank r. Gordon, 8 N. H. 186; Veazie Bank v. Winn, 40 Me. 60; 66, 78. In Nunnemaker t. Lanier, East River Bank . Gedney, 4 E. D. (1867) 48 Barb. 234, the bankers had Smith, 582; Phoenix Ins. Co. v. Allen, received for collection a draft upon a 11 Mich. 501; Fugitt v. Nixon, 44 Mo. trust company, and on presenting the 295; Aymar v. Beers, 7 Cow. 705; Sice same at their office received in pay- v. Cunningham, 1 Cow. 397; Robinson ment the check of the trust company . Ames, 20 Johns. 146; Bachellor D. upon a bank and surrendered the draft. Priest, 12 Pick. 399; Wallace v. Agry, The bankers neglected to present the 4 Mason, 336< check for payment on the day they 1 Edson V. Angell, 58 Mich. 336. received it, and before banking hours * Simpson v. Waldby, 63 Mich. 439. on the next business day the trust As to the responsibility of a bank em- company suspended payment and its ployed to collect drafts upon parties at check was dishonored on presentation, a distance for the failure or dishonesty The Supreme Court of New York held of its correspondent selected by itself, that the bankers, by surrendering the see Simpson r. Waldby, 63 Mich, 439. draft, assumed the responsibility of As to the right of the owner of a bill taking the check of the trust company remitted through a bank for collection in payment, and that the existence of to recover it of the bank, notwith- a custom in the city of New York standing the latter's placing the among business men to take the checks amount to the credit of its correspond- of the trust company without certifica- . . it In-coines liable t<> tli,. owner for tlu- darnage* which he may tain by Mich nr-l.-rr t., |N-rf..nii it- du tic*, nnlcM there be torn* incut r.i tin- contrary, e\pre~. ,, r implied. 1 U&. Negligence of a bank as to check held for collection In .1 late Kan-.-H case tin- jwyec of a check ujx.ii a hank brought action a i ir:iin>t the drawer. ha.- ing his ui-timi U|*>ri the fact tliat was money to ili,. credit of the drawer in the Unk. ami the hank becoming insolvent, had made an alignment, and tht* rheck TKE back unpaid. It appeared that the payee ,f the check had placed it in the hands of his bank as his agent for collection. and the latter had >ent it to the drawee for collect ici-ion by the Supreme Court of Karma* wan Mated to be \vlu-ther the neii-iii--- hours; that the bank on which it wait drawn waa open, d>ing a general business, receiving dejMMjits ttnd jiayiiig IHOIM cheeks during its regular banking hours on the thirteenth. l>ur ing that day a letter was written, addressed to the [ payee'i. bank), with which was inclosed the check and the statement * No fund* in bank/ This letter was dej>osited in the |M*t ortiee after hank- ing hours, and received at (the place where the check wan drawn) after business hours on the fourteenth. The refusal to (my wa, therefore, not communicated to any one until the fourteenth. Can it be presumed that if the check had lieen regularly preMMitvd over the counter to the Richfield liank on the thirteenth a faW* answer would have lieen given, as was in fact given by letter and payment refused? It is admitted that the defendant had mom than money enough to his credit to meet the check. Had pm sentmcnt been made by another agent of the plaintiff and pay- ment refused, steps might have been taken immediately to pro- tect the drawer's rights ; but, the check being in the hand* of the drawee, of course no effort could lie made by it t. proaaeato itself, and the fact that payment wan refused was mil oommunt tion. in the same manner MI bank > MootfoAcry Gout? Hank . Al checks, was no defeose Ui ao acUno by baoy City Bank. (IHH) 7 N. Y. 4fe the owners of the draft to recover the amount of the nine. 704 COLLECTIONS. [ 338 cated to the [payee's bank] until the night of the day following the last one on which the Richfield Bank was open for business. It might be that the answer ' No funds in bank ' was literally true, and that the Richfield Bank had not the money with which to make payment at any time during the day of the thirteenth ; but we are not at liberty to indulge in any presumptions of that kind, the agreed facts showing that it received deposits and paid checks during the whole of that business day. This case must be decided in accordance with established principles, and the fact that the Richfield Bank was a small concern in a very sparsely peopled part of the state, and perhaps never had any large amount of funds in its possession, cannot be made a pretext for breaking down those wholesome rules of business which have been built up and defined with so much care and precision. The request in this case by letter was not an ordinary demand of pay- ment calling for current funds, but was a request for Kansas City exchange, which the drawee would of course be at perfect liberty to refuse. In cases of this kind a hardship necessarily results to one party or another. Courts, in their decisions, must be guided by fixed rules. The plaintiff, having trusted in the good faith of the Richfield Bank by sending the check to it, must bear the burden of the loss occasioned by its failure occurring after the day on which regular presentment should have been