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'■^ A treatise on the law pertfiniyg *» ""^
3 1924 019 377 732
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A TEEATISE OlS" THE LAW
PERTAINING TO
CORPORATE FINANCE
INCLUDING
THE FINANCIAL OPERATIONS AND ARRANGEMENTS
OF PUBLIC AND PRIVATE CORPORATIONS
AS DETERMINED BY
THE COURTS AND STATUTES
OF THE UNITED STATES AND ENGLAND
Bt
WILLIAM A. KEID
OF THE NEW TOBK B^
IN TWO VOLUMES
YOL. I
ALBANY
H B. PARSONS, LAW PUBLISHER
1896
Copyright, 1896,
BY
HENRY B. PARSONS.
PREFACE.
This work is a practical treatise upon the law of " Corporate
Finance " — The Financial Operations and Arrangements of
Public and Private Corporations — as 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 be 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. KEID.
New York City, Jcmuary, 1896.
TABLE OF CONTENTS.
TABLE OF CONTENTS.
VOLUME I.
CHAPTER I.
OBNERAL POWER TO INCUR PECUNIARY LIABILITY — PUBLIC CORPORATIONS.
PAOB.
^ 1. General rules applicable to public corporations 4
2. Distinction between public and private corporations 5
3. 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 IiSdiana cities to issue bonds 13
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
ta,xation 18
13. The issue of scrip 18
14. Pui'chase 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 37
23. 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 32
39. Expenses of a committee to secure legislation 34
30. For the payment of bounties to volunteers 35
31. Validating a contract of yillage trustees 36
32. lEvistrations of liabilities incurred for a "corporate purpose "... 36
Vlll TABLE OF CONTENTS — VOLUME I.
PAQI.
§ 33. Purchase of fire engines and apparatus 37
34. Illustrations of wrongfully incurred liability 39
35. Purchase of cemetery grounds 40
36. Erection of crematory for garbage 41
37. Use of private property for sewers 42
38. 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
43. 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
53. Contracts for legal services — when allowed 57
53. Contracts for legal services — howmade 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 IL
GENERAL POWER TO IHCDR PBCUNIAKT LIABILITT — PRIVATK C0HP0KATI0K8.
§ 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 boiids 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
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 89
79. Manufacturing corporations 91
80. Mining corporations 92
81. Railroad corporations 93
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 value of capital stock 103
90. When a statutory limitation of indebtedness does not apply 105
CHAPTER III.
POWERS OF AGENTS AND OPPICEBS — PUBLIC COKPOEATIONS.
91. General rules 108
92. More general rules 110
98. 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 C^ourts 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 132
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 supervisorp-of townships in Pennsylvania 135
111. Power of selectmen and agents of towns in Vermont 136
112. Power of town officers in Wisconsin 138
113. Power of officers of school districts 138
: TABLE OF CONTENTS VOLUME I.
CHAPTER rv.
POWER OF AGENTS AND OFFICBKS — PRITATB CORPORATIONS.
PAOK.
1 114. 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. lUustratlons 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. Power of officers generally 153
121. The same subject continued 154
122. Power of directors — general rules 157
123. Directors for tho first year 159
134. Directors do facto 160
135. Illustrations of the power of directors 161
133. 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
130. Power of trustees of a corporation 168
131. Power o'f officers of a corporation to employ attorneys 169
133. When officers may use bonds as collateral 170
183. When the execution of a note is not authorized 171
134. Execution of promissory notes and transfer of choses in action. 172
185. Notes signed by officers of corporation 173
130. Power of bank officers 174
137. Power of a bank cashier 175
138. When the authority of its cashier cannot be questioned by a
bank 177
189. Indorsement of a draft by cashier and president of a bank 178
140. Power 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'o act is binding 188
146. Illustrations of the power of a president 189
147. Illustrations of a lack of power 193
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
153. Giving a judgment note — New Jersey 198
153. The same subject — Illinois 200
154. Where contract of purchase includes giving a judgment note. . . 302
155. What raises a presumption of authority 204
156. Power of officers acting conjointly 204
TABLE OP CONTENTS VOLUME I. XI
PAGE.
157. An illustration on this subject 206
158. One holding several oflSces 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 a treasurer to indorse in name of corporation a note
for accommodation 222
171. Power of a treasurer to indorse a note of another corporation 223
172. When a corporation will be bound by a note executed by its
treasurer 225
173. 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. Eatiflcation 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 OP OFPICEBS.
181. General rules 241
182. General rules continued 243
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 253
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. Eepudiating or avoiding such contracts 264
190. Rules as to such contracts 265
191. Oircumstances 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
XU TABLE OF CONTENTS VOLUME I.
PAOK.
§ 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 376
196. Officers voting themselves salaries or compensation 278
197. Interest upon exorbitant salary voted officer recoverable 281
198. Contracts between corporations having the same directors in part. 282
199. Issue of worthless, or overissue of, stock 286
300. False representations of officers — deceit 288
301. A leading English decision on this subject 292
303. The rule adhered to in England 293
203. Officers conspiring to wreck a corporation 294
304. President conspiring against a corporation — terms on which the
corporation could rescind the contract made by him 295
305. Promoters of corporations accountable for profits 296
306. Promoters obtaining stock of corporation for nothing 298
207. Jurisdiction of equity courts as to breaches of trust, etc 300
308. When a court of equity is not open to the complaints of stock-
holders. 303
309. Remedy in equity 305
310. Malfeasance of the president of a corporation — a stockholder's
, remedy 312
311. When a demand upon a directory to bring suit is not required. . 313
313. When a stockholder may bring an action 816
313. Dissolution of a corporation by a scheme of stockholders and a
. sale of property to themselves 331
314. The rights of the minority in such a case 334
315. Principles applied to this particular case 336
316. When a fraudulent assignment of a mortgage by the treasurer
of a corporation will bind it 327
317. When a corporation may recover money fraudulently paid out
by its treasurer 338
318. When a corporation must respond for damages resulting from a
fraudulent issue of its stock 330
319. The same subject — a Massachusetts decision 334
330. The same subject — a Pennsylvania decision 336
331. When a corporation may not respond for damages 339
232. A Massachusetts decision on this subject 341
CHAPTER VI.
PERSONAL LIABILITY OF OFFICBRS.
i 323. Directors' liability — general rules 346
324. Liability of other officers — general rules 350
325. Rules as to liabiUty of officers for diversion of property of cor-
poration 354
226. Liability of officers arising from manner of execution of com-
mercial paper 367
TABLE OF CONTENTS VOLUME I. XIU
• PAGE.
I 227. Liability of officers arising from indorsement of commercial
paper 360
328. Liability of officers of savings banks 363
229. Liability of a treasurer of a corporation for payment of orders
on forged indorsements 866
230. Liability on contract made before complete organization of the
corporation 367
231. Rule as to recovery in such a case 372
232. County treasurer liable upon his receipts to collector for money. 373
233. County treasurer liable as bailee of county funds 374
234. County treasurer paying court orders on forged instruments 376
235. Arbitration as to liability of a treasurer of a township 377
236. Liability under special provisions of charter or statute 379
237. Liability under provisions of charter — Pennsylvania 382
338. Statutory liability — California statutes 383
239. Statutory liability — Colorado statutes 384
240. Statutory liability — Iowa statutes 385
241. Statutory liability — Massachusetts statutes 386
242. Statutory liability — Minnesota statutes 387
243. Statutory liability — Missouri statutes 388
344. Statute of New York — liability for failure to file annual report. 389
345. Actions to enforce this liability • 393
246. What are, and what are not, "debts" for which liability under
this statute may arise '. 395
347. A United States Supreme Court decision on this subject 397
348. Statute of New York — liability for creation of debts in excess of
capital stock 399
349. Liability for incurring indebtedness in excess of capital stock —
Illinois statute 403
350. United States Supreme Court decision on a similar statute — the
proper action in such a case 406
351. New York statute — liability for false statement in certificate,
etc., filed 407
252. Illustrations 410
353. Statutory liability — Rhode Island statutes 414
254. Statutory liability — various states 414
255. Liability of directors or officers under an English statute 418
CHAPTER VIL
ULTRA VTOBS — PUBLIC C0KP0EATI0N8.
356. Issue of negotiable securities 424
257. Borowing money by school districts 425
358. Incurring liability in excess of funds in the treasury and
amount of tax allowed for one year 427
359. Incurring a debt without provision by taxation for interest and
sinking fund 439
360. Employment of an agent to negotiate bonds 430
XIV TABLE OF CONTENTS VOLUME I.
FAQS.
§ 361. Investment of sinking funds 431
363. Contract with corporation attorney for legal services 433
363. Discount of its warrants by a corporation 434
364. Illustrations of ultra vires contracts 437
365. Estoppel of a public corporation to deny its liability on an ultra
vires contract 439
366. Estoppel of a contractor with a public corporation to enforce an
ultra vires contract 443
^7. Injunction of public officials — rules 445
CHAPTER VIII.
ULTRA VIRES — PRIVATE CORPORATIONS.
I 368. The doctrine of ultra vires as explained by English courts 447
369. These rules applied by English courts to special acts of corpora-
tions 448
370. The doctrine of ultra vires as explained by United States
courts 450
371. Illustrations of acts not ultra vires the corporation 458
373. Illustrations of acts ultra vires the corporation 463
373. Leasing corporation's property and franchises for a term of
years 469
^74. Loaning funds of a corporation 476
275. Investing funds of corporation in stock of others 478
376. Birectors of an insurance company raising a guaranty capital. . . 480
377. Converting common into preferred stock 483
378. 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 , 493
381. 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.
i 383. Powers of banks generally 504
384. The guaranty of commercial paper by a bank 507
885. Acts ultra vires a bank 508
386. Taking mortgage on and purchase of real estate 509
287. Purchasing notes 512
288. Purchasing stock of corporations 516
^9. Increase of capital stock 519
TABLE OF CONTENTS VOLUME I. XV
PAOB.
890. Loans 619
291. Dividends on banlc shares 531
293. Lien of a bank on moneys and securities of its customers 533
393. Lien of a bank on shares of stockholders for their debts to the
bank 535
294. Interest received by banks 537
395. A bank's duty as to securities deposited with it 536
296. The rights of a bank as to securities pledged to it 538
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.
OFFICEKS OP BANKS.
399. Directors — their powers and duty 548
800. Jurisdiction of state courts in cases of directors of national banks
violating their duty 554
301. Jurisdiction of courts of equity in such cases 555
303. Statutory liability of directors of national banks — actions to
enforce it — rules 557
303. President — his power and duty 561
304. President's acts binding on bank — illustrations 564
305. President's acts not binding on bank — illustrations 566
806. When a bank is not, chargeable with constructive notice and
knowledge of its president 568
307. Cashier — his power and duty 569
308. Cashier's liability for his acts 578
309. Knowledge of its cashier not imputable to bank — illustrations. . 583
310. 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
813. Promise by cashier to pay draft of a customer to be drawn at a
future day not binding on the bank 588
314. Teller and bookkeeper — their powers and duties 593
CHAPTER XI.
DKPOSItS AUD CHECKS.
315. General deposits 597
316. Depositors — duty and rights , . . . . 602
317. When the ownership of a deposit is questioned — rules 607
318. Passing of title by deposit of check 610
319. Deposits in savings banks 616
320. Receiving deposits by a bank knowing its insolvency 619
321. Certificates of deposit 625
XVI TABLE OF CONTENTS VOLUME II.
PAGB.
§ 323. 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. liVheir 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
331. Payment of raised checks 675
CHAPTER XIL
COLLECTIOHS.
§ 332. General rules 681
383. 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 i . . 706
VOLUME II.
CHAPTER XIII.
INSOLVENOT OF BANK.
t 341. Rules generally 709
342. Appointment of a receiver for a national bank 713
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
846. 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 731
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. XVll
PASE.
§ 350. Claims againgt an insolvent bank — jurisdiction of court
appointing receiver 724
351. For what amount claim should be made and allowed 727
353. What a claimant may be charged with 729
353. Claim of an indorscr who paid a note not surrendered to him. . . 730
354. Debts due savings banks preferred under New Tork statute 732
355. Claims of municipal corporations for moneys deposited by their
officers 735
356. Claims preferred to general creditors — illustrations 738
857. Claims not preferred to those of general creditors — illustrations. 747
CHAPTER XIV.
LIABILITY OF BANK SHAEEHOLDBES.
§ 358. Rules generally 756
359. Rule under Minnesota statute 759
360.' Rule under Michigan statute 760
361. Stockholder relieved from liability by a sale of his stock through
a broker 762
362. Pledgee of stock incurs no liability. i . . . . 763
863. When a stockholder is relieved from liability 766
364. The rule where shares are transferred to avoid liability 766
365. When a transfer of shares does not relieve the stockholder 767
866. Liability of stockholder survives 768
367. Liability of a married woman upon shares of stock hold by her
in her own right 770
368. Rules as to actions to enforce liability of stockholders 772
CHAPTER XV.
OFPICEBS OF NATIONAL BANKS — CKMINAL ACTS.
§ 369. Misapplication of funds by officers 773
870. Making " false entries " in reports, etc 774
371. Improper certification of check 781
372. Restrictions of banking law of New Tork upon banks and their
officers 788
CHAPTER XVI.
FISCAL MANAGEMENT — PXTBLIC COBPOBATIONS.
§ 373. The power of county commissioners under statutes of Nebraska
as to purchase of lands for a poor farm 785
374. Power of a building commission of a town in Connecticut 788
375. For what purposes a board of education in Connecticut cann6t
use the public funds 789
376. Management of school funds of the state by an auditor of a county
under Indiana statutes 791
XVIU TABLE OF CONTENTS — VOLUME II.
FASI.
§ 377. Erroneous payments into the treasury of a county by a county
treasurer under Indiana statutes — his right to recover the
same 793
378. For vhat a school district may settle accbunt 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
380. The right of a de facto county treasurer to salary 796
381. Payments to city ofScial 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 — PEIVATB COKPOEATIONS.
§ 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
889. Borrowing money to pay dividends 814
390. Rescinding a declaration of dividend 815
391. Contracts withinand outside the power of private corporations. . 317
392. Rules as to estoppel to plead that contents are ultra vires 830
CHAPTER XVIII.
COTINTT BONDS.
§ 393. County bonds generally 824
894. Bonds issued for refunding indebtedness 827
395. Bonds not within the power of 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 881
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 H. XIX
PAOB.
§ 407. When statute as to presentation of claims is not applicable to
judgments upon 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 862
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 bo 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 fide purchaser 877
CHAPTER XXI.
SCHOOL DISTBICT 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.
PAQE.
§ 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
433. 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 896
CHAPTER XXII.
MUNICIPAL AID BONDS — COUNTY.
j 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
443. Conditions to subscription — the right to prescribe, etc 918
443. When authority to subscribe to stock gives no power to issue
bonds in payment 930
444. When a donation of bonds is authorized 933
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 983
450. Consolidation of railroads — effect as to county aid 934
451. Constitutionality of a Tennessee aid statute 937
453. 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 whichi 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 II. XXI
CHAPTER XXIII.
MtmiCIPAL AID BONDS — CITY.
■ • • PAOS.
I 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 effect 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.
MtTNICIPAL AID BONDS — TOWNS.
471. Aid by towns, generally 970
473. Bonds invalid unless conditions are complied with 977
473. 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 Now York statutes 983
476. The seaUng of such bonds 989
477. Proceedings under New York statutes preliminary to issue of
bonds 993
478. Bonds issued after the passage of an act authorizing a change in
their terms 993
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 cumtive act of New York 1006
XXU TABLE OF CONTENTS VOLUME II.
PAGE.
§ 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 COKPOBATIONS.
§ 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 1030
493. When principal becomes due 1031
494. Bonds — when " issued " under Wisconsin statute 1033
495. When a mortgage trustee should countersign bonds 1038
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 1037
498. Validity of bonds as aflEected 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 flde holders and when not — the rights
of such 1037
501. Holders of income bonds — rules as to an accounting with them. 1044
503. 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.
MOKTGAGES AND TRUST DEEDS — PRIVATE COKPORATIONB.
§ 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
518. Chattel mortgages of corporations 1081
513. Beeds of trust and mortgages securing directors — when properly-
given 1083
TABLE OF CONTENTS VOLUME II. XXIU
PAQE.
§ 514. The validity of mortgages as affected by restrictions, constitu-
tional, statutory, or in charter upon indebtedness to be incur-
red 1087
515. A mortgage of corporation property to pay purchase-money
debts 1089
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 corpomtion'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
537. The rights of receivers and assignees as to property of insolvent
corporation ' 1127
528. Other Tights of receivers and assignees of insolvent corporations . 1129
529. Insolvent beneficial association — rules 1131
530. Liability of stockholders on unpaid subscriptions — the court's
right to enforce and how enforced 1132
531. Creditors' bills — equitable jurisdiction 1140
582. Claims against insolvent corporation — rules as to allowances, etc. 1142
533. Rules in cases of insolvent banks 1144
CHAPTER XXVIII.
FORECLOSURE OP MORTGAGES AND TRUST DEEDS.
§ 534. Jurisdiction of actions to foreclose 1147
535. Bringing such actions — rules 1150
536. Parties to such actions .^ 1153
537. General rules as to such actions 1158
538. Decrees in such actions— general rules 1163
539. 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
643. Allowances in foreclosure suits 1182
,S:?1T TABLE OF CONTENTS VOLnME II.
CHAPTER XXIX.
BBCEIVBES IN rOKECLOSUKE SUITS.
FAGB,
3 544. 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 1194
547. The relation of the receiver to property leased by the corporation
coming into his hands 1197
548. Powers of receivers as to contracts, etc 1203
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 1237
555. Rules as to actions for in j uries 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.
PRIOBITIBS OF LIENS IN FORECIiOSUBB SUITS.
§ 558. Priorities of liens — general rules 1238
559. Debts contracted for construction 1346
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 1358
568. When cases are not properly removable to Uaited States court
from state court 12gO
TABLE OF CONTENTS VOLUME II. XXV
CHAPTER XXXI.
TAXATION BY PUBLIC CORPORATIONS.
PAGE.
I 569. General rules 1362
570. Exemption from taxes 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 1273
676. Federal taxation of incomes 1373
577. Injunction of a collection of taxes 1378
CHAPTER XXXII.
TAXATION OP PRIVATE CORPORATIONS.
§578. Generalrules 1379
579. Exemption from taxation — rules 1280
580. Taxation of corporations — rules in New York 1386
581. Taxation of corporations — rules in Pennsylvania 1290
582. Privilege tax 1392
583. Computation of such rule -. 1295
584 Taxation of banks and shares of bank stock — rules 1395
585. Taxation of railroad corporations — rules 1300
586. Taxation of insurance corporations , . . . 1306
TABLE OF CASES.
TABLE OF CASES
grhe references are to pages: vol. I contains pp. 1-707; vol. U, pp. 708-1307.]
Abbot V. American Hard Rubber Co.,
358, 274, 470, 476, 1111
Abbott V. Baltimore & Rappahannock]
Steam Packet Co., 464
Abbott V. Packet Co., 1333
Abby V. Billups, 163
Aberdeen Railway Co. y. Blakie, 342,
I 251, 359, 264, 283, 316
Ackerman v. Halsey, 347, 553
Ackley School District v. Hall, 879
Adair v. Brimmer, 865
Adair v. Robinson, 1399
Adams v. Cross wood Printing Co.,
203
Adams v. Davis, 1372
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
Adam* & Westlake Co. v. Deyette,
110
Adamson v. Auditor, 133
Adderley v Storm, 757
Addis V. City, 109
Addison v. Lewis, 363, 1096, 1108, 1358
Adelbert College of Western Reserve
University v. Toledo, W. & W.
Ry. Co., 1361
Adrian Waterworks v. City of Adrian,
70
Adriance v. Rome, 151
Advertiser & Tribune Co. v. Detroit,
112
jEtna Insurance Co. v. Wires, 173
.^tna Life Insurance Co. v. Lyon
County, 839, 840, 841, 848
.^tna Life Insurance Co. v. Middle-
port, 930
jEtna Nat. Bank v. Charter Oak Life
Ins. Co., 80, 465
.^tna N&i. Bank v. Fourth Nat. Bank,
598, 640, 653, 666
Agawam Nat. Bank v. South Hadley,
231
Agricultural Bank v. Bissell, 529
Ahem v. Goodspeed, 984
AM v. Rhoads, 1088, 1090
Aiken v. Marine Bank, 561
Aikman v. School .Jistrict, 889, 891
Aimen v. Hardin, 416
Akin V. Jones, 665, 666
Alabama & Georgia Mfg. Co. v. Rob-
inson, 1033, 1154
Alabama Gold Life Ins. Co. v. Central,
etc., Assn., 74, 103
Alabama Great So. R. R. Co. v. South
& No. Ala. R. R. Co., 334
Alabama Iron &. Ry. Co. v. Anniston
Loan & Trust Co., 1313
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., 1134
Alderson v. Charles County, 138
Aldrich v. Dunham, 603
Alexander v. Brown, 151, 197
Alexander v. Burchfield, 658
Alexander v. Central Railroad of Iowa,
1153
Alexander v. Cauldwell, 146, 466, 469,
567
Alexander v. Learey, 316
Alexander v. Tolleston Club of Chi-
cago, 494
Alford V. Miller, 350
Allard v. Gaston, 975
Allegheny City v. McClurksan, 65,
108, 942
AUegbeny County v. McKeesport Dia-
mond Market, 1267
Allegheny County v. Western Penn-
sylvania Hospital, 133
Allen V. Addington, 394
Allen V. Bank, 576
Allen V. Citizens' St. Nav. Co., 143,
144, 333
Allen v. City of Janesville, 65
Allen V. Clark, 395, 396
Allen V. Commercial Bank, 650
Allen V. Curtis, 306, 311, 560
XXX
TABLE Of CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. H, pp. 708-1307.]
Allen V. First Nat. Bank, Xenia, 510,
520
Allen V. Fourth Nat. Bank, 673
Allen V. Inhabitants of Jay, 43, 44
Allen V. Louisiana, 71
Allen V. Montgomery E. B. Co., 91,
1054, 1077
Allen V. St. Louis Bank, 539
Allen V. South Boston R. E. Co., 335,
343
Allen V. Sullivan E. R. Co., 1014
Allen V. Suydam, 681
Allen V. Taunton, 33
Allen V. Walsh, 388
Allen y. 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. B. Co., 46
Allison V. Railway Company, 946
Alston V. State, 754
Alta Silver Mining Co. v. Alta Placer
Mining Co., 1075
Alton V. MuUedy, 445
Alves V. Bank, 528
Alvord V. Syracuse Sav. Bank, 986
American Bridge Co. v. Heidelbach,
1222
American Central B. B. Co. v. Miles,
279, 356
American Construction Co. v. Jackson-
ville, T. & K. W. By. 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. E. Co. of Ala. (Jersey
City Iron Co., Intervener), 1246
American Loan Trust Co. v. St. Louis
& Chicago By. Co., 1048
American Loan & Trust Co. v. Toledo,
C. & S. B.J. Co., 1018
American National Bank v. American
Wood Paper Co., 1043
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, 1379
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 By. Co., 1209
Amey v. Mayor, etc., 49
Anderson v. Armstead, 627
Anderson V. Blattau, 637
Anderson v. Kerns Draining Co., 870
Anderson v. Kinley, 839
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. Eailroad Company, 1177
Anderson v. Eogers, 704
Anderson v. Santa Anna, 939
Anderson v. Sibley, 995
Anderson v. Speers, 400
Anderson County v. Pocola & Fall
EiverEy. 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, 131
Andrews v. Insurance Co., 493
Andrews v. Kings County, 1297
Andrews v. National Foundry & Pipe
Works, 1099
Andrews v. Suffolk Ba,nk, 688
Anf enger v. Anzeiger Publishing Co. ,
384
Angel V. Town of Hume, 993
Angle V. Chicago, St. P., Minn. &
Omaha By. Co., 462
Anheuser-Busch Brewing Co. v. Clay-
ton, 753, 754
Anhouser-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
ArcTier v. Waterworks Company, 1121
Ardesco Oil Co. v. North American
Co., 473
Argente v. San Francisco, 5, 65, 233,
441, 444, 788, 943
Arkansas Valley Agr. Society v. Eich-
holtz, 257
Armour Bros. Bkg. Co. v. Board, etc.,
of Finney County, 808
Armstrong v. American Exchange
Nat. Bank, 628
Armstrong v. Chemical Nat. Bank, 544
TABLE OF OASES.
XSSI
[The references are to pages: vol. I contains pp. 1-70?; vol. II, pp. 708-1307.]
Armstrong v. Cowles, 418
Armstrong v. Bttlesohn, 730
Armstrong v. Exchange Nat. Bank,
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, 536
Arnold v. Weimer, 733
Arnot V. Erie Ry. Co., 1053
Arnott V. City of Spokane, 437
Arthur v. Qriswold, 410
Arthur v. School District of Polk
Borough, 1363
Ascherman v. Bank, 1139
Ashburg Railway Carriage & Iron Co.
V. Rlche, 449, 451
Asher v. Bank, 600
Asher v. Sutton, 193, 563
Asher v. Texas, 1367
Ashhurst's Appeal, 1084, 1113
Ashley v. Board, 880
Ashley v. Board of Supervisors of
Presque Isle County, 837, 844
Ashley v. Kinnan, 380
Ashley v. Ryan, 1394
Ashenbrodel Club v. Finlay, 470
Ashuelot Manufg. Co. v. Marsh, 198
Ashuelot Nat. Bank of Keene v.
School Dist. No. 7, Valley County,
884
Ashuelot Railroad v. Elliot, 265,
1047
Ashurst's Appeal, 383
Aspinwall v. Butler, 519
Aspinwall v. Sacchi, 390
Association v. Austin, 738
Association for Colored Orphans v.
Mayor, etc., of New York, 1389
Atchison v. Butcher, 851
Atchison Board of Education v. De
Kay, 888, 889
Atchison, T. & S. 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., 1358
Atkinson v. Rochester Printing Co.,
633, 636, 753
Atlanta & Florida R. R. Co. v. Western
Ry. Co. of Alabama, 1141
Atlanta Hill Mining Co. v. Andrews,
350
Atlantic Bank v. Merchants' Bank,
330, 333
Atlantic Cotton Mills v. Indian Or-
chard Mills, 329, 338
Atlantic City Water Works Co. v.
Read, 70
Atlantic & N. C. R. R. Co. v. Cowles,
353
Atlantic & Pac. R. R. Co. v. Le Sueur,
1383, 1300
A. & P. R. R. Co. V. St. Louis, 493
Atlantic & Pao. Ry. Co. v. Yavapai
County, 1303
Atlantic State Bank of Brooklyn v.
Savery, 538
Atlantic Trust Co. v. Proceeds of the
Vigilancla, 1066
Atlantic Trust Co. of New York v.
Town of Darlington, 1012
Atlantic Water Works v. Atlantic
City, 30
Atlas Bank v. Nahant Bank, 1118
Atlas Nat. Bank v. Savery, 515, 516
Attaway v. Third National Bank,
345
Attorney-General v. Aspinall, 121,
349 .
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, 103
Attorney-General v. Lichfield, 131
Attorney -General v. Norwich, 131
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. Huntington, 413
Atwater v. American Exchange Nat.
Bank, 1134
Atwood V. Merry weather, 298, 334
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, 933
Augusta Bank v. Hamlin, 175
Augusta, T. & G. R. Co. v. Kittel,
336, 354, 836, 1076, 1079, 1097
Aurora Agr. & Hort. Society v. Pad-
dock, 163, 1078.
Aurora & Cincinnati R. Co. v. City of
Laurenceburgh, 455
Aurora City v. West, 946, 955
Austin v. Berlin, 384
Austin V. Daniels, 347, 365
xxxu.
TABLE OF OASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.]
Austin V. District Township of Col-
ony, 140, 840
Austin V. Gas Company, 1264
Australian Steamship Co. v. Mounsey,
103
Auxiliary Company v. Vickers, 1131
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, 1263
Aymar v. Boers, 703
Ayrault v. Paciiic Bank, 688
Ayres v. Bank, 601
B.
Babbitt v. Savoy, 35, 60
Babcock v. Goodrich, 118
Bachellor v. I*riest, 703
Bachrach v. Norton, 730
Bacon v. Irvine, 316
Bacon v. Mississippi Ins. Co., 99, 183
Bacon v. Pomeroy,' 769
Badger v. Badger, 168
Badger v. Bank of Cumberland, 571
Baer v. En^ish, 1146
Bagaley v. Pittsburg Iron Co., 198
Bagnall v. Carlton, 360, 297, 298, 299
Bagnall v. State of Wisconsin, 1299
Bagshaw v. Eastern Union Railwav
Co., 300, 450, 471
Bagshaw v. Seymour, 371, 394
Bailey v. Bidwell, 621
Bailey v. Mayor, etc., 39, 394
Bailey v. Murphy, 580
Bailey v. Pittsburg & Connellsville
Gas, Coal & Coke Co., 166
Bailey v. Sawyer, 773
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. Inlxabitants of Windham, 63
Baker v. Johnson County, 134
Baker v. North Western Guaranty
Loan Co., 490, 831
Baker V. Railroad Co., 305
Bakewell v. Police Jury, 871
Balbach v. Frelinghuysen, 613, 614,
709, 713
Balch V. Wilson, 710, 713.
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 & Pliiladelphia Steamboat
Co. V. McCutcheon, 191, 310
Bait., etc., R. R. Co. v. Wilkens, 334
Bainbrick v. Campbell, 191, 310
Bancroft v. Lynnfield, 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, 693
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, 693, 705
Bank v. Butchers', etc.. Bank, 170
Bank v. Butler, 545
Bank v. Calder, 573
Bank v. Carpenter, 527
Bank v. Case, 772
Bank v. Childs, 537
Bank v. Christopher, 571, 583
Bank v. Church, 309
Bank v. City of St. Joseph, 866
Bank v. Colby, 545
Bank v. Comegys, 307
Bank v. Cortright, 807
Bank v. Cunningham, 571
Bank v. Cupps, 670
Bank v. Davis, 535
Bank v. Dearing, 775
Bank v. Diefendorf, 630
Bank v. Dowd, 626, 731, 750, 753
Bank v. Dunn, 193, 193, 216, 317, 588
Bank v. Flagg, 690
Bank v. Foreman, 643
Bank v. Gillespie, 736
Bank v. Goetz, 753
Bank v. Goodman, 683, 693, 705
Bank V. Grace, 433
Bank v. Graham, 546
Bank v. Green, 620, 668
Bank v. Gruber, 539
Bank v. Headley, 600
TABLE OF CASES.
XXXlll
[The references are to pages: vol, I contains pp. 1-707; vol. II, pp. 708-1307.]
Bank v. Henninger, 533, 643
Bank v. Higbee, 605
Bank v. Hoch, 563
Bank v. Hooper, 359
Bank v. Howard, 655
Bank V. Hubbell, 618, 706
Bank v. Hughes, 523
Bank v. Johnson, 537
Bank v. Jones, 173, 316, 641
Bank v. Keavy, 580
Bank v. Keim, 561
Bank v. Kennedy, 555
Bank v. Kidder, 1155
Bank v. King, 731, 731
Bank v. Lanier, 517, 763
Bank v. Leach, 651
Bank v. Le Grand, 642
Bank v. Littell, 538
Bank v. Lovitt, 583
Bank v. Loyped, 583
Bank v. Mason, 609
Bank v. Matthews, 495, 943
Bank v. Miller, 617
Bank v. Mixter, 716
Banii V. Neaso, 583
Bank v. North, 943
Bank v. Noxon, 630
Bank v. Patterson, 33, 73, 98, 143, 145,
146, 263
Bank v. Peck, 523
Bank v. Pepom, 577
Bank v. Poisart, 563
Bank v. Porter Township, 866
Bank v. Railway Co., 665
Bank v. Richards, 655
Bank v. Russell, 753, 754
Bank v. Savery, 583
Bank v. Schaumburg, 583
Bank v. Schrauck, 1117
Bank v. Schreiner, 640
Bank V. Schuler, 645
Bank v. Sherburne, 514
Bank v. Simpson, 514
Bank v. Smith, 535, 600, 617
Bankv. South Hadley, 114
Bank v. StrauSer, 537
Bank v. Stover, 535
Bank v. Sullivan, 504
Bank v. Tennessee, 1101
Bank v. Walker, 736
Bank v. Wallace, 690
Bank v. Wasson, 1084
Bank v. Weems, 533
Bank v. Weil, 659
Bank V. Whittle, 1084, 1113
Bank v. Wiegand, 563
Bank v. Williams, 629
Bank v. Winchester, 337
Bank v. Wulfekuhler, 341, 1117
Bank of Alexandria v. Sanders, 508
Bank of America v. Indiana Bkg. Co.,
645, 656, 657
Bank of America v. McNeil, 537
Bank of Attica v. Pettier & Stymus
Mfg. Co., 151, 156, 197,
Bank of Auburn v. Putnami, 389
Bank of Augusta v. Earle. 95, 478
Bank of Batavia v. New York, L. E. &
W. R. R. Co., 149, 339, 333, 986
Bank of Bennington v. Raymond, 700
Bank of British North America v.
Merchants' Nat. Bank of New
fork, 667. 673
Bank of Carlisle v. Graham, 366
Bank of Chillicothe v. Chillicothe, 5,
6, 103
Bank of Chillicothe v. Swayne, 90, 529
Bank of Columbia v. McKenney, 691
Bank of Columbus v. Bruce, 76
Bank of Commerce v. Hart, 517, 577
Bank Comrs. v. Bank of Buffalo,
550
Bank of Genesee v. Patchin, 78, 173,
333, 360, 465, 508
Bank of Healdsburg v. Bailhaoke, 174,
379
Bank of Holly Springs v. Pinson, 535
Bank of Huntsville v. Hill, 580
Bank of Ireland v. Evans' Charities,
344
Bank of Kentucky v. Schuylkill Bank,
333, 338, 339, 1079
Bank of Lindsborg v. Ober, 686
Bank of Louisiana v. Strusburg, 537
Bank of Louisiana v. Sterling, 537
Bank of Maryland v. Ruff, 158
Bank of Metropolis v. Guttschlick, 146
Bank of Metropolis v. Jones, 576
Bank of the" Metropolis v. First Nat.
Bank of Jersey City, 706
Bank of Middlebury v. Bingham, 538
Bank of Middlebury v. Edgerton, 471
Bank of Middlebury v. Rutland R. R.
Co., 144, 195
Bank of Mobile v. Huggins, 681
Bank of Montreal v. Dewar, 627
Bank of Montreal v. J. E. Potts Salt
& Lumber Co., 353, 1071, 1081,
1115
Bank of Montreal v. White, 644
Bank Mutual Redemption v. Hill, 551
Bank of New Hanover v. Kenan, 697
Bank of New York v. American Dock
& Trust Co., 157
Bank of New York v. Bank of Ohio,
573
Bank of North America v. Tamblyn,
506
Bank of Pennsylvania's Estate, 713
Bank of Peru v. Farnsworth, 627
Bank of Pittsburgh v. Neal, 980
Bank of Poughkeepsie v. IbbotBon,
380
Bank of Republic v. Baxter, 631
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; Tol. II, pp. 708-1307.1
Bank of the Republic v. Millard, 397,
645, 651, 662, 664
Bank of Rome v. Village of Rome, 49,
985, 1007
Bank of St. Albans v. Fanners' 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, 65S
Bank of U. S. v. Bank of Georgia,
673, 677
Bank of United States v. Dandridge,
82, 146, 204, 340
Bank of U. S. v. Davis, 361
Bank of United States v. Lane, 686
Bank of the United States v. Macales-
ter, 603
Bank of the University v. Hamilton,
363
Bank of Utica v. Smalley, 763
Bank of Vergennes v. Warren, 154
Bank of Washington v. Triplett &
Neale, 681
Bank of Yolo v. AVeaver, 151
Banks v. New York Club, 157
Bannock County v. Bunting, 13
Banque Fianco-Egyptienne 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. Totteu, 1140
Barclay v. Culver, 1289
Barcus v. Hannibal, Rolls County &
P. P. R. Co., 180'
Bareno v. Hannibal, RoUo Co. & P. R.
R. Co., 180
Bard v. City of Augusta. 45, 952
Bard 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. Kornegay, 1283, 1284
Barnes v. Ontario IBank, 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, 1000
Barr v. New York, L. E. & W. R. R.
Co., 257, 268, 278, 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, 1289
Barry v. Missouri, Kansas, etc., Ry.
Co., 1045
Bartemeyer v. Rohefs, 900, 906, 953
Bartholomew v. Bentley, 248, 369
Bartlett v. Drew, 1138
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 B. E.
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, 985
Bath County v. Amy, 944
Butler V. Brandy wine, 135
Battle V. North Western Cement Co.,
263
Battle V. Corporation of Mobile, 48
Bauer v. Franklin County, 129, 437
Bauer v. Piatt, 379, 380
Bauragartner v. Hasty, 38
Bay City Bridge Co. v. Van Etten, 312
Bayless v. Orne, 305
Bayor v. Schaffner & Co.'s Estate,
1145
Bay View Homestead Assn. v. Wil-
liams, 353
Beach v. Inhabitants of Conwav,
133
Beach v. Miller, 239, 253, 1087
Beal V. City of Somerville, 611
TABLE OF OASES.
XXXT
[The references are to pages: vol. I contains pp. 1-707; vol. H, pp. 708-1307.]
Beal V. National Exchange Bank of
Dallas, 710
Beal V. Railroad Co., 348, 1163
Beal V. St. Croix County, 133
Beaman v. Leake County, 930
Beman v. Ruflord, 471
Bearee v. Township, 185
Beardsley v. Ontario Bank, 1096
Beattie v. Del., L. & W. Railroad Co.,
333, 333
Beaty v. Lessee of Knowler, 50, 478
Beaver v. Armstrong, 946
Beaver Dam v. Frings, 138
Beck V. Kantorovricz, 398
Beckwith v. Windsor Manufe. Co.,
143
Bedford R. R. Co. v. Bowser, 166, 358,
365, 471
Beebe v. Board, etc., 57
Beebe v. Richmond Light, Heat &
Power Co., 1066
Beecher v. Dacy, 93
Beecher v. Rolling Mill Company,
1034, 1069
Beecher v. SchiefEelin, 309, 310
Beekman v. Saratoga & Schenectady
R R. Co., 917, 958
Beeman v. Black, 1013
Beeney, County Treasurer, v. Irwin,
116
Beers v. Bridgeport Spring Co., 816
Beers v. New York Life Ins. Co., 863
Beers v. Phoenix Glass Co., 73, 102,
153
Belden v. Burke, 363, 1057
Belknap v. Davis, 218, 365
Belknap v. North American Bank,
668
Bell v. Chicago, St. L. & N. O. R. R.
Co., 964, 1055
Bell V. Hagerstown Bank, 686
Bell V. Hanover National Bank, 535,
564
Bell V. Live Stock Co., 430
Bell V. Mali, 387
Bell V. Montgomery Light Co., 318
Bell V. Platteville, 48
Belleville Savings Bank v. Winslow,
198
Bell's Gap Railroad Co. v. Pennsylva-
nia, 1291
Belmont v. Erie Ry. Co., 1043
Bement v. Plattsburg & Montreal R.
R. Co.. 1077, 1082
Benedict v. Construction Companv,
1133
Benedict v. Lansing, 98, 150, 153, 173
Benedict v. Rose, 690
Benefit Assn. v. Blue, 496
Benjamin v. Elmira, Jefferson & Can-
andaigua R. R. Co., 1014
Benjamin v. Wheeler, 19
Bennett v. Glenn, Trustee, 1138
Bennett v. Great Western Telegraph
Co., 1140
Benoit v. Inhabitants of Conway, 184
Benseik v. Thomas, 491
Benson v. Heathorn, 343
Benson v. Waukesha, 43
Bentley v. Columbia Ins. Co., 343
Benton v. German-American Nat.
Bank, 583
Bergen v. Fishing Company, 1086
Berks County v. Pile, 133
Berlin v. New Britain, 760
Berlin Iron Bridge Co. v. City of San'
Antonio, 489
Bernard's Township v. Stebbins, 991
Berry, Recr., v. Yates, 478
Boston V. Walten, 350
Beveridge v. Railroad Co., 476
Beverley v. Lincoln Gas Co., 98, 334
Bezon, Comr., v. Pike, 89
Bibby v. Hall, 834
Bickford v. First Nat. Bank of Chi-
cago, 357, 645, 653, 697
Bicknell v. Widner School Township,
30, 133, 437
Biddle v. City of Terrell, 439
Bien v. Bear River & 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,
383
Bingham v. Stewart, 358
Binney's Case, 73
Bird V. Daggett, 153, 310, 337
Bird Coal & Iron Co. v. Humes, 343
Birdsall v. Clark, 59
Bischoffsheim v. Brown, 1016
Bishop V. Houghton, 313
Bishop V. Moorman, 874
Bi-Spool Sewing Machine Co. v.
Acme Mfg. Co., 156
Bishop V. City of JefEersonville, 897
Bissell V. City of Kankakee, 567, 853,
949
Bissell V. Mich. So. & No. Ind. R. R.
Co., 106, 153, 309, 333, 453, 469,
471, 491, 546
Bissell, Receiver, v. Heath, 761
Black V. Delaware, etc., Canal Co.,
471
Black V. Skreeve, 1051
Blackley v. Andrew, 658
Blackman v. Lehman, 11, 952
Blackshire v. Iowa Homestead Co.,
805, 1071
Blain v. Agar, 394
Blaine v. Brown, 706
Blair v. Corning County, 917, 947, 948
Blair V. Perpetual Ins. Co., 463
XXXVl
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 70&-1307.]
Board, etc., v. Ward, 123
Board, etc., v. Webb, 136, 442
Board, etc., v. Welder, 836
Blair V. Lewis, Hannibal, etc., R. R.
Co., 1173, 1193, 1194, 1221, 1238
Blake v. BufCalo Creek R. R. Co., 351,
260, 382
Blake v. Griswold, 412
Blake v. HoUey, 155, 173
Blanchard v. Kaull, 350
Blanchard's Gun-8tock Turning Fac-
tory V. Warner, 74
Bland v. Commercial & Railroad Bank,
688
Blanding v. Burr, 49, 933
Blanding v. Davenport, I. & D. R.
Co., 151
Blanton v. Board of County Comrs.,
907
Blaadel v. Locke, 617
Blatchford v. Ross, 348, 360
Bletz V. Columbia Nat. Bank, 554
Bliss V. Anderson, 463
Bliss V. Kavreah Canal & Irrigation
Co., 193, 204
Bliss V. Matteson, 260, 383
Block T. Commissioners, 955
Blodgett V. Gardiner, 522
Blood V. Marcuse, 180
Bloodgood V. Mohawk & Hudson R.
R. R. Co., 958
Bloomington v. Chicago & Alton R.
R. Co., 1368
Blount V. Windley, 718
Bloxham v. Florida Central & P. R.
R. Co., 1305
Blum V. Looney, 831
Board v. Senn, 1373
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, 23, 874
Board, etc., v. Hon, 31
Board, etc., v. Jennings, 31
Board, etc., v. La Fayette, M. & B.
R. R. Co., 470, 471
Board, etc., v. Lomax, 131
Board, etc., v. McClintock, 17
Board, etc., v. Nelson, 376
Board, etc., v. O'Connor, 133
Board, etc., v. People ex rel., 800
Board, etc., v. Roenner, 136
Board, etc., v, Reynolds, 471
Board, etc., v. Richardson, 133
Board, etc., v. Beaton, 31
Board, etc., v. Taylor, 63, 64
Board, etc., v. Verburg, 121
Baard of Comrs. v. Bright, 949
Board of Commissioners v. State, 971
Board of Comrs. of Gilson County v.
Tichenor, 793
Board Comrs. Hamilton County v.
State, 935
Board of Comrs. of Kingman County
V. Cornell University, 942
Board of Education v. Fonda, 990
Board of Education v. Fowler, 883
Board of Education v. Martin, 883
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. Welder, 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
BoUes 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. Iilanufg. Co., 490, 495
Bondv. Terrell Cotton & Woolen Mfg.
Co., 831
Bonesteel v. City of New York, 113
Bonnell v. County of Nuckolls, 67
Bonnell v. Griswold, 393, 413
Booe V. Junction R. R. Co., 471
Book Company v. De Golyer, 1118
Boom v. Utica, 5, 114
Booth V. Bank, 183, 190, 331
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, 683
Bosler's Admr. v. Bank, 718
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
TABLE OF CASES.
XXXVU
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Boston, 0. & M. R. R. Co. v. State,
1300
Boston & Roxbury Mill Corporation v.
Newman, 917
Boston Safe Deposit Trust Co. v.
Adrian, Mich., Water Works,
1183
Boiton Safe Deposit & Trust Co. v.
Bankers & Merchants' Telegraph
Co., 1096
Bothwell V. Milhkan, 1273
Botsford V. New Haven, Middletown,
etc.,R. R. Co., 1249
Bottomley v. Fisher, 360
Boughton V. Otis, 384, 390
Bound V. South Carolina Ry. Co.,
1103, 1160, 1167, 1171, 1184, 1185,
1219, 1241, 1260
Bound V. South Carolina Ry. Co., Ex
parte Mitchell, 1334
Bound V. South Carolina R. R. Co.,
Ex parte Walker ; Ex parte Cal-
der, 1184
Bound V. South Carolina Ry. Co.
(Mayfield, Intervener), 1172
Bound V. South Carolina Ry. Co.
(Quintard, Intervener), 1260
Bourdeaux v. Cognard, 438
Bowden v. Johnson, 764, 767
Bowen v. Morris, 98
Bowers v. Evans, 758
Bowen v. Newell, 656
Bowles V. Lambert, 359
Bowles V. State. 870
Bowman Dairy Co. v. Mooney, 820
Bowyer v. Camden, 1086
Boyce v. Montauk Coal & Gas Co.,
1069
Boyce v. Tabb, 982
Boyd V. Beck, 568
Boyd V. Emmerson, 601, 698
Boyd V. Mexico Southern Bank, 650
Boyd V. Sims, 316
Boyden v. Bank of Cape Fear, 597,
635
Boydston v. Rockwall County, 117
Boyer v. Boyer, 1397
Boyington v. Wilson Sewing Machine
Co., 195
Boyle V. Thurber, 413
Boynton v. Hatch, 166
Braokett v. Griswold, 393, 413
Bradbury v. Boston Canoe Co., 85
Bradlee v. Warren Savings Bank,
179
Bradley v. Ballard, 75, 103, 107, 153,
489, 496, 942
Bradley v. Farwell, 1108
Bradley v. Poole, 291
Brady v. Mayor, etc., 995
Brady v. Supervisors, etc., 57
Brady v. Mayor, etc., of Brooklyn, 379
Brady v. Mayor, etc., 5, 30, 103
Brady v. Mayor of New York, 444
Brady v. Mayor, etc., 831
Brahm v. Adkins, 598, 600, 604, 649
Brainard v. New York & Harlem R.