made." * It 1 Anderson v. Rodgers, (Kans. 1894) will not be discharged from liability; 36 Pac. Rep. 1067, 1069. The ruling but when a person, having funds on was the result of an application of the deposit in a bank, draws a check principles declared in these words: "It against them, the holder of the check, is true, as was said by this court in if he delays its presentment, assumes Gregg v. George, 16 Kans. 546, that 'in the risk of the failure of the bank. It order to charge the drawee of a check, is said in Daniels on Negotiable Instru- the same strict rule of diligence in ments, ( 586): ' The fact that the making demand and giving notice of check is presumed to be drawn against non-payment does not obtain as in cases deposited funds makes it of even of ordinary bills of exchange. As a greater importance than, in the case of general rule he is not discharged un- a bill, that a check should be pre- less he suffers some loss in conse- sented, and that the drawer should be quence of the delay of the holder.' If notified of non-payment in order that the drawee of a check has no funds on he may speedily inquire into the causes deposit to meet it, or if, having funds of refusal, and be placed in a position in the bank at the time, he afterwards to secure his funds which were de- withdraws them, and the check is not posited in the bank.' The rule, how- paid on that account, the drawee ever, as to the time allowed the holder [drawer?], having suffered no injury for presentment of a check, in order by reason of delay in its presentment, to relieve him from the risk of loss by 339] .I.IK-M. 7, . would not be negligence on the part of a hank receiving a cheek from one of its customers for n,H,.<-ti..ii t.. forward thr ,! mail ; but if, failing to hear from it within a rauonablc time, the bank neglects to make inquiry or give notir.-, thi* would l neg- ligence, and the bank would make it*elf liable fur enduing low occasioned by the drawer's insolvency. 1 339- When a bank collecting a draft is liable to the owner. It was held in the federal court for the dutrict of Indiana that a bank which was an indorsee for collection ir failure of the drawer, is definitely contemplation of law. to enforce la fixed by the authorities: (1) Where the behalf of another a claim again* ftarlf ' payee to whom the check is delivered This proposition U sustain* : receives it in the place where the bank abundant authorities DrornV Nat. on which it is drawn is located, he Bank r. Anglo-American Packing & must present it by the close of bank- Provision Co.. 11? 111. 100. ing hours on the next business day. E. Rep. 001; Bank r. Burn*. IS Colo. (2) Where the check, as in this case, is 539; 8. c., 21 Pac. It- j. 714. iUnk r. drawn on a bank located at a place Goodman, 100 Pa. St. 438; a,c.. t All. distant from that in which it was re- Rep. 687; First Nat. Bank of Eran* reived by the payee, it must bu sent villc r. Fourth Nat. Bank of I>uurUlc. for presentment for payment by mail 6 C. C. A. 183: . c.. 56 Fed. Rep. on the next secular day after it is re- 967; Farwell r. CurtU. 7 BUa. I6u ceived, and presented on the next day Fed. Canes, No. 4.690 " It wa la- after its receipt. In this case the sisted before the court that n^^% check seems to have been forwarded as the check was forwarded in dot for payment in due time, but it was time and came into the hand* of the sent directly to the dmwce by mail, drawee, which refused payment, ami with the request that the bank of returned the check with the Mate- Richfield remit the amount by mail in mcnt " No funds in bank." the defend- exchange on Kansas City. The ant was not injured by the in- -I. of [payee's bank], therefore, elected the presentment; that an answer of " No drawee of the check as its agent for funds," sent by mail. wa* an effectual collection. That this was negligence a refusal to pay a* though made is well settled by the authorities. It across the counter at the bank To is said in Daniel on Negotiable Instru- this the court said: " Where due piv ments (volume 1, 828a). 'For the scntmcnt U not made the burden of purposes of collection, the collecting proof is upon the bolder of toe check bank must employ a suitable sub- to show that the drawer ha* oo( *uf agent. It must not transmit its checks fered injury." Kurd r. McClung. I or bills directly to the bank or party W. Va, 166; 8 Pam. Note* A B I by whom payment is to be made, with Dan. Neg. In*t. | 13*. Uantek * the request that remittances be made Kyle, 1 Ga. 804. therefor. It is considered that no 'SlUpsey *. Bowery National Bank, firm, bank, corporation or individual (1875) 00 N. Y. 485, can be deemed a suitable agent, in 89 TOG COLLECTIONS. [ 340 account of a prior indorsee for collection was liable to the owner of the draft for the amount collected, and not remitted to the owner or the prior indorsee, notwithstanding credit for the amount was given the latter and he charged the collector and credited the owner, and was charged for the same by the owner, and though the collector, by virtue of an agreement with its indorser, whereby the amount due from one to the other for col- lections was to be placed to the latter's credit with a certain bank, wrote to that bank to place the amount to the credit of the prior indorser, which order it could have countermanded after notice of the latter's failure. 