R. Co., 955, 1014
Brainerd v. New York Central R. R.
Co., 985
Bmnch v. Jessup, 93, 473, 1096
Branch Bank at Huntsville v. Steele,
583
Branch Bank at Mobile v. Collins,
549
Branch Bank at Mobile v. Scott, 549
Branch Bank at Montgomery v. Har-
rison, 528
Branch Bank at Montgomery v. Knox,
515, 681, 699, 700
Branch Bank at Mobile v. Strother,
528
Branch, Sons & Co. v. Atlantic &
Gulf R. R. Co., 1077
Brandt v. Goodwin, 397, 411
Brandao v. Barrett, 524
Braslin v. Somerville Horse R. R. Co.,
465
Breckenridge County v. McCracken,
930, 931, 946, 947, 948
Breene v. Bank, 736
Breitung v. Lindauer, 416
Bremen Savings Bank v. Branch
Crookes Law Co., 361
Brenham v. German-American Bank,
13, 14, 864, 884, 1000
Brennan v. Mississippi Home Ins. Co.,
1307
Brennan v. Titusville, 1367
Brent v. Bank of Washington, 535,
526
Brewer v. Boston Theatre, 306, 317,
324, 325
Brewer v. Otoe County, 788, 804
Brewster v. Hatch, 360
Brewster v. Hyde, 857
Brewster v. Stretman, 271
Bridenbecker v. Lowell, 170, 574
Bridgeport v. Railroad, 979
Bridgeport Bank v. Dyer, 658
Bridgeport City Bank v. Empire Stone
Dressing Co., 78, 153, 465
Briggs V. Bank, 692
Briggs V. Partridge, 360
Briggs V. Spaulding, 303, 347, 351,
553
Briggs V. Whipple, 63
Bright V. Banking Co., 506
Bright V. McCullough, 870
Bright V. Metairie Cemetery Assn.,
181
BrinckerhofE v. Marvin, 1058
BrinkerhofE v. Bostwick, 348, 555, 556,
560
XXXVIU
TABLE OF CASES.
[The references aire to pages: vol. I centains pp. 1-707; vol. II, pp. 708-130".
Brinkman v. Hunter, 654
Brinkmeyer v. City of ETansvllle, 19
Brinkworth v. Grable, 969
Briscoe V. Allison, 929
Bristol V. Scranton, 359
British & American Mortgage Co. v.
Tibballs, 687
British Coral. Life Ins. Co. v. Comrs.
of Taxes, 1287
Briton V. Mayor, etc., 29
Brockert v. Central Iowa Ry. Co.,
1227
Brockman v. Metcalf , 154
Brockway v. Allen, 359
Brode v. Firemen's Ins. Co., 13, 100
Broadhead v. Milwaukee, 49, 957
Brodie v. McCahe, 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 Road Co. v.
Slaughter, 183
Boughton V. Manchester Water
Works, 73, 90, 98
Broughton v. Pensacola, 844
Brouwer v. Appleby, 193
Brouwer v. Harbeck, 111, 1117
Brower v. Brooklyn Trust Co., 334
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,
1083, 1085, 1120
Brown v. Houston, 1393
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. SpofEord, 980
Brown v. Supply Company, 1057,
1075
Brown v. Maryland, 1018, 1367
Brown v. Toledo, P. & W. R. R. Co.,
1199, 1303
Brown v. Weymouth, 180
Brown v. Winnisimmet, 93
Brown v. Wright, 197, 239
Browne v. National Color Printing
Co., 299
Brovvuell v. Town of Greenwich, 983,
984, 993
Brownlie v. Campbell, 298
Bruce v. Piatt, 394, 398, 399
Bruff V. Mali, 286, 287
Brunswick-Balke-CoUendcr Co. v.
Boutell, 358
Brush V. City of Carbondale, 131
Bryan v. Page, 446
Buchanan v. Litchfield, 66, 839, 855,
897, 929, 968
Buck V. Barder, 890
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, 385, 1074, 1084,
1108, 1113
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. Lampson,
350
Buffit V. Ti-oy & 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
BuUard v. Randall, 664
BuUene 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, 268
Bunting v. Camden & Atlantic R. R.
Co., 1043
BurlDank v. Dennis, 300
Burch v. Paper Company, 144
Burdon v. Association, 1118
Burger v. Burger, 608
Burges v. Mabin, 906
Burgess v. Pue, 143, 144
Burgess v. Seligman, 983
Burke v. Smith, 258
Burkhalter v. Second National Bank,
648
Burkinshaw v. Nicolls, 328
Burley v. Marsh, 360
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.
XXXIX
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.]
Burnham v. Bowen, 1220, 1222, 1239
Buvnham v. Strafford, 137
Burnham v. Webster, 571, 681
Burr V. City of Carbondale, 37, 70,
850
Burr V. McDonald, 75, 1108
Burrall v. Bushwick R. R. Co., 1289
Burrill V. Nahant Bank, 671, 1074,
1075
Burrill v. Boston, 446
Burroughs v. Richmond Counter, 946
Burroughs & Springs v. Commission-
ers, 1047
Burrow v. Zapp, 525
Burrows v. Bangs, 630
Burt V. Railroad Co., 880
Burt V. Rattle, 94, 1055
Burton v. Norwich, 138
Bush V. Sprague. 547
Burnett v. First Nat. Bank, 609
Bush V. Wolf, 116
Bushnell v. Beloit, 48, 49, 958
Bushwick, etc.. Turnpike Co. v. Eb-
betts, 348
Bussey v. Gilmore, 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, 391, 393, 418
Butler V. Sullivan County, 57
Butte Hardware Co. v. Schwab, 470
Butte County v. Morgan, 374
Butternut v. O'Malley, 138
Butts V. Little, 67
Butts V. Wood, 242, 247, 250, 2^9, 280,
282, 283, 309, 365, 556
Butts V. Cuthbertson, 142
Butz V. City of Muscatine, 982
Byer v, Rollins, 316
Cabaniss v. Hill, 67
Cable V. Gatv, 389, 415
Cable V. McCune, 889, 415
Cady V. Sauford, 417
Cady V. Watertown, 189
Cagwin v. Town of Hancock, 985, 986
Cagswell V. Ball, 311
Cahlll V. Kal. Mut. Ins. Co., 144, 161
Cairo v. Vane, 893, 966
Cairo & St. Louis R. R. Co. v. City of
Sparta, 954
Cairo, "V. & C. Ry. Co. v. Mathews,
1304
Cake V, Bouck, 562
Caldwell v. Justices of Burke, 49
Caldwell v. Nat. Mohawk Valley
Bank, 571
Caledonia & Dumbartonville Ry. v.
Magistrates of Helensburgh, 450
Calhoun v. Memphis & Paducah R. R.
Co., 1096
California Safe Deposit & Trust Co.
V. Cheney Electric Light, Tele-
phone & Power Co., 1149
California State Telegraph Co. v.
Alta Telegraph Co., 454
Callanan v. Brown, 824
Callaway M. & M. Co. v. Clark, 92,
819
Calumet Paper Co. v. Stotts Invest-
ment Co., 1140
Calvert v. Idaho Stage Company, 144
Cambridge Water works v. Somer-
ville Dyeing & Bleaching Co., 387
Camden v. Stuart, 1028
Camden & Atlantic R. R. Co. v. May's
Landing & Egg Harbor City R.
R. Co., 822
Cameron v. First Nat. Bank, 470
Cameron v. Seaman, 391, 392
Campbell v. American Zylonite Co.,
485
Campbell v. Argenta Gold & Silver
Mining Co.. 821
Campbell v. Merchants & Fanners'
Ins. Co., 158
Campbell v. Mississippi Union Bank,
505
Campbell v. Morgan, 310
Campbell v. Paris & Decatur R. R.
Co 971 973
Campbell v. Pope, 158, 238, 234
Campbell v. Texas & N. D. R. R. Co.,
1054
Canada Southern R. R. Co. v. Geb-
hard, 1080
Canal Bridge v. GordeJn, 263
Cantillon v. Dubuque & N. W. R. R.
Co., 976
Capitol State Bank v. Lane, 628
Carey v. Giles, 98, 178
Carey v. Houston & Texas Central
Ry. Co., 1147, 1165
Carley v. Graves, 749
Carling'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, 810
Carpenter v. Union, 446
Carr v. Hamilton, 718
Carr v. Le Fevre, 1014
Carr v. Risher, 890
Carr v. State, 1146
Carrigan v. Port Crescent Imp. Com-
pany, 155
xl
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-70?; vol. II, pp. 708-1307.]
Carroll v. Slebenhaler, 118
Carroll County v. Smith, 911, 912, 957
CarsoD City Sav. Bk. v. Carson City
Elevator Co., 470, 489, 496
Carter v. City of Dubuque, 56
Carter v. City of New Orleans, 1177
Carter v. Ford, etc., Co., 315
Carter v. Glass Co. , 560
Carter v. Hightower, 1129
Carter v. Palmer, 251
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. McElrath, 191
Casco Nat. Bank of Portland v. Clark,
359
Case V. Bank, 226, 567, 729
Case V. Beauregard, 750, 1140
Case V. Hawkins, 191
Case Y. Morris, 6.57
Case V, Wresler, 800
Case of Bowton, 615
Case of Sargeant, 615
Casey v. Galli, 773
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
Gate 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
Gavin v. Gleason, 751
Caylus V. New York, K. & 8. R. R.
Co., 1043, 1043
Cazeaux v. Mali, 287, 291, 309
C, B. U. P. R. R. Co. V. Smith, 899,
903
Ceeder v. H. M. Loud & Sons Lumber
Co., 198, 210, 233
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. Piatt,
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., 364, 1163
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. "Wabash, St. L. &
Pac. Ry. Co., 1185, 1202, 1206,
1222, 1335, 1233, 1236
Central Trust Co. v. "W"abash, St. L. &
Pac. Ry. Co. (Swayne, Intervener),
1219
Central Trust Co. of New York v.-
Bridges, 1338, 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-
"VTan-en Lumber Co., Intervener),
1179
Central Trust Co. of New York v.
Cincinnati, J. & M. Ry. Co. 1243
Central Trust of New "york v. East
Tennessee, Va. & Ga. R. R. Co.,
1333, 1335
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, 1318
Central Trust Co. of New York v.
Marietta & No. Ga. Ry. Co. (Hia-
wassee Co., Intervener), 1316
Central Trust Co. of New York v.
Marietta & No. Ga. R. R. Co.
TABLE OF CASES.
xli
[The references are to pages: vol. I contains pp. 1-707; toI. II, pp. 708-139!'.]
(Jackson & Sharp Co., Intervener),
1317
Central Trust Co. of New York v.
Marietta & No. Ga. Ry. Co. (Jack-
son & Wordin Mfg. Co., Inter-
vener), 1316, 1318
Central Trust Co. of New York v.
Port Royal & Western Carolina
R. R. Co., 1093
Central Trust Co. of New York v. St.
Louis, A. & T. Ry. Co., 1830
Central Trust Co. of New York v.
Sheffield & Birmingham Coal, Iron
&Ry. Co., 1170
Central Trust Co. v. Sheffield & Birm-
ingham Coal, Iron & Ry. Co.
(Anniston Loan & Trust Co., Inter-
vener), 1311
Central Trust Co. of New York v.
Valley Ry. Co., 1334, 1385
Central Trust Co. of New York v.
Wabash. St. L. & Pac. Ry. Co.
(St. Louis, K. & N. W. Ry. Co.,
Intervener), 1308
CentrW Trust Co. of New York v.
United States Rolling Stock Co.,
1166
Centre Township v. Board, etc., 935
Chable v. Nicaraugua Canal Construc-
tion Co., 1197
Chaffee v. Fort, 619, 634
Chaffey County v. Potter, 838, 835,
886, 837, 843, 897, 973
Chaffln V. Cummings, 756
Challis V. Parker, 871
Chamberlain v. Board of Education of
Cranberry Township, etc., 1363
Chamberlain v. City of Burlington, 46
Chamberlain v. Monmouth Mining
Company, 303
Chambers v. Falkner, 477, 497
Chambers v. Miller. 600
Chambers v. St. Louis, 493, 494
Chambers County v. Clews, 830
Chambliss v. Robertson, 580
Champion v. Gordon, 657
Chandler v. Hoag, 890
Chandler, Receiver, v. Bacon, 399
Chapin v. Dake, 979
Chapin v. Vermont & Massachusetts
Railroad, 1000, 1014, 1043
Chapman v. Comstock, 397
Chapman v. County of Douglas, 37,
786, 788, 860
Chapman v. Derby, 720
Chapman v. McCrea, 686
Chapman v. White, 598, 664
Charles v. Hoboken, 113
Charles River Bridge v. Warren Bridge
958
Charlotte Building & Loan Assn. v.
Board Comrs., etc., 1300
vi
Charter Gas Engine Co. v. Charter,
360
Chase v. Cannon, 716
Chase v. Curtis, 393, 415
Chase v. Hathorn, 207
Chaska Company v. Board of Super-
visors of Carver County, 74
Chattahoochee Nat. Bank v. Schley,
636
Chattanooga, R. & C. R. R. Co. v.
Evans, 1111
Chautauqua County Bank v., Risley,
809
Cheaney v. Hooser, 49
Cheeney v. Brookiield, 448
Cheeney v. La Fayette, B. & W. Ry.
Co., 379, 356
Chemical Nat. Bank v. Armstrong,
739, 730
Chemical Nat. Bank v. Kohner, 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 Chemung, 130, 131, 995
Cheney v. Libby, 690
Chesapeake Bank v. Swain, 634
Chesapeake & Ohio Canal Co. v. Blair,
1047
C. & O. R. R. Co. V. Barren County
Court, 908
Chesapeake & Ohio Railroad v. Vir-
ginia, 1382
Chester County v. Barber, 434
Chester Glass Co. v. Dewey, 460, 494,
756
Chestnut Hill, etc., Co. v. Rutter, 1079
Chetlain v. Republic Life Ins. Co.,
303, 460
Chew V. EUingwood. 596, 1111, 1113
Chewacla Lime Works v. Dismukes, 82
Chicago V. Sheldon, 39
Chicago V. Shober, etc., Co., 445,
801
Chicago & Atl. R. Co., v. Derkes,
493
Chicago & A. R. R. Co. v. Lamkin,
1302
Chicago & A. R. R. Co. v. People,
1268, 1364, 1802
Chicago Building Society v. Crowell,
158
Chicago, B. & K. C. R. R. Co, v. Guf-
fey, 1380
Chicago, B. & Q. R. R. Co. v. Lewis,
805
Chicago, B. & Q. R. R. Co. v. School
Dist. No. 1, 1303
Chicago, D. & V. R. R. Co. v. Coyer,
975
xlii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1807.]
Chicago, D. & V. R. R. Co. v. Fos-
dick, 1080, 1151, 1153, 1156
Chicago, D. & V. R. R. Co. t. Smith,
70, 964 .
Chicago Deposit Vault Co. v. Mc-
Nulta, 1306
Chicago & Eastern III. V„. 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
Chicago & 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,
. 637
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, 310
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, 186
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, 341, 345, 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, 832,
833, 884
Citizens' Bank of Baltimore v. How-
ell, 686
Citizens' Bank of Louisiana v. Board
of Assessors for the Parish of Or-
leans, 1385, 128C
Citizens' Bank of Steubenville v. Car-
son, 640
Citizens' B. L. & S. Assn. v. Coriell,
347, 553
Citizens' Loan Assn. v. Lyon, 366
Citizens' Nat. Bank of Cincinnati v.
Cincinnati, N. O. & T. R. Ry.
Co., 387
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, 37, 930, 933
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 Savings
Bank, 861
City of Aurora v. West, 49, 864, 949,
951
City of Austin v. Nalle, 857
City of Beatrice v. Brethren Church,
1380
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. Balcom, 445
City of Buffalo v. HoUoway, 394
City of Cardillac v. Woodsooket Insti-
tution, 14, 837
City of Cairo v. Campbell, 795
City of Carlyle v. County of Clinton,
1370
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, 283
City of Chicago v. Hasley, 795
City of Chicago v. The People, 65
City of Cleburne v. Brown, 44
City of Columbus v. Dennison, 969
TABLE OF CASES.
xliii
[The reterences are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.]
City of Council Bluffs v. Stewart, 66
City of Corpus Christi v. Central
Wharf & Warehouse Co., 441
City of Corpus Christi v. Woessner,
439
City of Crawfordsville v. Hays, 39
City of Delphi v. Bowen, 1271
City of Detroit v. Dean, 316
City of Detroit v. Whittemore, 63
City of East St. Louis v. Albrecht,
1370
City of East St Louis v. East St.
Louis Gas, Light & Coke Co.,
487
City of East St. Louis v. Maxwell, 13
City of East St. Louis v. Thomas, 59
City of East St. Louis v. Wehrung, 59
City of Ellsworth v. Rochester, 443
City of Eufaula v. McNab, 43
City of Evansville v. Woodbury, 13
City of Findlay v. Pertz, 113
City of Galena v. Corwith, 30, 131
City of Geneseo v. Geneseo Natural
■^ Gas, Coal Oil, Salt & Mineral Co.,
969
City of Grand Rapids v. Hydraulic
Co., 70
City of Greencastle v. Hazlett, 19
City of Indianola v. Jones, 108
City of Indianapolis v. Bly, 39
City of Indianapolis v. Indianapolis,
etc., Co., 38, 30, 69
City of Indianapolis v. Miller, 39
City of La Fayette v. Cox, 5, 30, 953
City of Learned v. Jordan, 1145
City of Lexington v. Butler, 106, 555,
897
City of Lexington v. McQuillan's
Heirs, 946
City of Logansport v. Dykeman, 59
City of Macon v. East Tenn., V. &
G. Ry. Co., 953
City of Madison v. Smith, 850
City of Mt. Vernon v. Hovey, 949,
950
City of Muscatine v. Chicago, R. I. &
P. Ry. Co., 1301
City of Nashville v. Sutherland, 438
City of Oakland v. Carpenter, 39
City of Paris v. Cracraft, 795
City of Paterson v. Board of Chosen
Freeholders, 117
City of Pekin v. Reynolds, 950
City of Poughkeepsie v. Quintard, 853
City of Quincy v. Steel, 316, 330
City of Quincy v. Warfield, 850, 939
City of Richmond v. McGirr, 19, 850
City of Richmond v. Richmond &
Danville R. R. Co., 1334
City of Rochester v. Quintard, 857
City of St. Louis v. Alexander, 49,
1114
City of Savannah v. Kelly, 56
City of Selma v. Mullen, 33
City of Sherman v. Williams, 433
City of Shreveport v. Plournoy, 13
City of Somerville v. Beal, 611, 634
City of Springfield v. Edwards, 40,
66, 801
City of Tacoma v. Lillis, 798, 799
City of Terrell v. Dessaint, 439
City of Valparaiso v. Gardner, 30, 69,
874
City of Vincennes v. Callender, 69
City of Williamsport v. Common-
wealth, 30
City Bank v. Bateman, 561
City Bank v. Bruce, 76, 455
City Bank v. Cutter, 685
City Bank v. First Nat. Bank, 661
City Bank v. Girard Bank, 657
City Bank of Baltimore v. Bateman,
145
City Bank of Hartford v. Press Co.
(Lim.), 809
City Bank of New Haven v. Perkins,
572
City Bank of Sherman v. Weiss, 741
City Council of Montgomery v. We-
tumpka Plank Road Co. , 50, 74,
439
City & County of St. Louis v. Alex-
ander, 386
City Nat. Bank v. Burnes, 600
Claflin V. Farmers & Citizens' Bauk,
250, 334, 343
Claflin V. Houseman, 554
Claflin V. South Carolina R. R. Co.,
171
Claiborne County v. Brooks, 135, 863,
1000
Clap V. Interstate Street Ry. Co.,
1193
Clapp V. City of Spokane, 1044
Clapp V. County of Cedar, 115, 832,
941
Clapp V. Peterson, 455, 1117
Clark V. American Coal Co., 336, 287
Clark V. Bever, 1038
Clark V. Central R. R. & Bkg. Co. of
Georgia, 1222
Clark V. City of Janesville, 48, 949,
958, 1047
Clark V. City of South Bend, 38
Clark V. Columbus, 67
Clark V. Davenport, 4
Clark V. Des Moines, 3.5, 111, 487
Clark V. Edgar, 348
Clark V. Farmers' Woolen Mfg. Co.,
169
Clark V. Farrington. 74, 463
Clark V. Flint & Pere Marquette R. R.
Co., 370
Clark V. Iowa City, 1047
xliv
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.]
Ciark V. Polk County, 446
Clark V. Saline County, 788, 860
Clark V. Sheldon, 995, 997
Clark V. Stackhouse, 650
Clark V. Tilcomb, 75, 102, 188
Clark V. Town of Nobleville, 23, 878
Clark V. Nat. Metropolitan Bank, 659
Clark Nat. Bank v. Bank of Albia,
575
Clarke v. City of Rochester, 69, 1007.
Clarke v. Hawkins, 713
Clarke v. School District, 41
Clarke v. Supervisors of Hancock
County, 898, 1004
Clarke v. White, 333
Clauser v. Stone, 655
Claussen v. United States, 778
Clay V. Towle, 244
Clay V. Wright, 137
Clearwater v. Meredith, 325, 499
Clement v. Everest, 880
Clements v. Empire Lumber Co., 1233
Clerks' Savings Bank v. Thomas, 549
Cleveland v. Amy, 140
Cleveland v. State Bank of Ohio, 445
Cleveland, C. & S. R. R. Co. v.
Knickerbocker Trust Co., 1232
Cleveland Rolling Mill Co. v. Joliet
Enterprise Co., 1129
Clews V. Bank of New York, 595
Clinch V. Financial Corporation, 385
Clinton Company v. Kernan, 176, 527
C, W. & Z. R. R. Co. V. Comrs. of
Clinton County, 53
Clough V. Hart, 57
Clow V. Brown, 415
Clvde V. Richmond & Danville R. R.
Co., 1157, 1322, 1333, 1236
Coal Company v. Lotspeich, 396
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., 1053
Cody V. City Nat. Bank, 683
Coe V. Columbus, Piqua & lud. R. R.
Co., 1013, 1021, 1054, 1077
Coe V. East & West R. R. Co. of Ala.,
1020, 1039, 1031, 1034, 1035, 1040,
1041
Coe V. Errol, 1294
Coe V. New Jersey Midland Ry. Co.,
1055, 1198, 1358
Coffin V. Anderson, 634
CofHn V. City Council, 69
Coffin V. City of Indianapolis, 13, 856,
868
Coffin V. Henshaw, 638
Coffin V. Nantucket, 111 i
Cogan V. Mayor, etc., of New York,
131
Coggeshall v. City of Des Moines, 66,
67
Coghlan v. South Carolina R. R. Co.,
1030, 1163
Cogswell v. Rockingham Savings
Bank, 617
Cohea v. Hunt, 691
Coit V. Gold Amalgamating Co., 1039
Colt 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.,
360, 379
Coler V. Cleburne, 872
Coler V. School Township, 880
Coles V. Cleburne, 857
Collector v. Day, 1376
Collen V. Wright, 872
Collin gwood v. Merchants' Bank, 696
Collins V. Gilbert, 980
Collins V. Hatch, 5
Colmau V. Eastern Counties Ry., 84,
95, 451, 471
Colman v. Riches, 394
Colman v. Eaves, 838
Colorado C. R. R. Co. v. Lea, 46
Colusa County v. De Jarnett, 118
Colt V. Barnes, 953
Colt V. Brown, 730
Colt V. Wollaston, 294
Colter V. Prese, 1250
Columbia Bank v. Gospel Tabernacle
Church, 318
Columbia & P. S. R. R. Co. v. Chil-
berg, 1305
Columbia Electric Co. v. Dixon, 831
Columbia Finance & Trust Co. v.
Kentucky Union Ry. Co., 1050,
1095, 1168
Columbian Bank's Estate, 753
Columbian Southern Railway Co. v.
Wright, 1304
Colwell v. Keystone Iron Co., 333
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
TABLE OF CASES.
xlv
[The references are to pages; vol. I contains pp. 1-707; vol. II, pp. 708-130?.]
Commercial Bank of Buffalo v. Kort-
right, 763
Commercial Bank of Danville v.
Burgwyn, 570
Commercial Bank of Erie v. Norton,
222
Commercial Bank of Kentucky v.
Varnum, 687
Commercial Bank of Manchester v.
Bonner, 648
Commercial Bank of Manchester v.
Nolan, 530
Commercial Bank of Pennsylvania v.
Armstrong, 744, 745, 753
Commercial & Farmers' Nat. Bank v.
First Nat. Bank, 668, 671
Commercial Fire Ins. Co. v. Board of
Revenue of Montgomery County,
Commercial Nat. Bank v. lola', 37
Commercial Nat. Bank v. Proctor,
603, 642
Commercial Nat. Bank of Cincinnati
V. Hamilton Nat. Bank of Ft.
Wayne, 706
Commercial & Railroad Bank v.
Hamer, 691
Commissioner v. Winkley, 803
Commissioners v. Bolles, 897, 983,
1003
Commisioners v. Clark, 358, 897, 965,
980
Comrs. V. January, 338, 888, 897, 965,
982
Commissioners v. Kelley, 437
Commissioners v. Lee, 116
Commissioners v. Thaj^er, 915
Comrs. , etc. , v. Holman. 31
Comrs. of Craven County v. Atlantic
& N. C. R. R. Co,, 97
"Comrs. of Highways v. Newell, 16
Comrs. of Knox County v. Aspinwall,
71, 338, 897, 913, 956, 980
Comrs. of Knox County v. "Wallace,
49
Comrs. of Leavenworth County v.
Brewer, 443
Comrs. of Leavenworth County v.
Miller, 55
Comrs. ex rel. Thomas v. Comrs.
Allegheny County, 49
Comrs. Court of Limestone County v.
Rather, 943
Common Council of City of Mus-
kegon V. Gore, 853
Commonwealth v. American Life Ins.
Co., 1393
Commonwealth v. American Machine
Co., 1393
Commonwealth v. Bank, 334
Commonwealth v. R. R. Co., 1306
Commonwealth v. Canal Co., 1393
Commonwealth v. Comrs. of Alle-
gheny, 954, 1000
Commonwealth v. Commissioners of
. Philadelphia, 133
Commonwealth v. East Bangor Con-
solidated Slate Co., 1380
Commonwealth v. Edgerton Coal Co ,
1379, 1292
Commonwealth v. Erie & Northeast
Railroad, 1097
Commonwealth v. Essex Company,
91?
Commonwealth v. Fall Brook Coal
Co., 1279
Commonwealth v. Franklin Insurance
Co., 1303
Commonwealth v. J. B. Lippincott
Co., 1380
Commonwealth v. Judge, etc., of
Lebanon County, 48
Commonwealth v. Juniata Coke Co.,
1280
Commonwealth v. Keystone Bridge
Co., 1280
Commonwealth v. Lehigh Avenue Ry.
Co., 104
Commonwealth v. Lehigh Coal &
Navigation Co., 1279
Commonwealth v. Lehigh Valley R.
R. Co., 1303
Commonwealth v. Louisville, St.
Louis &K.Ry. Co., 1305
Commonwealth v. Lowell Gas Liglit
Co., 1064
Commonwealth v. Mc Williams, 48, 49,
901
Commonwealth v. Minersville Water
Co., 1279 •
Commonwealth v. Pennsylvania Coal
I Co., 1392
Commonwealth v. Penn. Gas Coal Co.,
1392
Commonwealth v. Pittsburgh & W.
R. Co., 1279
Commonwealth v. Painter, 48
Commonwealth v. Philadelphia & E.
R. R. Co., 1379
Commonwealth V. Pittsburgh, 954, 955
Commonwealth v. Pittsburgh Bridge
Co., 1380
Commonwealth v. Pottsville Iron &
Steel Co., 1380
Commonwealth v. Railway Co., 1306
Commonwealth v. Savage Fire Brick
Co., 1280
Commonwealth v. Sharon Coal Co.
(Lim.), 1393
Commonwealth v. Smith, 93, 97, 1013,
1063
Commonwealth v. Sponster, 1146
Commonwealth v. Standard Oil Co.,
1393
xlvi
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol, II, pp. 708-1307
Commonwealth v. Suffolk Trust Co.,
462
Commonwealth v. Supervisors of
CoUey, 136
Commonwealth v. Thackai'a Mfg. Co.,
1380
Commonwealth v. Western Union
Telegraph Co., 1292
Commonwealth v. Williamstowu, 1000
Commonwealth v. WUkesbarre &
Scranton Railway Co., 1290
Commonwealth v. Wilmington & N.
R. R. Co., 1104
Commonwealth v. Wm. Mann Co.,
1280
Commonwealth ex rel. Armstrong v.
Perkins et al., Comrs. of Alle-
ghany County, 46
Commonwealth ex rel. Reinboth v.
Councils of Pittsburgh, 17
Compton V. Jesup, 1055
Conaut V. Seneca County Bank, 525
Concord v. Robinson, 17, 872
Cone V. City of Hartford, 42
Conine v. J. & B. R. R. Co., 805
Conklin v. School District, 40
Conley v. Directors of West Deer, 138
Connecticut Mut. L. Ins. Co. v. Cleve-
land, Col. & Cin. R. R. Co., 79,
955, 1014
Conner v. Drake, 1152
Conuett V. City of Chicago, 236
Conover v. Insurance Company, 183,
226
Conrad v. Trustees of Ithaca, 121
Conro V. Port Henry Iron Co., 250
Oonshohocken Tube Co. v. Iron Car
Equipment Co. , 1048
Consolidated Tank Line Co. v. Hansas
City Varnish Co., 254
Consolidated Trust Co. of New York
V. Toledo, St. L. & K. C. R. R.
Co., 1208
Continental Nat. Bank v. Nat. Bank
of the Commonwealth, 595
Continental Nat. Bank of New York
V. Weems, 731, 739, 741, 742, 743
Conway v. Halsey, 311
Cook V. Berlin Woolen M. Co., 250
Cook V. City of Burlington, 1298
Cook V. Deerfield, 135
Cook V. East Trenton Pottery Co.,
1124
Cook V. Pennsylvania, 1293
Cook V. Putnam County, 130
Cookv. State Bank of Boston, 651, 653
Cook V. TuUis, 748
Cook County v. McCrea, 4, 5, 432
Cook Mfg. Co. V. Randall, 455
Cooke V. State Nat. Bank of Boston,
554, 655
Cooke V. United States, 674, 677
Coolidge V. Brookline, 35
Coons V. Tome, 250
Coons & Braine v. Torne, 1108
Cooper V. Corbin, 1082, 1096
Cooper v. Delevan, 58
Cooper V. Frederick, 76
Cooper V. Lampeter Township, 135
Coote & Jones v. Bank U. S., 638
Coots V. McConnell, 638
Copeland v. Copeland, 1169
Copeland v. Johnson Mfg. Co., 263,
278
Copes V. Charleston, 49, 964
Coppin V. Greenlees, 1116
Coquard v. St. Louis Cotton Com-
press Co., 811
Corbit V. Bank of Smyrna, 598, 600
Corbit V. Nicoll, 188
Corcoran v. Snow Cattle Co., 227, 571
Corey v. Morrill, 418
Corey v. Wadsworth, 1111, 1124
Corkv. Bacon, 646
Corn Exchange Bank v. American
Dock & Trust Co., 235
Cornell v. Clark, 273
Cornell v. Guilford, 445
Cornell v. Corbin, 300
Cornell v. Roach, 396
Cornell University v. Maumee, 969
Corning v. Cullogh, 400
Corning v. Mohawk Valley Ins. Co.,
1141
Corning v. Walker, 210
Comwell V. Kinney, 524, 608
Corporation of Bluffton v. Studabaker,
37
Corrugating Co. v. Thacher, 1124
Corsex V. Paul, 574
Cory V. Board, 113
Cothran v. City of Rome, 19
Cotton V. Comrs. of Leon, 49
Cotton Mills V. C. C. Randleman Cot-
ton Mills, 1123
Coulson V. City of Portland, 68, 69
County V. Barker, 132
County Comrs. v. Beal, 893
County Comrs. v. Chandler, 55
County Comrs. of Lucas County v.
Hunt, 112
County Court v. Baltimore & Ohio R.
R. Co , 263, 820, 1071
County Cuurt of Macoupin County v.
People ex rel., etc., 903
County Judge v. Shelby R. R. Co.,
871, 946
County of Bates v. Winters, 935
County of Beaver v. Armstrong, 1047
County of Cass v. Johnston, 911
County of Clay v. Society for Savings,
948
County of Cook v. Lowe, 801, 802
County of Crawford v. Spenney, 135
TABLE OF CASES.
xlTii
(The references are to pages: vol. I contains pp. 1-707: vol. II, pp. 708-1307.]
County of Erie v. Western Trans-
portation Co., 1266
County of Greene v. Daniel, 847, 933,
943
County of Hardin v. MoFarlan, 16,
120
Clounty of Hennepin v. St. Paul, M.
&M. Ry. Co., 1300
County of Jackson v. Hall, 119
County of Jackson v. Rendleman, 16,
130
County of Johnson v. Wood, 129
County of Lancaster v. Cherraw & C.
R. R. Co., 900
County of Lancaster v. Fulton, 433
County of Macon v. Shores, 903, 943
County of Morgan v. Allen, 1108
County of Moultrie v. Rockingham
Ten Cent Sav. Bank, 897, 989
County of Pickens v. Daniel, 933, 943
County of Pike v. Hosford, 16
County of Ralls v. Douglas, 880, 943
County of San Joaquin v. Jones, 119
County of Scotland v. Thomas, 935,
938
County of Stevens v. St. Paul, M. &
M. Ry. Co., 1382
County of Tipton v. Locomotive
Works, 935, 937, 938
County of Warren v. Marcy, 338, 897,
983
Covert V. Rhodes, 663, 664
Covert V. Rogers, 1113
Covey V. Pittsburg, Ft. Wayne &
Chicago R. R. Co., 1054
Covington & Lexington R. R. Co. v.
Bowler, 371
Covington V. C, etc.. Bridge Co., 73,
143
C. & L. R. R. Co. v. Kenton County
Court, 46
C. & N. R. R. Co. V. James, 150
C. & O. R. R. Co. V. Barren County
Court, 46
Covrdrey v. Galveston, Houston, etc..
Railroad, 1206, 1333
Cowen V. West Troy, 114, 446
Cowgill V. Long, 1006
Cowles V. Mercer County, 845
Cox V. Batteman, 625
Cox V. Midland Counties Ry. Co., 98
Coy V. City Council, 69
Craft V. South Boston R. R. Co., 227,
330, 335, 338
Craig V. Gregg, 560
Craig V. Town of Andes, 985
Craig Medicine Co. v. Merchants'
Bank of Rochester, 215
Cragil V. Hadley, 631, 623, 624, 626
Grain v. National Bank, 572
Cram v. Bangor House Proprietary,
158
Crampton v. Zahriskie, 788
Crane v. Hearn, 365
Crane v. Pacific Bank, 1121
Crane v. Railway Co., 920
Craven v. Atlantic & North Carolina
R. R. Co. 1013, 1031
Craw V. Bangor Home Proprietory,
158
Craw V. Village of Toledo, 1268
Crawford v. Louisiana State Bank,
681
Crawford V. Ross, 1191
Crawford v. Spencer, 362
Crawford v. West Side Bank, 653, 657
Crawshaw v. City of Roxbury, 135
Cray craft v. Selvage, 445
Credit Company v. Arkansas Central
R. R. Co., 1152
Crescent City Brewing Co. v. Planner,
272
Creswell v. Lanahan, 214, 573
Grist V. Brownsville Township, 133
Crittenden County Court v. Shanks, 5
Gromwell v. County of Sac, 840, 886,
887, 946, 980, 1041
Gromwell v. Lovett, 648
Grocker v. Nat. Bank of Ghetopa, 529,
330, 534
Crocket v. Young, 573
Crook V. Jewctt, 309
Grosby v. New London, etc., R. R.
Co., 1047
Grosby v. Wyatt, 602
Gross V. Anglo-American Banking
Company, 155, 175
Cross V. North Carolina, 778
Cross V. Rowe, 574
Gross V. Saokett, 291. 303, 309
Crow V. Mechanics' Bank, 691
Crowinshield v. Supervisors, 995, 997
Crowley v. Genesee Mining Com panv,
154, 174, 195, 206
Crown Point Nat. Bank v. Richmond
National Bank, 744
CrumlLsh's Admr. v. Shenandoah Val-
ley R. R. Co., 1333
Crump V. United States Mining Com-
pany, 155
Crum's Appeal, 166
Crutcher v. Kentucky, 1367, 1293
Gulbertson v. City of Fulton, 70
CuUen V. Town of Carthage, 62
Culver V. Avery, 294
Culver V. Reno Real Estate Co., 150,
466
Cumberland Coal & Iron Co. v. Par-
ish, 241, 243, 250
Cumberland Coal & Iron Co. v. Sher-
man, 241, 351, 360, 263, 370, 303,
316
Gumming v. Brooklyn, 65
Cummings v. Bank, 1373, 1297
xlviii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707 ; vol. n, pp. 70S-1307.]
Cummins v. City of Seymour, 437
Cummins v. District of Doon, 896
Cunlifie v. Manchester & Bolton Canal
Co.. 300
Cunningham v. Massena Springs &
Ft. C. R. Co., 831
Cunningham v. Pell, 303
Curnan v. Delaware & O. R. Com-
pany, 151
Curnen v. Mayor, 793
Curran v. Arkansas, 1108, 1113
Currie v. Bowman, 335, 1081
Currier v. Slate Company, 1116
Curry v. Woodward, 357
Curson v. African Co., 730
Curtis V. Gokey, 1089
Curtis V. Leavitt, 19, 65, 75, 85, 98,
101, 103, 484, 534
Curtis V. Piedmont Lumber & Mining
Co., 806
Gushing v. Gove, 660
Cushing V. Stoughton. 35
Cushman v. Carver, 647
Cushman v. Illinois Starch Co. , 637
Cutler V. Madison County, 913
Cutler V. Reynolds, 656
Cutting V. Florida Ry. & Nav. Co.
(Mallory et al., Interveners), 1804
Cutting V. Florida Ry. & Nav. Co.
(Wilson, Intervener), 1163
Cutting v. Marlor, 538, 553
Cutting V. Tavares, O. & A. R. R. Co.
(Florida Central & P. R. R. Co.,
Intervener), 1175, 1180, 1346
Dabney v. Stevens, 173
Dabree v. Eastwood, 693
Daggett V. Whiting, 658
Dally V. City of Columbus, 30, 849
Dallas V. Columbia Iron & Steel Co. ,
339
Dallas County v. Huidekoper, 903
Daly V. Nat. Life Ins. Co., 457
Daman v. Granby, 111
Dana v. Bank of United States, 97,
1013, 1108, 1111, 1113
Dana v. Boston Third Nat. Bank, 649
Dana v. Brown, 536
Dane v. Dane Manufg. Co., 769
Danforth v. National State Bank of
Elizabeth, 535
Danforth v. Schoharie &Duanesburgh
Turnpike Road, 33
Daniel v. Mayor, etc., of Memphis, 63
Danielly v. Cabaniss, 33, 883
Daniels v. Burford, 799
Daniels v. Davison, 1108
Daniels v. Kyle, 659, 705
Danvemeyer v. Coleman, 816
Danville Seminary v. Mott, 809
Da Ponte v. No. Pac. R. R. Co., 1013,
1055
Dariing v. St. Paul, 59
Darst V. Gale, 489
Dartmouth College v. Woodword, 487
Dauchy v. Brown, 93
Davenport v. Dodge County, 947
Davenport v. Inhabitants of Hallowell,
39
Davenport v. Johnson, 137
Davenport v. Kleinschmidt, 68
Davenport v. Railroad Co., 1231
Davenport v. Tilton, 1118
Davenport Gas Light & Coke Co. v.
City of Davenport, 39
Davidson v. Bridgeport, 806
Davidson v. Mexican National R. Co.,
284
Davidson v. Westchester Gas Light
Co., 160, 1063
Daviess County v, Dickinson, 446, 843,
937
Daviess County v. Huidekoper, 830,
957
Daviess Co. Sav. Assn. v. Sailor, 575
Davis V. American Organ Co., 464
Davis V. Bank, 600
Davis V. Board of Supervisors of On-
tonagon County, 127
Davis V. Gemmell, 316, 809
Davis V. Gray, 1105, 1323
Davis V. Jenuey, 1071
Davis V. Lee Camp No. 1, C. V., 155
Davis V. Lenawee County Savings
Bank, 617
Davis V. Litchfield, 1368
Davis V. Manufacturing Co., 1144
Davis V. Mining Co., 368
Davis V. Old Colony R. R. Co., 80, 83,
93, 451, 464, 465, 466, 818
Davis V. Power Company, 1133
Davis v.Proprietors of Meeting House,
75, 484
Davis V. Randall, 529
Davis V. Rock Creek L. F. & M. Co.,
196
Davis V. United States Electric Power
& Light Co., 1123
Davis V. Wells, 545
Davis V. West Saratoga Buildings
Union, 99
Davis V. Yuba, 946
Davue v. Fanning, 264, 1039
Daws V. North River Insurance Co.,
183
Dawson v. Real Estate Bank, 637
Dawson County v. McNamara, 55,
917
Day v. Green, 111
Day V. Ogdensburg & Lake Cham-
plain R. R. Co., 1045
Day V. Otis, 134
TABLiB OF GASES.
xli±
[The references are to pages; vol. I contains pp. 1-707; vol. II, pp. 70M807.I
Day V. Spiral Springs Buggy Co.,
489, 496, 497
Dean v. Biggs, 1096
Dearborn v. Brookline, 20
De Camp v. Alward, 1111
£)ecatur Nat. Bank v. Murphy, 638,
698
Decker V. Q., etc., Co., 234
Decker v. Hughes, 898, 975
Dedham Inst, for Savings v. Slack,
172, 179, 238
Deere v. Marsden, 362
Deering v. Thorn, 358
Deg V. Deg, 625
De Graff v. American Linen Thread
Co., 490
Dehen v. City of Havana, 67
De Kay y. Water Co.. 583
Delafleld v. State of Illinois, 111
Deland v. Platte County, 922
Delano v. Butler, 519
Delano v. Case, 553
Delaware & Hudson Canal Co. v.
Commonwealth, 1302
Delaware, L. & W. R. R. Co. v. Ox-
ford Iron Co., 1252
Delaware Railroad Tax Case, 1282,
1294, 1304
Deller v. Staten Island Athletic Club,
312
Delooch V. Jones, 505
Delta Lumber Co. v. Williams, 209,
316
De Mattos v. City of New Whatcom,
857
Deming v. State ex rel., 792
Demmon v. Boylston Bank, 640
Denike v. New York & Rosendale
Lime & Cement Co., 1135
Denison v. Mayor, etc., of City of Co-
lumbus, 965
Dennie v. Walker, 641
Denney v. Cleveland & Pittsburg R.
R. Co., 1043
Denny v. Denny, 874
Denny Hotel Co. v. Schram, 76, 470
Densmore Oil Co. v. Densmore, 298,
399
Denton v. Davis, 743
Denver & Rio Grande R. R. Co. v.
United States Trust Co., 1017,
1038
Deringer's Admr. v. Deringer's Admr.,
805
Derry v. Feck, 398
De Ruvigne's Case, 300
Des Moines Gas Co. v. West, 98, 489
Desmond v. Jefferson, 13
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"
Yoi^k, 39
De Voss V. Richmond, 111
Dewar v. Basnk of Montreal, 629'
Dewey v. Barers, 690
Dewey v. Railway Co., 470, 821
Dewing v. Perdicaries, 311, 560
De Witt V. Walton, 360
Day V. Jersey City, 113
; Diamond Watch Co. v. Roeber, 823
Dibble v. Tftwn of New Haven, 789
Dickerson v. Cass County, 1126
Dickiusion Hardware Co. v. PulasME
County, 56
Dickinson v. Inhabitants of Conway,
133
Dickinson Township v. Linn, 139
Dill V. Wafeham, ■M6
Dillingham v. Kelly, 1228
Dillon V. Insuraric'e Co.,. 539
Dimpfel V. Ohio & Miss. Ry. Co., 316-
Dinsmore v. Duncan, 1014
District Township of Walnut v. Han-
kin, 379
Ditch V. Western Nat. Bank of Balti-
more, 616
Ditch Company v; Zellerbach, 94-2^
Dively v. City of Cedar Falls, 69-
Dix V. Dummerston. 137, 379
Dixon County v. Field, 883, 833, 885',.
886, 839, 842, 843, 869, 885, 897,.
925
Dobbins v. Commissioners, 1276
Dodd V. Wilkinson, 856
Dodge V. City of Memphis, 1004
Dodge V. County of Platte, 111
Dodge V. Minnesota Plastic Slate
Roofing Co., 888
Dodge V. National Exchange Bank,.
646, 671
Dodge V. Woolsey, 300, 306, 311, 313,
314, 348, 1273
Doe V. Northwest Coal &■ Transporta-
tion Co., 1124
Dolan V. Joint School District, etc.,.
140
Dolan V. Mayor, 798
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, 857
Dorsey v. Abrams, 572
Dorsey County v. Whitehead, 445
Doty v. Bates, 187
Doty V. Ellsbree, 125, 844
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; yol. n, pp. 70&-1307.]
Doud V. Nat. Park Bank of New
York, 545
Doud V. Wisconsin P. & S. Ry. Co. ,
316
Dougherty v. Hunter, 191, 198, 310
Douglass V. City of Anniston, 1362
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. Beidlemau, 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, 535
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, 538, 531
Driftwood Valley Turnpike Co. v.