1 In a case in the federal court it appeared that the owners of a bill of exchange sent it to a certain bank indorsed by them for collection. A_t the time the bank received the bill of exchange it was insolvent, to the knowledge of its managing officer, and on that day, or following morning, it failed. Prior to its failure this bank indorsed the bill of exchange to another bank, which collected it and kept the proceeds, crediting the insolvent bank, which was indebted to it, with the amount collected. The court held that the first bank acquired no title because of its fraud in not disclosing its insolvency, and the col- lecting bank had no better title, as the owner's indorsement showed that the bank was merely the owner's agent to collect the proceeds. 2 340. When indorser of a check is relieved of liability. The question of liability of an indorser of checks drawn payable to his order, by one upon a bank with which the latter kept an account, to the bank in which he placed the checks, they being received as cash as shown by the record of the case, and not for collection by the bank, has been considered in a recent case before the Nebraska Supreme Court. There had been delay in the presentation of the checks, and the court declined to lay down any rule by which the indorsee of a check must present the same for payment in any given time to hold the indorser. But in this Commercial Nat. Bank of Cincin- Nat. Bank of Chicago. Bank, 3 Fed. nati r. Hamilton Nat. Bank of Ft. Rep. 257; Elaine v. Bourne, 11 R. I. Wayne, (1890) 42 Fed. Rep. 880. See 119; Bank r. Hubbell, 22 N. E. Rep. Sweeny v. Easter, 1 Wall. 173; Bank 1034; White v. Bank, 102 U. S. 658. of the Metropolis t. First Nat. Bank of * Peck v. First National Bank, (1890) Jersey City, 19 Fed. Rep. 303; Bank 43 Fed. Rep. 357. c. Armstrong. 39 Fed. Rep. 684; First 10 1 OOLLBCTI03C8. 70J particular case they held tlmt t!u- rluda wen not presented in 1 First National Hank of Wymore r. them by null to a bank in Miller. :17 NY!,. r> w. re dren. ihry arrivtof Urn* presenting the c-heck.s was wholly im on Ju r,. Utcy wrrr thai pro material, upon the rule stated, as they l*tcd f,, r non parmral. In Kmilli r. said, in the following cases: " In North- Jane*. 90 Wead. 192. the Baprcotr in Coal Co. r. Bowman & Co . 60 Court of N- TbefcoUfr Iowa. ir>(), the court say. after deciding of a check t*a rtvotrr -g-tfMl tlM to- that the plaintiff hud held the check in doraer only when he has turd do* question an unreasonable time before diligence in preMroUnK or giriofDolkv presenting it, and tlmt it could not of dcnuutdand non pymrat -r asjuinst indoreers : 'The fact Where the prtim|| mride IntlwMflM that the drawer had no fund* in the place, the check khould br prmnalsd liaiuls of the drawee when the check on the day it MP ..% . wm drawn, makes no differencv.' In lowing iby. and when paytbl- OoiiL'li r. StantM. 13 Weixl. 549. the difTen nt pbr,- fmm that in whi. Supreme Court of New York say : If nefotbtI. it *.li..ul.| be f..rwn! tlicr.- has not been due . Holmm r. !(.. fl-. Midi. IW not been prejudiced by the delay.' In Moliawk liank r. IlmJrrt- The Nebraska court said further: 'The Wend. 3O4. the Supreme Court ' authorities all say that in order to hold York my: ' A check on a bank for Ik* an indorser of a cheek it must Ix* pre- IHIYIIK nt of money, to chargr an in s< n!<' i by the indorsee in a reasonable dorM-r, mu*l U- prt-rntn| with all di time, and as to what is a reasonable |atcli ami diligence cooabtmt wftfc tfc* time, depends upon the facts and cir- transaction of ibcr commrrrial cno cinn^tances of each particular case.' ccrns. ami it wan accordingly held. Tin- facts in this case were that the when- a chrck w* rrrdrcti in S4rn cheeks were placed in the Imnk about ectady on the 14th of January, drawn the close of tanking hours, on the 31st on n lunk in AHnny adblanrv of ti\ day of May. 1890. The Imnk on which tccn mile* from the fornwr pUcr. aad they were drawn was in a place between which ptacm ibrrv U a daily twenty-seven miles distant from the mail, and not pmtrnlnl until the Bla location of the hank receiving them, of February, thai Uchr wa* impflnhhi and a mail left the latter place at r. to the holder, and that the Indottcr WM M daily, arriving at the place where d!chargrd Although it U Mid thai the Imnk u|>on which the checks were check* air like inland bills of exrhangr. drawn was located, at 9 r. M. of the and an* to bo governed by UM MUM same day. The Imnk receiving the principle*. grmtrrdiUgroer bnqolnO checks made no inquiry of the bank in prmrnting Umn thaa to prraatttoir on which they were drawn, as to bilU of rxchangr ' Tblt CMV *< whether the checks were good, nor did affirmed by thr Court for the Corrsctioa it at any time advise that bank that it of Error* in 13 Wrnd. I8S. 8s to UN- held the checks, but on the day of *ame cAWt Nnrthwcstrrn C<1 Co r. their receipt mailed them to a bank Bowman. 00 Iowa, 190." in another state, which bank sent END OF VULUMK I. LAW LIBRARY UNIVERSITY OF CALIFORNIA LOS ANGELES iiinijnnii