Board, etc., Bartholomew County,
36, 427, 437, 443
lirovers' Nat. Bank v. Anglo-Ameri-
can P. & Provision Co., 653, 682,
692, 636, 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 Worlcs, 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, 133
Duncan v. Brennan, 534
Duncan v. Jaudon, 539, 583
Duncan v. Maryland Sav. Institution,
528, 535
Duncan v. Mobile & Ohio R. R. Co.,
1047
Duncan v. Watson, 688
Duncomb v. New York, H. & N. R.
R. Co., 360, 270, 278, 383, 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,
1368
Dunn V. Weston, 207
Dunphyv.Traveller Newspaper Assn.,
316
Durant v. Iowa County, 972
Durfee v. Old Colony & F. R. Co., 323
Durkee v. City Bank, 537, 538
Durnford v. Patterson, 681
Dustin & Musick v. Hodgen, 601
Dwight V. Lumber Company, 309
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, 403
Eastern Counties Ry. Co. v. Hawkes,
448, 491
Eastern Delaware Bridge Co. v. Metz,
Collector, 1395
Eastern Townships Bank v. Vermont,
National Bank, 739
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
Earjt 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. & 6a. 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 Payette, 1330, 1331
Eddy V. People, 954, 963
Eddy V. Wallace, 1225
Edey v. City of Shreveport, 18
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-70?; vol. II, pp. 708-1307.]
Edison v. Edison United Phonoa;rapli
Co., 1131
Edison General Electric Co. v. Bar-
ker, 811
Edson V. Angell, 703
Edwards v. Aberayron Ins. Society,
1153
Edwards v. Carson Water Co., 157,
173, 809
Edwards v. Grand Junction Ry. Co.,
198, 491
Edwards v. Kearney, 39
Edwards v. Marcy, 1000, 1014
Edwards v. People, 974
Egbert v. Payne, 608
Eggman v. Blanke, 461
Bhle V. Cliittenango Bank, 531
Ehlerman v. St. Louis Nat. Bank, 640
Eichelberger v. Finley, 563, 596
Eidman v. Bowman, 471
Einsphar et al.. Trustees First German
Lutheran Zion Church of Adams
Co., V. Wagner, 360
Einstein v. Rosenfeld, 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, 1380
Elevator Co. v. Clark, 753
Elkins V. Camden & Atlantic R. R.
Co., 1089
Ellerman v. Chicago Junition Rys. &
Union Stock Yards Co., 456, 503,
1133
EUicott V. Barnes, 570, 633, 747
EUicott Machine Co. v. Speed, 1119
Elliot V. Abbot, 574
Elliott V. Gammon, 25
Ellis V. Boston, H. & E. Railroad,
1055
Ellis Y. Commercial Bank of Natchez,
688
Ellis V. Howe Machine Co., 318
Ellis V. Northern Pacific R. R. Co.,
900
Ellis V. Ward, 356
Ellis V. Wheeler, 660
Ellisworth v. St. Louis, Alton & T. H.
R. R. Co., 101, 1043
Ellsworth Woolen Manufg. Co. v.
Faunce, 198
Ellysville Manufg. Co. v. Okisko Co.,
77, 197
Elmira Savings Bank v. Davis, 733,
733
Elmore v. Naugatuck R. R. Co., 469
Elser V. City of Fort Worth, 482
Elwell V. Dodge, 143, 154, 188, 207
Elwell V. Fosdick, 1163
Elwell V. Grand Street & Newtown R.
R. Co., 1096
Elwell V. Puget Sound, etc., R. Co.,
809
Ely V. Sprague, 531
Emerson v. Prov. Hat. Mfg. Co., 147,
153
Emery v. Hobson, 660
Emery v. Parrott, 399
Emma Silver Mining Company v.
Grant, 298, 399
Empire v. Darlington, 935, 938
Emporium Real Estate & Mfg. Co. v.
Emrie, 379
Englar v. OfiEutt, 753
English V. Chicot County, 45
English V. City of Danville, 1368
English V. Smock, 133, 834
Euos V. Springfield, 1268
Eppright V. Nickerson, 1113
Equitable Life Ins. Co. v. Board of
Equalization, 1398, 1306
Erie Railway v. Pennsylvania, 1304
Brlanger v. New Lambrero Phosphate
Co., 360, 397
Erskiue v. Steele County, 435, 436
Ervin v. Oregon Ry. &Nav. Co., 334,
326, 327
Erwin v. St. Joseph Board of Public
Schools, 23
Esmond v. Bullard, 394, 415
Espin V. Pemberton, 338
Espuela Land & Cattle Co. v. Bindle,
1132
Espy V. Bank of Cincinnati, 651, 655,
661
Estep V. Keokuk County, 446
Estowah Mining Co. v. Wills Valley
Mining & Mfg. Co., 1193
Etting V. Bank, 546
Etting V. Commercial Bank, 671
Eureka Company v. Bailey Company,
143, 336, 806
Eureka Iron & Steel Works v. Bres-
nahan, 155, 305, 309, 489
European & North American Ry. Co.
V. Poor, 343, 358, 263, 471
Evans v. Boston Heating Company,
10^3, 1072
Evansville, etc., R. R. Co. v. Evans-
ville, 13, 16, 19, 39, 39, 485, 950,
951, 952
Evening Journal Assn. v. State Board
of Assessors, 1295
Everett v. United States, 142, 176,
573
Evertson v. National Bank of New
York, 1047
Ewen V. Davis, 598
Excelsior Water & Mining Co. v.
Pierce, 813, 815
Exchange Co. v. Boyce, 538
lii
TABLE OF OASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1S07.]
Exchange Nat. Bank of Spokane v.
Bank of Little Rock, 593
Exeter Bank v. Gordon, 703
Ex-Mlssion Land & Water Co. v.
Flash, 298, 300
Ex parte Brown, 1231
Ex parte Chamberlain, 1236
Ex parte Chippendale, 489
Ex parte Conway, 1112
Ex parte Pay, 19
Ex parte Hardcastle (In re Manson),
751
Ex parte Powell, 1323
Ex parte Richdalc, 618
Ex parte Selma, etc., E. R. Co., 49,
901, 902, 909
Ex parte Willcocks, 158
Express Co. v. Patterson, 93
Express Company v. Railroad Com-
pany, 1198, 1205
Eyster V. Centennial Board of Finance,
1392
Fabeus v. Mercantile Bank, 682
Pagan v. City of Chicago, 1268
Fairfield Savings Bank v. Chase, 549
Falconer v. Buffalo & J. R. R. Co.,
962
Faley v. Talbee, 1131
Fall River Iron Works Co. v. Old Col-
ony, etc., R. R. Co., 471
Fall River Union Bank v. Sturtevant,
583
Falk V. Moebs, 186
Falkland v. St. Nicholas Nat. Bank of
New York, 524
Fanning v. Gregoire, 146
Fareira v. RiterT 279
Fargo V. Michigan, 1393
Fargo & S. W. R. R. Co. v. Brewer,
1306
Farmers' Bank v. Burchard, 580
Farmers' Bank v. McKee, 155, 181,
310
Farmers' Bank v. Owen, 699
Farmers' Bank of Maryland v. Duvall,
641, 690
Farmers' Bank of Maryland v. Ingle-
hart, 527
Farmers & Citizens' Bank v. Sherman,
334
Farmers' Co-operative Mfg. Co. v.
Drake, 1173
Farmers', etc.. Bank v. Payne, 361
Farmers', etc.. Bank v. Troy City
Bank, 574
Farmers' Loan & Trust Co. v. Cape
Fear & V. Val. R. R. Co. (North
State Imp. Co., Intervener), 1190
Farmers' Loan & Trust Co. v. Central
Railroad of Iowa, 1233
Farmers' Loan & Trust Co. t. Chi-
cago & Atlantic Ry. Co., 1076,
1173, 1176, 1218
Farmers' Loan & Trdst Co. v. Chicago
& Northern Pac R. R. Co., 1153
Farmers' Loan & Trust Co. v. Clowes,
459
Farmers' Loan & Trust Co. v. Com-
mercial Bank, 1096
Farmers' Loan & Trust Co. v. Com-
mercial Bank of Racine, 1096
Farmers' Loan & Trust Co. v. Fisher,
1095, 1096
Farmers' Loan & Trust Co. v. Green
Bay, W. & St. P. Ey. Co.
(Frunck, Intervener), 1344
Farmers' Loan & Trust Co. v. Hen-
dricKson, 10.96
Farmers' Loan & Trust Co. v. Kansas
City, W. & K. W. R. Co., 1158,
1194
Farmers' Loan & Trust Co. v. North-
ern Pac. R. R. Co., 1192
Farmers' Loan & Trust Co. v. North-
ern Pac. R. R. Co. (Wisconsin
Central R. R. Co., Interveners),
1200, 1218
Farmers' Loan & Trust Co. v. Oregon
& W. T. R. R. Co. (Congdon, In-
tervener), 1044
Farmers' Loan & Trust Co. v. Perry,
450
Farmers' Loan & Trust Co. v. Postal
Telegraph Co., 1161
Farmers'' Loan & iTrust Co. v. Rock-
away Valley R. R. Co., 1018
Farmers' Loan & Tn st Co. v. San
Diego Street Car Co., 1035, 1167
Farmers' Loan & Trust Co. v. Toledo,
A. A. & N. M. Ry. Co., 491
Farmers' Loan & Trust Co. v. Toledo
& S. H. R. R. Co., 1034, 1035,
1037, 1343
Farmers' Loan & Trust Co. v. Vicks-
burgh, etc., R. R.Co., 1193, 1257
Farmers' Loan & Trust Co. v. Winona
& S. W. Ry. Co., 1153, 1155, 1187
Farmers & Mechanics' Bank v. Bald-
win, 512, 515
Farmers & Mechanics' Bank v. Butch-
ers & Drovers' Bank, 78, 187, 322,
595, 653
Farmers & Mechanics' Bank v. Bear-
ing, 529, 533
Farmers & Mechanics' Bank v. Empire
Stone Dressing Co., 78, 465
Farmers & Mechanics' Bank v. Plant-
ers' Bank, 605
Farmers & Mechanics' Bank of Sav-
ings V. Colby, 196
Farmers' & Mechanics' Bank of Los
Angeles v. Downey, 362
TABLE OF CASES.
Hii
[The Inferences are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1807.]
Farmers & Mechanics' State Bank v.
^Annstrong, 717
Farmers' National Bank of Valpamso,
Ind., V. Sutton Mfg. Co., 157
Farmers & Traders' Bank, v. Harrison,
530
Farmers & Tradera' Nat. Bank v. Hoff-
mann, 1299
Farmington v. Jones, 135
Farnum v. Blackstone Canal Co.,
478
. Farrar v. Gilman, 206, 571
Farrington v. South Boston R. R. Co.,
342
Farrington v. Tennessee, 1307
Farwell v. Curtis, 692, 705
Fawcett v. New Haven Organ Co.,
157
Fay V. Noble, 75, 85, 205, 309, 326, 337
Fear v. Bartlett, 1111
Featherstone v. Cooke, 1121
Fegley v. McD6nald, 523
Feibeiman v. Packard, 720
Felker v. Standard Yarn Company,
386
Fells Point Savings Inst; of Baltimore
V. Weedon, 630, 631
Fenn v. Curtis, 288
Feuton V. Blair, 67, 117
Ferguson v. Gill, 407
F y V. McKcDna, 608
Ficklenv. Shelby County, 1367
Fidelity, etc.. Company v. West
Pennsylvania, etc., R. R. Co.,
1046
Eldelity Ins., Truot & Safe Deposit
Co. V. Shenandoah Valley R. Co.,
809, 1339, 1257
Fidelity Trust & Safety Vault Co. v.
Mobile Street Ry. Co., 1164, 1177,
1195
Fielder v. M. & E. R. R. Co., 47, 902
Fifth Avenue Bank of New York v.
Forty-second St. & Grand St.
Ferry R. R. Co., 333, 341
Fifth National Bank v. Navassa Phos-
phate Co., 196, 228
Fifth "Ward Savings Bank v. First
National Bank, 87, 179
Filor V. Miller Brewing Co., 820
Finance Co. of Pennsylvania v.
Charleston, C. & C. R. R. Co., 1191,
1331, 1345
Finance Co. of Pennsylvania v.
Charleston, C. & C. R. R. Co. (Ex
parte Hudson), 1245
Finance Co. of Pennsylvania v.
Charleston, C. & C. Ry. Co.
(Moore, Intervener), 1259
Finance Co. of Pennsylvania v.
Charleston. C. & C R. Co. (Shrand
et al., Interveners) 1259
Finance Co. of Pennsylvania v. Char-
lotte, C. & C. R. E. Co. (Poca-
hontas Coal Co., Intervener), 12^
Finlayson v. Vaughn, 972
Finnell v. Sandford, 757
Fire Ins. Co. v. Parker, 1306
Firemen's Insurance Co. v. Sturges, 90
First Municipality v. Orleans Theatre
Co., 77
First Municipality v. Cutting, 890
First National Bank v. Armstrong,
754
First National Bank v. Bailey, 1300
First National Bank v. Bennett, 193,
508
First National Bank v. Chapman, 1399
First Nat. Bank v. Drake, 550, 580
First Nat. Bank v. Elmore, 511
First National Bank v. First National
Bank, 699
First Nat. Bank v. Fricke, 236
First Nat. Bank v. Frickie, 233
First National Bank v. Gifford, 250
First Nat. Bank v. Gillilan, 494
First Nat. Bank v. Gondy, 597
First Nat. Bank v. Haire, 510
First Nat. Bank v. Harris, 515, 658
First Nat. Bank v. HinghamMfg. Co.,
387
First Nat. Bank v. Kimherlands, 182,
198
First Nat. Bank v. Lucas, 193
First National Bank v. National Bank,
510
First Nat. Bank v. National Exchange
Bank, 516, 527
First Nat. Bank v. North Missouri
Coal Co., 172, 184
First' Nat. Bank v. Ocean Bank, 848
First Nat. Bank v. Reed, 193, 563
First Nat. Bank v. Salem Capital
Flour Mills Co., 809
First Nat. Bank v. Sherburne, 527, 562
First Nat. Bank v. Strang, 821
First Nat. Bank v. Tappan, 644
First Nat. Bank v. Union School
Township, 133
First National Bank of Albia v. City
Council of Alhia, 1297, 1398
First Nat. Bank of CarUsle v. Graham,
636
First Nat. Bank of Charlotte v. Nat.
Exchange Bank of Baltimore, 516
First Nat. Bank of Cleveland v.
Shedd, 1163, 1172
First Nat. Bank of Evansville v.
Fourth Nat. Bank of Louisville,
695
First Nat. Bank of Jersey City v.
Leach, 653
First Nat. Bank of Lyons v. Ocean
Nat. Bank, 341
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 Nat. Bank of Middletown v.
Council BhiflEs City Water Works
Co., 229
First Nat. Bank of Monmouth v. Dun-
bar, 636
First Nat. Bank of Omaha v. Masten
Bank, 713
First Nat. Bank of Peoria v. Commer-
cial Nat. Bank of Peoria, 1144
First Nat. Bank of Quincy v. Bicker,
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. Bioux 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, 533
First Nat. Bank of Trinidad v. First
Nat. Bank of Denver, 700, 701
First Nat. Bank of Walla Walla v.
Hungate, 1397
First Nat. Bank of Washington v.
Whitman, 651, 653
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. Attlehorough, HI
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, 213
Fitzhugh V. Bank of Shepherdsville,
536
Fitzhugh V. Land Company, 172, 193,
198
Fitzsimmons v. Express Co., 233
Plagg V. Railroad Co., 363, 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, 143, 146, 176,
494, 513, 527, 577, 759
Plemming v. Denny, 660
Fletcher v. Osborn, 617
Fletcher v. Sharpe, 710
Flint V. Pierce, 164 -
Flint V. Roger, 641
Flint & Peie 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. McAfEee, 1271,
1373
Florida Land & Imp. Co. v. Merrill,
387
Floyd V. .Perrin, 1008
Fluker v. Railway'Oompany, 1128
Fluty V. School District, 446
Fogarties v. State Bank, 660, 663
Fogg V. Blair, 1028, 1110, 1118, 1114,
1242
Fogg V. Supreme Lodge, 1131
Foley V. Hill, 597
Folger V. Chase, 206, 573
Folger V. Insurance Company, 1118
Foliansbe 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
TABLE OF CASES.
Iv
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Ford V. McClung, 705
Ford Y. Mitchell, 628
Ford V. Plankinton Bank, 1110, 1135,
1137
Fordyce v. Du Bose, 1239
Foreman v. Murphy, 46
Foresman v^ Chase, 1371
Forniquet v. West Feliciana R. R. Co.,
530
Forster v. Clements, 637
Fortier v. New Orleans Nat. Bank,
509
Fort Payne Coal & Iron Co. v. Sayles,
1133
Fort Payne Furnace Co. v. Fort Payne
Coal & Iron Co., 1133
Fort Worth City Co. v. Smith Bridge
Co., 89
Fosdick V. Schall, 1187, 1190, 1193,
1194, 1330, 1231, 1332, 1239, 1245,
1360
Fosdick V. Sturges, 166
Foss V. City of Chicago, 59
Foss V. Harbottle, 394, 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., 1016, 1137
Foster v. Ohio-Colorado Reduction &
Mining Co., 319
Foster v. Oxford, W. & W. Ry. Co.,
342
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, 387
Fourth Nat. Bank of Chicago v. City
Nat. Bank of Grand Rapids, 649
Fourth Street Nat. Bank v. Yardsley,
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, 833, 843
Frank v. Chemical Nat. Bank, 639,
668, 679
Frank v. Hicks, 334
Frapkfort Bank v. Johnson, 159, 167,
548
Frankland v. Johnson, 358
Franklin Avenue German Sav. Inst..
V. Board of Education, 494
Franklin Bank v. Byram, 639
Franklin Bank v. Commercial Bank,.
517
Franklin Bank v. Cooper, 580
Franklin Bank v. Freeman, 660
Franklin Bank v. Stevens, 580
Franklin Company v. Lewiston Inst,
for Savings, 478, 479, 493, 503, 517
Franklin County v. Layman, 58
Franklin County v. Nashville, Chat-
tanooga, etc.. Railway, 1304
Franklin County Court v. Louisville-
& Nashville R. R. Co., 1301
Franklin County Nat. Bank v. Beal,
Receiver, 750
Franklin Insurance Co. v. Jenkins,
348, 347t 349, 352
Pray lor v. Sonora Mining Co., 233
Frazer v. Tunis, 395
Frazier v. Bank, 731
Frazier 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., 308
Freeman v. Stine, 379
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, 636, 737,
French v. Andrews, 1124
French v. City of Burlington, 66, 886.
French v. Dunn County, 132
French v. GiSord, 1233
French v. O'Brien, 173
French v. Quincy, 35, 41
French v. Teschemaker, 44
Preund v. Importers', etc., Nat. Bank,
653, 655
Fridley v. Bowen, 510
Friend v. City, 955
Friend v. Gilbert, 20
Frost V. Belmont, 33, 571
Frost V. St. Paul Banking & Invest-
ment Co., 1132
Frost Manufg. Co. v. Foster, 347
Fry, Collector, v. Chicot County, 68
Prye v. Tucker, 206
Fugitt v. Nixon, 703
Fuld,v. Burr Brewing Co., 457
Fuller V. Bennett, 681
Fuller V. City of Chicago, 66
Fuller V. Hooper, 810
Puller V. Inhabitants of Groton, 35, 61
Fullerton v. School District of Lin-
coln, 883
1^
TABLE OF CASES.
[lyhe references are to pages: vol. I contains pp. 1-707; vol. II, pp. ^Oft-ISOT.]
Fullerton v. Sturges, -608
Pulton V. Town of Riverton, 943
Pulton County v, MfesiissippI &
Wabash Railroad, 898, 904
Purnald v. Glenn, 1137, 1140
Turniss v. Gilchrist, 97, 206
G.
•Oaar v. First Nat. Bank of Centralia,
510
■Gaddies v. Richland County, 904, 939,
971
'Gale V. South Berwick, 135
Gale V. yillage of Kalamazoo, 29
•Galena Insurance Co. v. Kupfer, 637,
648
Galena & Chicago N. R. R. Co. v.
Menzies, 1096
■Gall V. City of Cincinnatti, 39
Gallagher v. Brunei, 394
'Ga.lveston R. R. Co. v. Cowdrey,
1095
Gamble v. Queens County Water Co.,
73
Gane v. Losemo Printing Co., 809
Gans V. Switner, 417
Gansevport v. Williams, 187
Gardiner v. Pollard, 309
Gardinej- v. Tyler, 1333
Gardner v. B. & M. R. R. Co., 211
Gardner v. Butler, 314, 241, 243, 350,
363, 264
Gardner v. Graham, 1058
Gardner v. National City Bank, 665
Gardner v. Ogden, 351, 336
Garham v. Mutual Aid Society, 1118,
Garland v. Board of Revenue, 25
Garrard County Court v. McKee, 136,
137
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, 103,
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 Bargp Company, 157,
309
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.,
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, 394
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, 663
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, 399
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. Cooke, 665
Gibson v. Furniture Company, 1111
Gibson v. Goldthwalte, 174, 175
Gibson v. Joyce, 326
Gibson V. Poor District, 34
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. & S. 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 OASES.
Ivii
[The references are to pages; vol. I contaiDs pp. 1-707; vol. n, pp. 708-13W.]
Gillett V. Board of Supervisors of
Logan County, 130
GiUett V. Campbdl; 98, 154, 173
Gillett V. Mpody, 76, 550, 1087
GlUis V. Bailey, 165
Oilman v. City of Sheboygan, 1364
Gilman v. Milwaukee, 43
Oilman v. Telegraph Co., 1186, 1333
Oilman, etc., R. R. Co. v. Kelly, 343,
363
Oilman v. N. O. & 8. R. R. Co., 953
Gilson V. Board of Comrs. of Rush
County, 869, 871
Gilson v. Town of Dayton, 974
Girard Life Ins. Annuity & Trust Co.
V. Cooper, 1306
Gist V. Drakely, 93
Githers v, Clarke, 383
Gladstone Exchange Bank v. Keating,
606
Olasier v. RoUes, 394
Glass V. Ferd Heim Brewing Co., 470
Glenn v. Liggett, 1138
Glenn v. McAllister's Execrs., 773
Glenn v. Marbury, 1138
Glenn v. Noble, 656
Glenn v. Orr, 773
Glenn v. Springs, 773
Glenn, Trustee, v. "Williams, 1137
Glidden v. Unity, 145
Glines v. Supreme Sitting, Order of
Iron Hall, 1133
Globe Works v. .Wright, 193
Gloninger v. Pittsburgh & Connells-
villeR. R. Co., 1019, 1057, 1087
Gloucester Bank v. Salem Bank, 673,
677
Glorer v. Lee, 151
Oodbold V. Branch Bank of Mobile,
348, 549
Oodin V. Bank of the Commonwealth,
603, 650
Goddard v. Bank, 670
Goddin v. Crump, 48, 49, 901, 964
Goetz V. Bank of Kansas City, 696
Ooff V. Rehoboth, 134
Goforth V. Rutherford Ry. Construc-
tion Company, 907
Gold V. Clyne, 897
Goldbeck V. Bank, 336
Goldfrank v. Young, 1139
Gold Mining Co. v. Anglo-California
Bank, 169, 333, 336, 336, 530, 806,
•943
Goldsmith v. Stetson, 753
Goldsmith v. Stewart, 803
Ooodell V. Buck, 753
Ooodin V. Cincinnati, etc., Canal Co.,
383, 306
Goodin v. Canal Company, 1108
Goodloe Y. Godly, 688
Goodman v. Simonds, 1001
viii
Goodrtiar v. Oakley, 805
Goodrich V. Reynolds, Wilder & Co.,
306
Goodrich V. Winchester, etc., T. P.
Co., 870
Goodwin v. Union Screw Co., 153, 195
Goodyear Dental Vulcanite Co. v.
Caduc, 353, 354
Goodyear Rubber Co. v. George D.
Scott Company, 1111
Oorder v. Plattsmouth Canning Co.,
1071, 1086, 1089
Gordon v. Board of Comrs. Dearborn
County, 131
Gordon v. Newman, 1166
Gordon v. Pi-eston, 1055, 1084
Gordon & Gomila v. Muchler, 647
Gorman v. Boise County, 798
Gou^h V. Staats, 707
Gould V. Cayuga County Nat. Bank,
563
Gould V. Litlle Rock, M. R. & T. Ry.
Co., 1083, 1084, 1113
Gould V. Town of Oneonta, 983
Gould V. Town of Sterling, 111, 993
Oovers' Case, 398
Oraflns v. Land Company, 310
Grafton Bank v. Woodward, 583
Graham v. Morstadt, 660
Graham v. Norton, 944
Graham v. Railroad Co., 354, 1038,
1043, 1113, 1137
Gramme! v. Carmer, 664, 665
Grand Chute v. Winegar, 338, 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,
353
Grand Rapids Savings Bank v. War-
ren, 761
Granniss v. Cherokee Township of
York County, 1010
Grant v. City of Davenport, 68, 69
Grant v. East & West R. R. Co. of
Ala., 1030, 1037, 1034, 1040, 1057,
1075
Grant v. Piol, 597
Grant v. Spokane Nat. Bank, 730, 734
Grant v. Taylor, 533
Grant v. Walsh, 619, 630, 1146
Grape Sugar Manufg. Co. v. Small,
197
Graves v. Mono Lake Hydraulic Min-
ing Co., 367
Gray v. Coffin, 769
Gray v. New York & Virginia St. Ship
Co., 350, 309
Great Falls Bank v. Farmington,
145
Iviii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Great Luxembourg Ry. Co. v. Mag-
nay, 343, 471
Great Western Telegraph Co. v. Loew-
enthal, 1140
Greaves v. Gouge, 309, 317, 556
Greeley v. Thurston, 1)41
Green v. Barrett. 294
Green v. City of Cape May, 39
Green v. Eiiston, 394, 395
Green v. Hugo, 246
Green v. Odd Fellows' Sav. & Com-
mercial Bank, 599
Green v. Walkill Nat. Bank, 555
Green Bay v. Braune, 800
Green Bay & Minnesota R. Co. v.
Union Steamboat Co., 89, 94, 473,
819
Green County v . Conness, 1383
Greenlaw v. King, 326
Greenleaf v. Norfolk Southern Ry.,
336
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,
638
Gregory v. City of Bridgeport, 790
Gregory v. Patchell, 834
Greig v. Riordan, 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., 346, 379, 356
Griffin v. Chase, 747
Griffin v. Goff, 641
Griffith V. Burden, 834
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,
133
Guaranty Trust & Safe Deposit Co. v.
Green Cove Springs & Melrose R.
R. Co., 1151, 1153, 1153
Guelich v. National State Bank, 683
Guernsey v. Burlington Township, 55,
1011
Guild V. Bank, 585
Guild V. Parker, 244, 264, 378, 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, 537
Qutta Percha & Rubber Manufg. Co.
V. Village of Ogalalla, 113, 114
Guyette v. Bolton, 136
Gypsum Plaster & Stucco Co. v.
Adsit, 1192
H.
Haacke v. Knights of Liberty Social &
Literary Club, 851
Hackensack Water Co. v. City of Ho-
boken, 70
Hackensack Water Co. v. De Kay,
300, 1079
Hackett v. Ottawa, 70, 838, 872, 895
Hackettstown v. Swackhamer, 103
Hade v. McVay, 712
Hadsell v. Inhabitants of Hancock,
35, 61
Hagan v. City of Brooklyn, 798
Hagar v. Union National Bank, 523,
526
Hagen v. Bowery National Bank, 654
Hageubeck v. Hagenbeck Zoologxal
Arena Co., 1124
Hager v. Rice, 359
Hague V. City of Philadelphia, 444,
831
Haile v. Peirce, 359
Haines v. Detrick, 336
Haines v. McFerren, 637
Halbert v. State ex lel., etc., 123
Halbut V. Forest City, 446
Hale V. Bridge Co., 358
Hale V. Frost, 1389
Hale V. Nashua & Lowell R. R. Co.,
1389
Hale V. Rawallie, 635
Hale V. Walker, 757
Hale-Berry Co. v. Diamond State Iron
Co., 1133
Hall V. Auburn Turnpike Co., 78, 173,
196, 466
Hall V. Baker, 940
Hall V. Bank, 586
Hall V. Cordell, 1021
Hall V. Crandall, 850
Hall V. Jackson County, 16, 120
Hallam v. Hotel Company, 1084,
1113
Hallowell & Augusta Bank v. Hamlin,
155, 175, 180
Halsey v. Ackerman, 558
Halstead v. Board, etc., of Lake
County, 39
Halstead v. Dodge, 393
Halstead v. Mayor, etc., 5, 20, 64, 114,
438
TABLE OF OASES.
lix
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Hambright v, Cleveland Nat. Bank,
539
Hamilton v. Bates, 334
Hamilton v. City of Shelbyville, 486
Hamilton v. Cunningham, 681
Hamilton v. McLaughlin, 1071
.Hamilton v. New Castle & D. R. R.
Co., 75, 103, 144, 146
Hamilton v. Savannah, F. & W. Ry.
Co., 474
Hamilton v. Winona Salt & Lumber
Co., 693
Hamilton Co. v. Massachusetts, 1374
Hamm v. Drew, 151
Hammock v. Trust Company, 1168
Hammond v. Michigan State Bank,
153
Hancock v. Chicot County, 45
Hancock v. Holbrook, 363, 378
Hancock v. Railroad Company, 946
Hand v. Savannah & Charleston R. R.
Co., 1047, 1334, 1860
Handley v. Stutz, 1038, 1140
Haner v. Town of Polk. 138
Hankins v. Shoup, 146
Hanley v. Balch, 1094
Hannerty v. Standard Theater Co.,
346, 364
Hannibal & St. Jos. R. R. Co. v.
Marion County, 110
Hannon v. Williams, 366
Hanson v. Tate, 351
Hardee v. Sunset Oil Co., 1135
Hardin v. Construction Co., 330
Harding v. Rockford, R. I. & St.
Louis R. R. Co., 971
Hardy v. Merriweather, 30
Hardy v. Metropolitan Land Co., 336
Hardy v. Pilcher, 359
Hardy v. Waltham, 35, 68
Hardy & Bros. v. Chesapeake Bank,
597, 673, 673, 680
Hare v. Henty, 658
Hargadine v. Henderson, 1114
Harkness v. Russell, 1103
Harlan v. Rand, 1350
Harlem Gas Light Co. v. Mayor, etc,
of New York, 39
Harman v. Auditor of Public Ac-
counts, 975
Harms v. Fitzgerald, 131
Harney v. Indianapolis, etc., R. R.
Co., 437
Harper v. Calhoun, 548, 573
Harper v. Carroll, 1140
Harrigan v. Quay, 1130
Harriman v. Baptist Church, 497
Harrington v. First Nat. Bank of
Chittenango, 835
Harris v. EUiott. 1101
Harris v. N. D. Railroad Co., 358
Harris v. Runnels, 530
Harrisburg City v. Pennsylvania Tele-
phone Co., 1363
Harrison v. Crowder, 688, 691
Harrison v. Mexican Ry., 484
Harrison v. Smith, 643, 731
Harrison v. Union Pac. Ry. Co., 1044
Harrison v. Waterberry, 1118
Harrison v. Wright, 644, 648
Harry v. Wood, 657
Harshman v. Bates County, 446, 935
Harshman v. Knox County, 873
Hart V. Brockway, 346
Hart V. Frontino, etc., Co., 338
Hart V. Lauman, 1031
Hart V. Salisbury, 371
Harter v. Kernochan, 935
Hartford Bank v. Barry, 573
Hartford Iron Mining Co. v. Cambria
Mining Co., 165
Hartridge v. Rockwell, 76, 385
Ha.rts V. Brown, 314, 350, 363, 369,
1084, 1113
Harvey v. Indianapolis, C. & D. R. R.
Co., 17
Harward v. The St. Clair & Monroe
Levee Drainage Co., 1005
Harwood v. Humes, 350
Harwood v. Railroad Co., 168
Hasbrouck v. Milwaukee, 903, 957
Hascall v. Life Association of America,
311
Hase V. Warren County, 138
Hass V. Bank, 1146
Hassan v. City of Rochester, 36
Hastings v. Brooklyn Life Ins. Co.,
183
Hastings v. Drew, 1108
Hatch V. Attrill, 409
Hatch V. Coddington, 147
Hatch V. Dana, 1133
Hatfield v. Cumminss, 1133
Hanson v. Vernon, l4
Havemeyer v. Iowa City, 957'
Haven v. Adams, 1000, 1073
Haven v. Grand .Junction R. R. &
Depot Co., 1047
Havens v. Lathene, 353
Hawes v. Oakland, 306, 309, 313, 317,
1373
Hawk V. Marion County, 134
Hawkins v. Carroll County, 911, 920
Hawkins v. Glenn, 1038, 1110, 1138
Hawtayne v. Bourne, 98, 150, 153
Hayden v. Wheeler &Tappan Co., 336
Hayes v. Bank, 1111
Hayes v. Beardsley, 633
Hayes v. Holly Springs, 873
Hayes v. Orr, 713
Haynes v. Cape May, 1086
Haynes v. Covington, 446
Haynes, Liquidator, v. Succession of
Beckman, 176
Ix
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-18(W.]
Hay's Case, 433
Hays V. Qalion Gas Light & Coal Co.,
91, 9S, 98, 1054
Hayward v. Board of Trustees of
Town of Redcliff, 438
Hayward v. Davidson, 121, 494
Hayward v. Pilgrim Society, 219
Haywood v. Lumber Company, 1087,
1111
Hazelett v. Bank, 682
Hazelhurst v. Sav., G. & N. A, R. R.
Co., 484, 517
Hazleton v. Bank of Columbus, 629
Head v. Cleburne Building & Loan
Assn., 470
Head v. Providence Insurance Co., 95
Heal V. JefEerson, Township of. Grant
County, 133
Heanley v. State, 870
Heath v. Erie Railway Co., 315, 495,
556
Heath v. Portsmouth Savings Bank,
617
Heath v. Second Nat. Bank, 512
Hedges v. Dixon County, 897, 924
Hegeman v. Passaic, 1270
Heims Bi'ewing Co. v. Flannery, 470,
490, 821
Hemphill v. Yorkes, 608
Hendee v. Pinkerton, 1014, IO74
Hendee v. Railroad Co., 716
Henkle v. Town of Keota, 1298
Henley v. Clover, 129
Henderson Bridge Co. v. Common-
wealth, 1300
Hennessy v. City of St. Paul, 509
Henry v. Martin, 1145
Henry v. North Bank of Alabama, 599
Henry v. Rutland & B. R. R. Co., 279
Henry v. Syracuse, G. & C. R. R. Co.,
1021
Hentig v. Sweet, 258
Hequembourg v. City of Dunkirk, 87
Herbert v. Bait. & Phil. R. R. Co.,
. 1301, 1304
Herring v. New York, L. B., etc., R.
R. Co., 1172
Hersey v. Veazie, 812, 495
Hervey v. Illinois Midland Ry. Co.,
1020, 1076
Hessler v. Drainage Commissioners,
1005
Hewitt V. Board of Education, 878,
971
Hewitt V. Goodrich, 644
Hewitt V. Railroad Company, 1286
Hewitt V. Town of Grand Chute, 138
Hewitt V. Wheeler, 235
Heycock v. Sherman, 415
Hibernia Building Assn. v. McGrath,
366
Hichens v. Congreve, 294, 298, 556
Hicks V. Cheyenne Land & Live Stock
Co., 1100
Hight v. Board, etc., of Monroe
County, 121, 122
Hightower v. Thornton, 357
Higley v. First Nat. Bank of Beverly,
536
Hill V. C. P. Jewett Publishing Co.,
344
Hill V. City of Memphis, 17, 952, 954
1004
Hill V. Frazier, 243
Hill V. Nisbet, 263
Hill V. Rich Hill Coal Mining Co., 260
Hill V. Todd, 655
Hill V. Trust Co., 652
Hills V. Bannister, 360
Hills V. Furniture Company, 1071,
1116
Hills V. Parker, 1118
Hillyer v. Overman Silver Mining Co.,
172
Hinckley v. Pfister, 1123
Hinckley v. Union Pac. R. R. Co.,
1047
Hinds V. Marmolejo, 585
Hintrager v. Richter, 488
Hirschmann v. Iron Range & Huron
Bay R. R. Co., 283
Hirsch v. Jones. 311
Hitchcock V. Galveston, 29, 37, 65,
110, 787, 860, 1004
Hitchings v. St. Louis, N. 0. & 0.
Canal Transp. Co., 236
Hitt V. Allen, 603
Hoag V. Lamont, 234
Hobart v. Johnson, 769
Hobart v. Supervisors, 49
Hobbs V. McLean, 1184
Hockaday v. Commissioners, 67
Hodder v. Kentucky & Great Eastern
Ry. Co., 1014, 1020. 1093
Hodge V. First National Bank, 182,
198
Hodges V. City of Buffalo, 5, 83, 114,
. 438, 489, 445
Hodges V. New England Screw Co.,
301, 305, 306, 364, 456, 553, 556
Hodges V. Planters' Bank, 526
Hodges V. Shuler, 1014
Hodgin V. Bryant, 547
Hodgkinson v. National Live Stock
InS'. Co., 324
Hodgman v. Chicago & St. Paul Ry.
Co., 962
Hodsdon v. Capeland, 312
Hoetzel v. East Orange, 1086
Hoey V. Gilroy, 854
Hoffman v. Board, etc., 123
Hoffman v. Comrs. of Greenwood
County, 442
Hoffman v. Dickey, 385
TABLE OF OASES.
M
[The reCerenees are to pages: vol. I contains pp. 1-7QH; vol. II, pp. 708-1307.]
Hoffman v. First Nat. Bank of Jersey
City, 697
Hoffman v. Reiehert, 263, 274
Hoffman Steam Coal Co. v. Cumber-
land Coal & Iron Co., 251, 273
Hogue V. Edwards, 645
Holbrook v. Ba^sett, 74, 103
Holbrook V. Fiiuquier, etc., Turnpike
Co.,
Holbrook V. New Jersey Zinc Co.,
335
Holbrook, Merrill & Stetson v. Peters
& Miller Co., 1117
Holdeu V. New York & Erie Bank,
361
Holden v. Phelps, 334
Holden v. Upton, 155, 580
Holder v. La Fayette, B. & M. Ry.
Co., 345, 358, 379, 356
HoUingsworth -v. Detroit, 946
HoUins V. Brierfleld Coal & Iron Co.,
1109, 11-20, 1139
Hollins V. St. Paul, M. & M. R. Co.,
489
Hollister v. Powlett, 187
Holly Manufg. Co. v. New Chester
Water Co., 1158
Holmes v. Board of Trade, 150
Holmes v. Boyd, 513
Holmes v. City of Shreveport, 13, 849,
857
Holmes v. Gilman, 753
Holmes v. Kansas City Board of
Trade, 170, 334
Holmes v. Roe, 659. 693, 707
Holmes, Booth & Haydens v. Willard,
183, 324, 363, 820
Holmes & Griggs Manufg. Co. v.
Holmes & Wessell Metal Co 496,
821
Holt V. Bennett, 363, 349
Holt V. City of East St. Louis, 1369
Home Friendly Society v. Tyler, 819
Home Insurance Co. v. New York,
1274, 1394
Home Nat. Bank v. Newton, 637, 641
Homestead Bank v. Wood, 489
Honduras Commercial Co. v. State
Board of Assessors, 1393
Hone V. Allen, 193
Hood Y. New York & N. H. R. R.
Co., 469, 478, 503
Hook V. Bosworth, 1197
Hooker v. Eagle Bank, 170
Hooker v. Vandewater, 1178
Hooper v. Ely, 129
Hoosac Mining & Milling Co. v. Donat,
235
Hope V. Deaderick, 48
Hope V. International Society, 1153
Hope V. Salt Company, 1087
Hope Mutual Life Ins. Co. v. Wood, 90
Hopewell v. Putt, 136
Hopkins' Appeal, 1111
Hopkins v. Roseclare Lead Company,
153
Hopkinson V. Foster, 664
Hopper V. Sage, 816
Hopper V. Town of Covington, 948
Horn V. Mayor, etc.. Ill
Hornblower v. Crandall, 391
Hornblower v. Duden, 58
Hornor v. Henning, 388, 400, 403, 406,.
418, 557
Hornsby v. Eddy, 1239
Horn Silver Mining Co. v. New York,,
1394
Horn Silver Mining Co. v. Ryan, 348,.
349, 5S3
Horton v. Mobile School Comrs.,
882
Horton v. Sayer, 1153
Horton v. Town of Thompson, 936,,
994, 1007
Horton Ice Cream Co. v. Merritt, 193'
Horwitz V. EUinger, 597
Hospes V. Car Company, 1084, 1135
Hotchin v. Kent, 166, 173
Hotchkiss V. Marion, l3
Hotchkiss V. Plunkett, 140, 790
Hotel Co. V. Wade, 375, 1038, 1084
Hot Sprinffs 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, 35
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, 638
Howe V. Keeler, 335
Howe V. Newmarch, 338
Howe V. St. Clair, 1333
Howe V. Tool Co., 346, 354
Howe Brown & Co. v. Sanford Pork.
&T00I Co., 1087
Howell V. City of Peeria, 66
Howell V. McCrie, 173
Howell V. Western R. R. Co., 1080
Howland v. Myer, 191
Hoyle V. Plattsburgh & Montreal R.
Co., 363, 270, 283, 336, 1083
Hovt V. Shelden, 334
Hoyt V. Stoddard, 1303
Hoyt V. Thompson, 157, 180, 194, 302,.
217, 225, 233, 466, 576
Hubbard v. Bank, 1118
Hubbard v. Camperdown MiUs, 171
Hubbard v. Lyndon, 138
Ixii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. H, pp. 708-1307.]
Hubbard v. New York & Harlem K.
R. Co., 1013, 1014
Hubbard v. New York, etc.. Invest-
ment Co., 241, 250
Hubbard v. President, etc., 724
Huber v. Bossart, 657
HucksteiL. V. Herman, 642
Hudson V. Elevator Company, 1214
Hudson V. Marietta, 67
Hudson V. Wilkinson, J139
Hudson County Catholic Protectory
V. Board of Tovcnsbip Committee
of Kearney, 1279
Hugg V. City Council of City of Cam-
den, 57
Hugbes 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, 820, 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. Fav\fcett, 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 Paiii Commrs.,
1269
Huntress v. BurbSnk, 322
Huntsville Belt Line & M. 8. Ry. Co.
V. Corpening, 151
Huron Printing & Binding Co. v.
Kittleson, 237
Hussey v. King^ 322
Hutchinson v. Bidwell, 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, 810,
318
Hyland, Auditor, v. Central Iron &
Steel Co., 1^72
Hylton V. United States, 1273
Hypers v. Griffin, 357
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, 1303
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., 370,
371
Ingwerseu 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 Deering, 30, 35
Innerarity v. Bank, 571, 583
Innerarity v. Merchants' Nat. Bank,
388
In re A. D. St. Nav. & Col. Co.. 485
TABLE OF CASES.
Ixiii
[The references are to pages: vol. I contains pp. l-TOT; vol. II, pp. 708-1307.]
In re Appeal of Des Moines "Water
Co., 1398
In re Armstrong, 535
In re Ayers, 845
In re Bahia, etc., 338, 338
In re Barnard, United States Trust
Co. of New York v. Omaha & St.
Louis Ry. Co., 1337
In re British Seamless Paper Box Co.,
398, 338
In re Cape Breton Co., 399
In re Cardiff Savings Bank, Davies'
Case, 433
In re Certain Stockholders of the Cali-
fornia Nat Bank of San Diego,
715
In re Commissioners of Central Park
36
In re Cork & T. By. Co., 497, 1059
In re Denham & Co., 347
In re Elwes, 1375
In re Empire City Bank, 757
In re Eno, 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, 636
In re Herman, 716
In re Home Provident Safety Fund
Assn., 1139
In re James' Estate, 811
In re Johnson, 1145
In re Land Allotment Co., 430
In re Le Blanc, 817
In re Lehigh Co.'s Estate, 1113
In re Lewis, 1133
In re London & Birmingham R. R.
Co., 365
In re Louisiana Savings Bank, 598
In re Marseilles Extension Ry. Co. , 570
In re Mast, Buford & Burwell Co.,
1137
In re Middle Dist. Bank, 713
In re Millward CliS Cracker Co., 809
In re Minnehaha Driving Park Assn.,
1134, 1135
In re Mohawk & H. R. Co., 157
In re National, etc.. Society, 497
In re New Mashonaland Exploration
Co., 433
In re North Australian Territory Co.
(Archer's Case), 398, 433
In re North River Bank, 633, 636
In re Patent File Co., 93
In re Pendleton Hardware & Imp.
Co., 155
In re Petition of Powers, 139
In re Pyle Works, 346
In re Bieciprocity Bank, 771
In re Rochester, Homellsville &
Lackawanna R. R. Co., 830
In re School Directors, 138
In re Seattle, L. S. & E. Ry. Co.,
Grievance Committee of Brother-
hood of Railway Trainmen Lodge
No. 196 V. Brown, 1309
In re Seven Corners Bank, 755
In re South Mountain Consolidated
.Mining Co. , 756
In re Tallassee Mfg. Co., 533
In re The Independent Assurance Co. ,
157
In re The Liverpool Household" Stores
Assn., 419.
In re Washington Diamond Mining
Co , 430
In re Western & Marine Fire Ins Co.,
560
In re Westmoreland Green & Blue
Slate Co., 431
In re Wetmore, 881
I. N. & S. Ry. Co. V. City of Attica,
951
Insurance Co. v. Cappellar, 1306
Insurance Company v. Lott, 1307
Insurance Company v. Oakley, 170
Intendant, etc., of Livingston v. Pip-
pin, 39, 445
Intendant of Marion v. Chandler, 48
International Bank v. Ferris, 696
International Bank v. German Bank,
680
International Bank v. Jones, 638, 647,
661
International & Great Northern R. R.
Co. V. State, 1383
International & Gt. Northern R. R.
Co. V. Wentworth, 1304
Investment Co. of Philadelphia v. Ohio
& N. W. Ry. Co., 1185, 1304,
1334
Iowa City Nat. Bank v. McCord, 619
Iowa Lumber Co. v. Foster, 75
Iowa State Sav. Bank v. Black, 585
Iron Company v. Drexel, 164
Iron Works v. Grave, 859
Irving Bank v. Wetherald, 653
Irwin V. Bailey, 191
Irwin V. McKechnie, 1335
Ives V. Smith, 1016
Ivory V. Bank of Missouri, 656, 697
J.
Jackson v. Brown, 101, 1055
Jackson v. Campbell, 181
Jackson v. Cartwrigh-t Lumber Co.,
303
Jackson v. Hathaway, 1101
Jackson v. Ludeling, 344, 336, 1108
Jackson v. Mar|iet Company, 181
Jackson v. Newark Plankroad Co.,
816
Ixiv
TABLE OF CASES.
[The references are to pages: toI. 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, 603,
603
Jackson School Township v. Farlow,
800
Jacksonville, N. W. & S. E. R. R. Co.
V. Virden, 904, 971
Jacksonville, T. & K. W. R. R.
Co. V. American Construction Co.,
1184
Jacobs V. Knapp, 1350
Jacohaohn v. Belmont, 688
Jaffray v. Matthews, 1114
Jagger v. National Grerman- American
Bank of St. Paul, 683
James v. Rogers, 743
Jansen v. Otto Steitz New York Glass
Letter Co., 209
Janvrin v. Town of Exeter, 135
Jarrolt v. Moherly, 968
Jarvis v. Manhattan Beach Co., 384
Jarvls V. Wilson, 655
Jassoy V. Horn, 600, 603
Jeffifeison Countv v. Single, 133
JellifE V. Newark, 1370
Jemison v. Citizens' Savings Bank of
Jefcersoa, Texas, 466, 467
Jenkins v. Hutchinson, 368
Jenkins v. "Walter, 639
Jenks V. Chicago, 59
Jennings v. Coal Ridge Improvement
Co., 1291
Jermain v. Lake Shore & Mich. So.
Ry., 816
Jersey City v. Howeth, 1869
Jesup V. City Bank of Raeine, 1073
Jesup V. Illinois Central R. R. Co.,
345, 307- 1053
Jesup V. Wabash, St. Louis & Pac.
Ry. Co., 1173
Jhons V. People, 144
John V. C. rT & F. W. R. R. Co., 49,
870
Johnson v. Bush, 180
Johnson v. County of Stark, 49, 899,
901, 905, 939, 944, 945, 953, 964,
978, 1004
Johnson v. Farmers' Bank, 600
Johnson v First Nat. Bank of Ho-
boken, 673
Johnson v. Fisher, 388
Johnson v. Goslett, 394
Johnson v. Kessler, 900, 907
Johnson v. Lailin, 763
Johnson v. Monell, 634
Johnson v. School District, 40
Johnson v. Smith, 335
Johnson v. Switch Company, 151
Johnson v. Ward, 649
Johnston v. Bank, 604
Johnston v. County of Becker, 438
Johnston v. Crawley, 143
Johnston v. Shortridge, 583
Johnston v. Building Association,
154
Joint Stock Discount Co. v. Brovrn,
347. 353
Joliet Electric Light & Power Co. V.
Ingalls, 301
Jolife V. Newark, 1370
Jones V. City of Cincinnati, 19
Jones V. Avery, 303
Jones V. Barlow, 390, 394
Jones V. Garcia Del Rio, 394
Jones V. Glover, 1146
Jones V. Green, 1143
Jones V. Guaranty & Indemnity Co.,
1057
Jones V. Guaranty, etc., Co., 97
Jones V. Hawkins, 183
Jones V. Milton, etc., Co., 144
Jones V. Morrison, 566
Jones V. Pacific Woolen Co., 665
JoH«s V. Pearl Mining Company, 1133
Jones V. Pendleton County Court,
137
Jones V. Robinson, 1146
Jones V. Town of Lake View, 1369
Jones V. Trustees Florence Wesleyan
University, 144
Jones, McDowell & Co. v. Arkansas
Mechanical & Agricultural Co.,
1108
Jones Mfg. Co. v. Commonwealth,
1393
Jones, Treasurer, v. RushvlUe Natural
Gas Co., 1372
Jonesboro' City v. Railroad Company,
940
Jordon v. Bank, 731
Jordon v. Long Island Railroad Co.,
155, 334, 339
Jordan v. Nat. Shoe & Leather Bank,
641
Jordan v. Osceola County, 134
Jourdaine v. Leprone, 701
Joy V. Manion, 157
Joy V. Plank Road Co., 309
Judson V. City of Bessemer, 953
Judson V. Rossie Galena Co., 1141
Judy V. Farmers & Traders' Bank,
639
Junction Railroad Co. v. Bank of Ash-
land, 1031
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. Bntler Paper Co. v. JefEery,
395. 1115, 1141
TABLE OF CASES.
Ixv
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-130}'.]
K.
Kadish v. Garden City Eq. Loan &
Bdg. Assn., 470, 495
Kaiser v. Savings Bank, 371
Kalamazoo E. Nov. Mfg. Co. v.
McAlister, 152, 217
Kalamazoo Spring & Axle Co. v. Wi-
nans, Pratt & ('o., 1117
Kane v. Independent School District
of Rook Rapids, 67, 886
Kansas Mut. Life Assn. v. Hill, Treas-
urer, etc , 1807
Kansas Valley Nat. Bank v. Rowell,
509
Katenberger v. City of Aberdeen, 17,
953
Kean v. Davis, 288, 359
Kean v. Johnson, 335
Keen v. Beekman, 634
Keene v. Collier, 634
Keeney v. Converse, 261
Keeney v. Jersey City, 114
Keithsburg v. Frick, 970, 976
Kelley v. City of Milwaukee, 19, 42
Kelley v. Lindsay, 133
Kelley v. Mayor, etc., of Brooklyn,
20
Kelley v. Newburyport Horse Rail-
road, 238
Kelley 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
Kelsey v. Sergent, 248, 250, 278
Kelso V. Teale, 113
Kelty V. Second Nat. Bank, 648
Kendall v. Bishop, 209, 1115
Kendig v. Dean, 311
Kenicott v. Supervisors, 916, 930, 956
Kennard v. Cass County, 1048
Kennebec & Portland R. R. Co. v.
Portland & Kennebec R. R. Co.,
1055, 1073
Kennedy v. California Sav. Bank, 470,
516, 519
Kennedy v. Gibson, 554, 558, 715,
772
Kennedy v. Green, 338, 570
Kent V. Brickmaking Co., 296
Kent V. Iron Co., 1138, 1162
Kent V. Qui«ksilver Mining Company,
92, 94, 453, 482, 486
Kenton Insurance Co. v. Bowman,
210
Kenton Ins. Co. v. City of Covmgton,
1306
ix
Kentucky Central R. R. Co. v. Com-
monwealth, 1282
Kentucky Central R. R. Co. v. County
of Pendleton, 1300
Kentucky Flour Co.'s Assignee v.
Merchants' Nat. Bank, 1146
Kentucky Union R. Co. v. County of
Bourbon, 906, 907, 931
Kentucky, W. & M. L. S. R. R. Co.
V. Clark County Court, 46
Keokuk Northern Line Packet Co. v.
Davidson, 250
Keokuk & Western R. R. Co. v. Mis-
souri, 1282
Kerrison v. Stewart, 1158
Ketchum v. City of Buffalo, 80, 24,
32
Ketchum v. Duncan, 171, 1046, 1047,
1256
Kettlewell v. "Watson, 338
Keys V. Association, 495
Keyser v, Hitz, 758, 771
Kickland v. Menasha Wooden Ware
Co., 234
Kiichli V. City of Minneapolis, 428
Kilborne v, Lyman, 1118
Kilbourne v. Supervisors of Sullivan
County, 995, 998
Kiley v. Forsee, 145, 184
Killingsworth v. Commercial Bank of
Rodney. u30
Kilsby V. Williams, 601
Kilvington v. City of Superior, 41,
435
Kimball v. Cleveland, 209, 573
Kimball v. Donaia, 664
Kimball v. Goodburn, 218
Kimball v. Norton, 617
Kimball v. School Dist. No. 4. 883
Kimball v. Town of Lakeland, 941
Kimmel v. Dickson, 631
Kinder v. Shaw, 539
King V. Egginton, 626
King V. Howard, 1152
King V. Insurance Company, 1129
Kinff V. Paterson & Hudson River
Railroad, 816
King V. Union Iron Co. , 381
Kingman v. Perkins, 665
Kingsbury v. School District, 111
Kinkier v, Junica, 288
Kinnie v. City of Waverly, 60
Kinyon v. Stanton, 646
Kirk V. Bell, 317
Kirkland v. Kille, 393, 395
Kirkpatrick v. Penrose Ferry Bridge
Co., 379
Kissam v. Anderson, 592
Kitchen v. Branch Bank at Mobile,
528
Kitchen v. Cape Girardeau & State
Line R. R. Co., 72
Ixvi
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-70!'; vol. II, pp. 708-1807.]
Kitcheu v. St. Lous, etc., Railway
Co., 233, 341, 288, 385, 386, 1084,
1114
Klauber v. Biggerstaff, 628
Kleekamp v. Meyev, 660
Klee V. E. H. Steel Co., 1134
Kleise v. Galusha, 975
Klemme v. McClay, 174
Kline v. Bank of tescott. 863
KnatchbuU v. Hallett, 781, 783, 743,
751
Knecht v. United States Savings Inst. ,
597
l^neeland v. American Loan & Trust
Co., 1172, 1303, 1318, 1230, 1239,
1340
Kneeland v. Foundry, etc.. Works,
1330
Kneeland v. Lawrence, 1037
Knight V. Fisher, 731
Knight V. Lang, 98, 150, 218
Knott V. Venable, 703
Knower v. Haines, 387
Knowles v. Duffy, 263
Knox V. Baldwin, 398, 399, 403
Knox V. Bank of United States, 530
Knox County v. Aspiowall, 858
Knox County v. Ninth National Bank,
914, 957
Koch V. Nat. Union Building Assn.,
1,51, 194
Koehler v. Black River Falls Iron Co.,
254, 258, 275, 282, 383, 801, 807,
1025, 1108
Koetting v. State, 1146
Koontz V. Bank, 1313
Koppikus V. State Capitol Comrs., 68
Korn V. Mut. Soc, 90
Koshkonongv. Burton, 946
Kountzev. Hotel Company, 1186
Kraft V. Coykendall, 394
Krararath v. City of Albany, 113
Kreiger v. Railroad Company, 946
Kritner v. "Woodson, 389
Kuhn V. Bank, 657
Kuntz V. Sumption, Treasurer, 1273
Kupfer V. Bank of Galena, 598, 699
Kyle V. Malin, 5, 30
L.
Laborde v. Consolidated Assn., 671
Lacey v. Central Nat. Bank, 511
Laclede Bank v. Schuler, 663, 664
Ladies' United Aid Society (Methodist
Home) V. Philadelphia, 1266
La Dow V. First Nat. Bank of New
London, 530
Ladywell Mining Co. v. Brooks, 299
Ija Fayette Bank v. McLaughlin, 690
La Fayette, B. & M. Ry. Co. v, Chee-
ney, 370
La Fayette, 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. Magee, 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, 937, 973
Lake Cnunty v. Rollins, 40, 839, 937
Lake Erie & Western R. R. Co. v.
Indianapolis Nat. Bank, 1146
Lake Shore Banking Co. v. Fuller,
1115
Lake Shore & Mich. So. Ry. Co. x .
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
Lamprell v. Billericay, 98
Lancaster Bank v. Woodward, 563,
650
Lancaster County v. Cheraw & C. R.
R. Co., 310
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
Jjandis v. West Pennsylvania R. E.
Co., 1037
Lane v. Bank of West Tennessee, 550,
570
Langan v. Francklyn, 263
Langdon v. Town of Castleton, 60,
188
Langhorne v. Robinson, 1264
Langstnn v. South Carolina R. R. Co.,
1014, 1047
Lanham v. First Nat. Bank of Crete,
535
Lansing v. Lytic, 1002
Laredo v. McDonnell, 64
Laredo v. Martin, 64
TABLE OF CASES.
Ixvii
[The references are to pages: vol. I oontains pp. 1-707; vol. II, pp. 708-1307.]
La Salle Nat. Bank v. Tolu Eock &
Rye Co., 359
Lasher v. Stimson, 354
Lassen County v. Shlnn, 57
Laubach v. Leibert, 642
Laughlin v. Braley, 1095
Lavenstein v. City of Fond du Lac,
22
Law V. Cross, 169
Law V. People, 4, 40, 66
Lawless v. Reese, 445
Lawrence v. Gebhard, 152, 167, 172
Lawrence v. Morgan's La. & Tex. R.
R. & Steamship Co., 1176
Lawrence v. Schmidt, 648
Lawrence v. Stonington Bank, 701
Lawrence v. Trauer, 1371
Lawrence v. Tucker, 1058
Lawrence Iron Works Co. v. Rock-
bridge Company, 1124
Lawrenceville Cement Co. v. Parker,
466
Lawson v. Bank, 693, 694
Lawson v. Richards, 657
Lay V. Austin, 206
Laybourn v. Seymour, 1130
Lazarus, Use of, v. Shearer, 192, 359
Lazear v. Nat. Union Bank of Mary-
land, 512, 515, 539
Lazier v. Horan, 689, 690
Leach v. Hale, 506, 635
Leachman v. Dougherty, 1271
Leather Manufacturers' Bank v. Mor-
gan, 603, 606, 675
Leavenworth v. Norton, 27
Leavenworth County v. Brewer, 126
Leavenworth County v. Chicago,
Rock Island, etc., Ry. Co., 1173
Leavenworth County v. Keller, 126
Leavenworth County v. Miller, 844
Leavenworth, L. & G. Ry. Co. v.
Douglas County, 919
Leavitt v. Blatchford, 85
Leavitt v. Connecticut Peat Company,
193
Leavitt v. Palmer, 469
Leavitt v. Simes, 603
Leavitt V. Stanton, 673
Ledwich v. McKim, 857
Lee V. Board, etc., of Ionia County,
138
Lee V. Neuchatel Asphalte Co., 813
Lee V. Pittsburg Coal & Mining Com
pany, 154, 181
Lee V. Smith, 575, 579
Lee V. Trustees of Flemington, 43
Lee County v. Rogers, 897, 949
Lee County v. State ex rel., 801
Leeds y. City of Richmond, 43
Leekins v. Nordyke & Marmon Com-
pany, 153
LefEnian v. Flanigan, 806, 563
Leftley v. Mills, 641
Leggett V, Bank of Sing Sing, 536
Leggett V. New Jersey Manufg. Com-
pany, 193, 199
Le Grand v, Manhattan Mercantile
. Assn., 73, 93
Lehigh Coal & Navigation Co. v. Cen-
tral Railroad, 1307
Leighton v. Campbell, 414
Leloup V. Mobile, 1367, 1398
Leo V. Union Pac. Railway Co., 103,
313, 1034
Leon County v. Vann, 114
Leonard v. A. Ins. Co., 466
Leonard v. Burlington Mut. Loan
Assn., 305
Leonard v. City of Canton, 4, 441
Leonard v. Long Island City, 39
Le Roy v. Globe Ins. Co. , 817
LesHe v. Lorillard, 183, 407, 500
Lester v. Bank of JVtobile, 528
Lester v. Webb, 219. 337
Levey v. New York Central & H. R.
R. R. Co., 151
Levi V. Bank, 750
Levy V. Bank of the United States,
595, 1218
Levy V. Mutual Benefit Life & Fire
Ins. Co., 89
Levy V Peters, 657
Levy V. U. 8. 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. Comnfissioners, 844
Lewis V. Freeholders of Hudson, 63
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, 369
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 & Meridian R. R.
Co., 1333
Lewis, Admr. v. Glenn, Trustee, 1137
Lexington v. Butler, 1037
Libby v. Union National Bank, 198,
513
Liebfritz v. Dubuque St. Ry. Co.,
235
Ixviii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Life & Fire Ins. Co. v. Mechanic Fire
Ins. Co., 75, 98, 108, 150, 183, 439
Lightner v. City of Peoria, 1268
Lilly V. Miller, 657
Lime City B., L. & Sav. Assn. v.
Black, 1133
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, 638
Lingle v. National Ins. Co., 371
Linn v. Chambersburg Borough, 1013
Linthicum v. Ray, 1101
Lionberger v. Mayer, 571
Lionberger v. Rouse, 1396
Lippincott v. Carriage Co., 346, 354,
1087
Lippincott v. Town of Pana, 876, 904,
971, 973, 976, 983, 983
Litchfield v. Ballan, 930, 968
Litchfield v. McComber, 871
Litchfield v. "White, 364
Little V. Chadwick, 753
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, 1383
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, 503
Livingston v. HoUeubeck, 131
Livingston v. Lynch, 335
Livingston County v. First Nat. Bank
of Portsmouth, 930, 935, 941, 965
Livingston County v. Weider, 853
Lloyd V. City, 955
Lloyd V. McCaffrey, 664
Loan Association v. Stonemetz, 379
Loan Association v. Topeka, 43, 44
Locke V. Davison, 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, 1133
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. Benton, 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
Louisville, 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 & N. R. R. Co. v. County
Court, etc., 48, 901
Louisville & Nashville R. R. Co. v.
Hopkins County, 1800
Louisville & N. R. R. Co. v. Literary
Society of St. Rose, 83
Louisville & Nashville R. R. Co. v.
Palmes, 1283
Louisville & Nashville R. R. Co. v.
Trustees School District No. 108,
1263
Louisville, New Albany & Chicago
Ry. Co. V. Carsin, 333
Louisville, N. A. & Chic. Ry. Co. v.
Flanagan, 455
Louisville, N. A. & O. R. Co. v. Ohio
Valley Improvement & Constr.
Co., 1050
Love V. Mining Co., 807
Loveland v. Doran & Wright Co., 403
Lovelaud v. Garner, 384
Lovingston v. Wider, 1005, 1006
Low V. Buchanan, 403
Low V. California Pac. R. R. Co., 78,
1052
Low V. Connecticut & Passumpsic
Railroad, 198
Low V. Mayor, etc., of Marysville, 26,
Lowber v. Mayor, etc., 69
Lowell V. City of Boston, 44, 917
Lowell Five Cents Savings Bank y.
Inhabitants of Winchester, 133,
445
Lowene v. American Insurance Co.,
817
TABLE OF CASES.
Ixix
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Lowry v. Bank, 539
Lowry v. Polk County, 634
Lowry, Trustee, etc., v. Phila. Optical
& "Watch Co., 1115
Lucas V. Downer, 743
Lucas V. Pitney, 8, 91, 96, 103
Lucas County v. Hunt, 441
Lucas V. White Line Transfer Co.,
468, 470, 489, 490
Ludlow Y. Hurd, 1055, 1096
Lumherville Delaware Bridge Co. v.
State Board of Assessors, 1393,
1395
Luse V. Isthmus Transit Ry, Co. , 99,
150, 1073
Luzarder v. Savgeant, 880
Lyceum v. Ellis, 1067
Lyddy v. Long Island City, 831
Lyell V. Sanbourn, 153
Lyman v. Bonney, 306
Lyman v. Northern Pac. Elevator
Co., 1144
Lynch v. First Nat. Bank of Jersey
City, 653
Lynde v. Columbus, C. & I. C. Ry.
Co., 1161
Lynde v. The County, 833, 930, 931
Lynde v. Winnebago County, 897,
941, 983
Lyndeborough Glass Co. v. Massa-
chusetts Glass Co., 9, 338
Lyndon Mill Co. v. Lyndon Literary
& Biblical Inst., 173, 183
Lyng V. Michigan, 1367, 1393
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, 1003
M.
Mass V. Missouri, Kansas & Tex. Ry.
Co., 1043
Mann v. Second Nat. Bank, 601
McAleer v. McMurray, 350
McAUen v. Woodcock, 371
McAllister v. Plant, 1054, 1096
McBee v. Central Trust Co. of New
York, 1147, 1148
McBlair v. Gibbes, 369
McBrain v. Grand Rapids, 114
McCabe v. Board of Comrs. of Foun-
tain County, 131
McCall V. California, 1367
McCallie v. Mayor, etc., 964
McCann v. First Nat. Bank, 519
McCaslin v. State, 446
McCarty v. Roots, 95
McClave v. Thompson, 403
McClelland v. Reynolds, 359
McCloskey v. City of Albany, 114
McClure v. Board of Comrs. of La
Plata County, 376
McClure v. Levy, 363
McClure v. Oxford Township, 71, 446,
866, 893, 897
McComb V. Barcelona Apartment As-
sociation, 336, 1068
McConnell v. Hamm, 851
McConville v. Gilmour, 730
McCormick v. Bay City, 113
McCoy V. Briant, 444
McCoy V. Washington County, 1048
McCracken v. City of San Francisco,
113, 939
McCracken v. Robison, 863
McCrary v. Chambers, 318
McCrorv v. Junction R. R. Co. , 471
McCullough V. Moss, 78, 90, 152
MoCullough V. Talladega Ins. Co., 98
McCurdy's Appeal, 1055, 1093
McDermott v. Bank, 573
McDonald v. Chisholm, 203
McDonald v. Houghton, 358
McDonald v. Mayor, 114, 443, 444,
445
McDonough v. Templeman, 145
McDowell V. Bank of Wilmington, 535,
637, 643
McDowell V. Rutherford Ry. Con-
struction Companj', 906
McElhenny's Appeal, 398, 299
McElrath v. Pittsburg & Steubenville
R. R. Co., 1038
MoElroy v. Nucleus Association, 1074
McEwen v. Davis, 610, 638, 640
McGargell v. Hazleton Coal Company,
161
McGarrahan v. Mining Co. , 857
McGeorge v. Big Stone Gap Improve-
ment Co., 88, 303, 304, 1123
McGhee v. Claridy, 1233
McGourkey v. Toledo & Ohio Central
Ry. Co., 343
McGrade v. German Sav. Inst., 660
McGregor v. Covington & Lexington
R. R. Co., 1031
McGregor v. Deal & Dover Ry. Co.,
95,^450, 491
McGregor v. Loomis, 597, 697
McGregor's Excers. v. Vaupel, 1298
McGugin V. Railroad Company, 1250
McHarg v. Eastman, 398
McHenry v. Hazard, 993
McHenry v. Railroad Co., 316
Mcllhenny v. Binz, 1098, 1173, 1341
Mclndoe v. St. Louis, 493
Mclntire v. Blakeley, 508
Mclntire v. Pembroke, 135
Mclntire v. Preston, 106, 306
Mcintosh V. Tyler, 648
McKay's Case, 359, 300
Ixx
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-70T; vol. Et, pp. 708-1807.]
McKeag v. Collins, 193
McKeesport District v. Miller, 139
McKenzie v. Wooley, 900, 907
McKiernan v. Leuzen, 98, 173
McKlm V. Odom, 110
McKlnster v. Bank of Utioa, 581
McKleroy v. Southern Bank of Ken-
tucky, 670
McLain v. Wallace, 609, 634, 710
McLane, Trustee, v. Placerville &
Sacramento Valley R. R. Co., 97,
1013, 1055
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, 1368
McLellan v. File Works. 80
McLendon v. Anson County, 946
McLendon v. Commissioners, 1048
McLeod V. Evans, 632, 731, 747, 749,
750, 753
McMahon v. Morrison, 1383
McManus v. Duluth, Crookston &
Northern R. R. Co., 960
McMasters v. Reed, 1013
McMurray v. Moran, 1183
McMurray v. Oil Company, 303
McNab V. McNab & Harlin Mfg. Co.,
831
McNeal v. Allegheny Township, 135
McNeil V. Chamber of Commerce, 336
McNeil V. Shober & Cargueville Lith.
Co.. 359
McNeil V. Tenth National Bant, 637
McNeill V. Lacey, 346
McNulta V. Lochridge, 1324
McPherson v. Foster, 66, 443, 836
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., 831
MacNaughton v. Osgood, 308
Macomber v. Doane, 665
Macon & Birmingham R. R. Co. v.
Gibson, 974
Maoy V. City of Indianapolis, 19
Madison v. Ross, 144
Madison Ave. Baptist Church v. Bap-
tist Church in Oliver St., 334
Madison County v. Bartlett, 16
Madison County v. Paxton, 914, 915
Madison County v. Priestly, Treas-
urer, 913
Madison County Court v. Richmond,
Irvine & T. P. 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, 1333
Magee v. Mokelumne Hill Coal& Min-
ing Co., 99, 103
Magee v. Pacific Improvement Co.,
470
Magill V. Hinsdale, 359
Magniac v. Thompson, 931
Magor V. Ray, 7, 10, 378, 444, 831,
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. 183
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.
Lotspeich, 363
Maine v. Grand Trunk Ry. Co., 1293
Maisch v. Saving Fund, 3i)6, 307
Makin v. Institution for Savings, 618
Mallory v. Hanaur Oil Works, 501,
830
Mallory v. Mallory & Wheeler Co.,
173, 246, 398
Mallory v. West Shore & Hudson
River R. R. Co., 1043
Manchester & Lowell Railroad v. Con-
cord Railroad, 821
Mandeville v. Union Bank of George-
town, 637
Mandeville v. Welch, 663
Maneval v. Jackson "Township, 34, 136
Mangels v. Donan Brewing Co., 1150
Manhattan Bank v. Walker, 623, 635
Manhattan Beach Co. v. Harned, 334
Manhattan Brass Co. v. Webster Glass
& Queensware Co., 583
Manhattan Co. v. Lydis!', 600, 602
Manhattan Hardware Co. v. Phalen,
1075, 1079, 1089
Manhattan Hardware Co. v. Roland,
1079
Manhattan Life Ins. Co. v. Forty-
second St. & Grand St. Ferry R.
R. Co., 340
Manhattan Trust Co. v, Sioux City &
N. Ry. Co., 1095
Manley v. City of Atchison, 112
Mann v. Chandler, 810 '
Mann v. Cooke, 166
TABLE OF CASES.
Ixxi
[The references are to pages: vol. I contains pp. 1-707; vol. U, pp. 708-1807.]
Mann v. Eckford, 459
Mann v. Second Nat. Bank, 615
Manning v. Norfolk Southern R. R.
Co., 1043, 1048
Manufacturers' Bank v. Continental
Bank, 613, 744, 750
Manufacturers' Bank v. Scofield, 572
Manufacturers' Nat. Bank v. Barnes,
604, 680
Manufrs. Nat. Bank v. Newell, 616
Manufrs. Sav. Bank v. Big Muddy
Iron Co., 233
Manufacturing Co. v. Ferguson, 1076
Maux Ferry Gravel Road Co. v. Brane-
gan, 378
Mapes V. Scott, 511
Marble v. Jamesville Manufg. Co.,
1141
Marble Company v. Harvey, 81
Marbury v. Kentucky Union Land
Co., 79, 83
March v. Eastern Railroad, 265, 306
Marcy v. Amazeen, 617
Marcy v. Township of Oswego, 830,
835, 842, 897
Maricopa & Phcenix R. R. Co. v. Ari-
zona Territory, 1305
Marine Bank v. Biays, 166
Marine Bank v. Butts, 529
Marine Bank v. Clements, 180, 182,
183, 207
Marine Bank v. Fulton Bank, 597, 615,
663, 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, 334
Marine Nat. Bank v. National City
Bank, 654
Marine Nat. Bank v. National Citv
Bank, 652
Marion County v. Harvey County,
903
Marion Savings Bank v. Dunklin, 497
Market Company v, Jackson, 182
Market & Fulton National Bank v.
Jones, 1066
Market Street Bank v. Stompe, 548
Markey v. Mutual Benefit Ins. Co.,
193
Markley v. Rhodes, 561
Marks, Trustee, etc., v. Trustees of
Pardue University, 26
Marlatt v. Levee Steam Cotton Press
Co., 210
Marlborough Manufg. Co. v. Smith,
166
Marquette, H. & O. R. R. Co. v.
United States, 1301
Marquette & Ontonagon R. R. Co. v.
Taft, 153
Marrett v. Brackett. 659
Marsh v. Burroughs, 1133
Marsh v. Pulton County, 71, HI, 471,
787, 873, 897, 936, 939, 956, 1004
Marsh v. Maxwell, 643
Marsh v. Oneida Central Bank, 598
Marsh v. Small, 643
Marsh v. Whitmore, 168
Marshall v. F. & M. Savings Bank of
Alexandria, 553
Marshall v. Harris, 371
Marshall v. Silliraan, 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, 163
Martin 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. K. Co., 1283,
1303
Mason v. Chandler, 359
Massachusetts & S. Construction Co.
V. Cove Creek Township, 1008
Massey v. Fisher, 731
Massey v. Papin, 1095
Masterton v. Mayor, etc., of Brooklyn,
39
Mather v. Union L. & Trust Co., 323
Matson v. Alley, 151
Matter of Clark v. Sheldon, 997
Matter of Fayerweather, 1290
Matter of FrankKn Bank, 598
Matter of Prime, 1390
Matter of Tiffany & Co., 1390
Matthews v. Patterson, 385
Matthews v. Skinker, 493, 509, 510
Maupin v. Franklin County, 446
Maury v. Mason, 753
Maxey v. Williamson County, 834,
893, 902, 966
Maxwell v. Planters' Bank, 570, 571
Mayer v. Grima, 1374
Mayor v. Sands, 983
Mayor v. Wetumpka Y.'harf Co., 43,
851
Mayor of Ludlow v. Charlton, 98
Ixxii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.]
JVIayor of Norwich v. Norfolk Ry. Co.,
491
Mayor, etc., v. Inman, 333, 350
Mayor, etc., v. Kirkley, 111
Mayor, etc., v. Tenth Nat. Bank, 361
Mayor, etc. , of Baltimore v. Baltimore
&OhioR. R. Co., 74
Mayor, etc., of Baltimore v. Eschbach,
109
Mayor, etc., of Baltimore v. Musgrave,
111
Mayor, etc., of Baltimore v. Poultney,
113
Mayor, etc., of Baltimore v. Reynolds,
110, 111
Mayor, etc., of Cartersville v. Baker,
23
of Jackson v. Bowman,
Mayor, etc.
39
Mayor, etc
950
Mayor, etc., of Rome v. Cabot, 29, 70
Mayor, etc. , of Rome v. McWilliams,
Kokomo V. State, 949,
Mayor, etc., of Staple of England v.
Governor, etc., of Bank of Ens-
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, 143, 146, 185
Mechanics' Bkg. Assn. v. New York,
etc.. White Lead Companj', 78,
106, 223, 363
Mechanics & Farmers' Bank v. Smith,
662
Mechanics & Workingmen's Mut. Sav.
Bk., etc., V. Meriden Agency Co.,
77, 517
Medberry v. Short, 330
Medomak Bank v. Curtis, 571
Meeker v. Winthrop Iron Co., 267
Meier v. Railway Company, 1126
Meinzer v. Racine, 43
Melledge v. Boston Iron Company,
158, 334
Mellen v. Iron "Works, 1140, 1142
Mellen Pipe Lines v. Allegheny
County, 1279
Melvin v. Lisenby, 835
Memphis City v. Dean, 39
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 & Charleston R. R. Co.,
819
Memphis, Kansas & Colorado Ry. Co.
V. Thompson, 919, 963
Memphis & Little Rook Railroad v.
Commr?., 1283
Memphis & Little Rock R. R. Co. v.
Dow, 98, 1038, 1031, 1037, 1039,
1108
Memphis & Little Rock Ry. Co. v.
Stringfellow, 1338
Menasha v. Hazard, 935
Menier v. Hooper's Telegraph "Works,
333, 326
Mercantile Bank v. McCarthy, 573
Mercantile Bank v. New York, 1277
Mercantile Library Co. v.» City of
Philadelphia and Taylor, Receiver
of Taxes, 1266
Mercantile Library Co. v. Philadel-
phia, 1266
Mercantile Trust Co. v. Chicago,
Peoria & St. Louis Ry. Co., 1162
Mercantile Trust Co. v. Kanawha &
Ohio Ry. Co., 1161, 1166, 1313,
1315
Mercantile Trust Co. v. Missouri, K.
& T. Ry. Co., 1149, 1153, 1184,
1186, 1203, 1206
Mercantile Trust Company v. Pitts-
burgh & "W. R. R. Co., 1238
Mercantile Trust Company v. Texas
&Pac. Ry. Co., 1105
Mercer County v. Hocket, 825, 949
Mercer County Court v. Kentucky
River Navigation Co., 46, 899
Mercer County Court v. S., M. & H.
T. Company, 46
Merchants' Bank v. Bergen County,
445, 873
Merchants' Bank v. Bliss, 398
Merchants' Bank v. Central Bank, 573
Merchants' Bank v. Exchange Bank,
650, 666
Merchants' Bank v. Marine Bank, 673
Merchants' Bank v. McCoU, 187
Merchants' Bank v. Rawls, 193
Merchants' Bank v. Rudolf, 575, 579
Merchants' Bank v. State Bank, 174,
177. 206, 222, 226. 506, 507, 546,
571, 651, 652, 655
TABLE OF OASES.
Ixxiii
[The references are to pages: vol. I contains pp. l-TCW; vol. 11, pp. 708-1307.]
Merchants' Bank v. Stevenson, 387,
400
Merchants' Bank of Canada v. Union
R. R. i&Transp. Co., 696
Merchants & Fanners' Bank v. Austin,
750
Merchants & Farmers' Bank v. Hervey
Plow Company, 155
Merchants & Farmers' Nat. Bank of
Charlotte v. Myers, 529
Merchants' Insurance Co. v. Chauvin,
176
Merchants' Nat. Bank v. Bailey Mfg.
Co., 388
Merchants' Nat. Bank v. Chattanooga
Construction Co., 1140
Merchants' Nat. Bank v. Hanson, 509,
515
Merchants' National Bank v. Manufg.
Company, 1123
Merchants' Nat. Bank v. Ritzinger,
641, 644, 645
Merchants' Nat. Bank v. Tracy, 239
Merchants' Nat. Bank of Chirago v.
Detroit Knitting & Corset Works,
156
Merchants' Nat. Bank of Gardner v.
Citizens' Gas Lisht Co. of Quincy,
235, 339
Merchants' Nat. Bank of Gardntr v.
Clark, 361
Merchants' Nat. Bank of St. Paul v.
McNeir, 587
Merchants & Planters' Line v. Waga-
ner, 317
Merchants' Union Barb "Wire Co. v.
Rice, 142, 146
Meriden Tool Co. v. Morgan, 390
Meriwether v. Muhlenburg County,
900
Merriam v. Moody's Execrs. , 4
Merrick v. Inhabitants of Amherst, 37
Merrick v. Peru Coal Co., 279, 356,
1108
Merrick v. Trustees of the Bank of the
Metropolis, 162, 188
Merrill v. Consumers' Coal Company,
155, 170
Merrill v. Florida Land Imp. Co. , 566,
717
Merrill v. Plainfield, 790
Merrill v. Town of Monticello, 12, 425,
884, 999, 1004
Merritt v. Goodrich, 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, 365, 308
Metropolitan Nat. Bank v. Lloyd, 506,
613, 614, 619
Metropolitan R. R. Co. v. District of
Columbia, 845
Metropolitan Trust Co. v. New York,
L. E. &W. R. R. Co., 1103
Metropolitan T. & T. Co. v. Domestic
T. & T. Co., 334
Meyer v. City of Muscatine, 897, 909,
941
Meyer v. Utah & Pleasant Valley R.
R. Co., 1173
Mezger v. Carr, 381
Michoud V. Girod, 275, 316, 336
Michigan Slate Co. v. Iron Range &
Huron Bay R. R. Co., 333
Middlebury v. Rood, 136
Middlesex County Bank v. Hirscli
Bros. Veneer IVlfg. Co., 368
Middlesex R. R. Co. v. Boston & Chel-
sea R.R. Co., 466
Middletou v. Allegheny County, 954
Milbank v. New York, L. E. & W. E.
R. Co., 517
Milbank v. Welch, 360
Miles, Treasurer, v. Ray, 1371
Milhau V. Sharp, 39
Millard v. St. Francis Xavier Acad-
emy, 487
Mill Co. V. Kampe, 354
Mill Dam Fouudery v. Hovey, 395,
414
Miller v. Barber, 291
Miller v. Bradish, 385
Miller v. Chavee, 169
Miller v. Embree, 122
Miller v. Ewer, 1075
Milk-r Y. New York & Erie R. R. Co.,
97, 807, 1013
Miller v. Race, 625
Miller v. Roach, 809
Miller v. Rutland & Washington R.
R. Co., 1047, 1055, 1073
Miller v. Washington Southern Ry.
Co., 492
Miller v. White, 394, 396, 398, 399, 415
Millikin v. Shapleigh, 702
Mills V. Bellmer, 119
Mills V. Gleason, 34, 41, 43
Mills V. Jefferson, 946, 955
Mills V. State Bank, 653
Millsaps V. City of Terrell, 869
Milne v. Davidson, 798
Miltenberger v. Cook, 787
Miltenberger v. Logansport Railway,
1193, 1303, 1320, 1333, 1340
Milwaukee & Illinois Northern R. R.
Co. V. Field, 163
Milwaukee & Minnesota R. R. Co. v.
Soutter, 1192
Miner v. Belle Isle Ice Co., 363
Miners' Bank Estate, 508
Ixxiy
TABLE OF CASES.
[The references are to pages: vol. I contains pp. l-TOT; vol. II, pp. 708-1307.]
Miners' Ditch Co. v. Zellerbuch, 491
Mining Company v. Anglo- Calif ornian
Bank, 93, 184, 323, 326 .
Mining Oompany v. Mason, 1164
Minneapolis Times Co. v. Nimcocks,
260
Minnesota Central R. R. Co. v. Donald-
son, 1382
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. Larue, 4, 39
Miranda v. City Bank, 681
Mish V. Main, 1124
Mississippi R. R. Co. v. Scott, 635
Missouri, K. & J. Ry. Co. of Kansas,
V. Chilton, 1331
Missouri Lead Mine & Smelting Co. v.
Reinhard, 1070
Missouri Pac. Ry. Co. v. Texas & Pac.
Ry. Co., 1204, 1210, 1225, 1239
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, 1153
Mitchell V. McCahe, 608
Mitchell Y. Rockland, 446
Mitchell V. Walker, 716
Mixer v. Manistee County Supervisors,
138
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, 394
Mofflt V. State ex rel., 133
Mohawk Bank v. Broderick, 658,
707
Mohawk Bridge Co. v. Utica & Schen-
ectady Railroad, 1097
Mokelumne Hill Canal & Mining Co.
V. Woodbury, 756
Montclair v. Ramsdell, 1001, 1002
Montelius v. Charles, 703
Montgomery v. Township of St.
Mary's, 971
Montgomery County v. Barber, 32
Montgomerv County Bank v. Albany
City Bank, 703
Montillet v. Bank of the United States,
681
Monument National Bank v. Globe
Works, 93, 106, 236, 327, 465
Moody V. Mack, 661
Mooers v. Swedley, 131
Moon V. Board, etc., 133
Moore v. Butler, 1108
Moore v. Davis, 665
Moore v. City of Walla Walla, 14
Moore v. H. "Gano & Sons' Mfg. Co.,
151, 608
Moore v. Lent, 383
Moore v. Mayor, etc., of New York,
.441
Moore v. Meyer, 599
Moore v. Railroad Company, 1031
Moore v. Schoppert, 306
Moore v. Sinks, 857
Moore v. Swanton Tanning Co., 830
Moore v. Waitt, 603
Moores v. Citizens' Nat. Bank, 335,
342, 343
Moors v. Goddard, 612
Moran v. Comrs. of Miami Co., 106,
328, 895, 897, 949, 956, 965
Moran v. New Orleans, 1393
Morey v. Food, 394
Morford v. Farmers' Bank of Saratoga,
78, 465
Morgan v. Louisiana. 1283
Morgan v. Merchants' Bank, 192
Morgan v. Skiddy, 286. 391
Morgan County v. Seaton, 31
Morgan County v. Thomas, 901, 1096
Morgan's La. & Tex. R. R. & St. Ship
Co. V. Board of Reviewers, 1301
Morgan's La. & Tex. R. R. & St. Ship
Co. V. Texas Central Ry. Co.,
1147, 1151, 1153, 1356
Morgan & Raynor, 'Trustees, v. Dono-
van, 95, 1096
Morrell v. Long Island R. R. Co., 334
Morrill v. Noyes, 1096
Morris v. Keil, 1071, 1075
Morris v. Merrel, 116
Morris v. The State, 831
Morris Canal & Bkg. Co. v. Fisher,
1014
Morris Canal & Bkg. Co. v. Lewis,
955
Morris & Essex Railroad v. Central
Railroad Co., 1097
Morris R. R. Co. v. Railroad Co., 488
Morris Run Coal Co. v. Barclay Coal
Co., 1178
Morrison v. Bailey, 656, 658
Morrison v. Eastou & Hamilton R. R.
Co., 456, 1031
MoiTison V. Globe Panorama Co., 387
Morrison v. Lawrence, 33
Morrison v. Ogdensburg & L. C. K. R.
Co., 350
Morrisville School District, 139
TABLE OF CASES.
Ixxv
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.]
Morse v. Beale, 805
Morse v. Swits, 391
Morton v. City of Nevada, 33, 968
Morton v. New Orleans & Selma Rv.
Co., 1188
Moser v. Kreigh, 310
Moses V. Franklin Bank of Baltimore,
657, 659, 664
Moses V. Ocoll Bank, 550
Mosher v. Hubbard, 995
Mosher v. Independent School Dis-
trict, 66, 879
Mosher v. Supreme Sitting of Order
of Iron Hall, 1123
Moss V. Averell, 819
Moss V. Harpeth Academy, 103
Moss V. Livingston, 360
Moss V. Oakley, 74, 97, 101
Moss V. RossieL. M. Co., 494
Mott V. Hicks, 30, 74, 96, 101, 358,
860
Moulton V. City of Evansville, 45
Moulton v. Connell-Hall-McLester Co. ,
1141
Mount V. First Nat. Bank, 691
Mt. Adams, etc.. Inclined Ry. Co. v.
City of Cincinnati, 7
Mount Holly Paper Co.'s Appeal, 388
Mount Pleasant v. Beckwith, 844
Mt. Sterling & JefEersonville T. P. Co.,
V. Looney, 180, 181, 183
Moyer v. East Shore Terminal Co.,
335
Mozley v. Alston, 805, 348
Muench v. Valley Nat. Bank, 640
MuUanphy Savings Bank v. Schott,
346
MuUarky v. Town of Cedar Falls,
MuUer v. Dows, 1161
MuUikin v. Reeves, Treasurer, 1371
Multnomah County v. Oregon Nat.
Bank, 737
Mundt V. Railroad Company, 1350
Mumf ord v. Hawkins, 170
Munger v. Albany Citv Nat. Bank,
631
Municipality No. One v. Orleans
Theatre Co., 77
Munn V. Burch, 649, 655, 663
Munn V. Commission Company 74,
90,96
Munson v. Syracuse, Geneva & Corn-
ing R. R. Co., 48, 364, 367, 378
Murdock v. Woodson, 1105
Murphy v. City of Jacksonville, 43
Murphy v. East Portland, 67
Murphy v. Louisville, 446
Murphy y. "Welch, 1071
Murrah v. Branch Bank at Decatur, 530
Murray v. American Surety Co. of
New York, 714
Murray v. Bull's Head Bank, 650
Murray v. Cannon, 630
Murray v. Bast India Co., 98, 153
Murray v. Lardner, 980, 1001, 1037
Murray v. Lumber Company, 172,
338
Murray v. Pauly, 684
Muscatine v. Mississippi & M. R. R.
Co., 904
Muscatine Water Co. v. Muscatine
Lumber Co., 805
Musser v. Johnson, 1071
Mussey v. PreSt., etc.. Eagle Bank,
594, 651
Mustard v. Union Nat. Bank, 533
Mut. Sav. Bank v. Meriden Agency
Co., 469, 478
Mygatt V. City of Green Bay, 945
N.
Nant-y-glo, etc., Co. v. Grave, 300
Narragansett Bank v. Atlantic Silk
Co 327
Nash v'.' Bank, 537, 538
Nash V. City of St. Paul. 444, 446,
831
Nashua & Lowell Corp. v. Boston &
Lowell Corp., 1,58, 470, 1148
Nashua & Lowell Railroad v. State,
1301
Nashville Trust Co. v. Fourth Nat.
Bank, 533, 1146
Nassau Bank v. Jones, 467, 469. 517
National Bank v. Burkhardt, 600
National Bank v. Case, 764
National Bank v. Commonwealth, 733,
1296
National Bank v. Colby, 717
National Bank v. Graham, 831, 534,
635
National Bank v. Insurance Co., 609,
636, 731, 735, 736, 737, 750, 753,
759
National Bank v. Johnson, 528, 532
National Bank v. Kimball, 1279
National Bank V. Matthews, 509, 515,
540. 543, 1059
National Bank v. Mechanics' Nat.
Bank, 605
National Bank v. Norton, 361
National Bank v. Paige, 417
National Bank v. Strait, 561
National Bank v. Watsontown Bank,
526
National Bank v. Whitman, 673, 676
National Bank v. Whitney, 509, 515,
540, 543, 544
National Bank of Augusta v. Carolina,
K. & W. R. R. Co., 1244
National Bank of Battle Creek v.
Mallan, 157
Ixxvi
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
National Bank of Chemung v. City of
Elmira, 1288
Nat. Bank of Commerce v. Nat.
Mechanics' Bank, 661
National Bank of Commerce v. Shum-
way, 1113
National Bank of Commerce v. Town
of Granada, 859, 861, 866, 867,
891 V
National Bank of Commerce of Kansas
City V. Atkinson, 178
Nat. Bank of the Cammonwealth v.
Grocers' Nat. Bank, 672
Nat. Bank of Port Edward v. Wash-
ington County Nat. Bank, 605,
630
Nat. Bank of Gloversville v.Wells, 554
Nat. Bank of Jefferson v. Beahn, 535
Nat. Bank of Jefferson v. Texas
Investment Co., 849
Nat. Bank of Metropolis v. 'WiUiams,
571
National Bank of Newburgh v. Smith,
643
National Bank of North America v.
Bangs, 331
Nat. Bank of Republic of N. Y. v.
Toung, Eecr., etc., 93, 363, 464
Nat. Bank of Tenia v. Stewart, 517,
540, 543, 573
Nat. Citizens' Bank of New York v.
Howard; 620
National Cordage Co. v. Pearson Cord-
age Co., 151, 318
National Exchange Bank v. Benbrook
School Furnishing Co., 1129
National Exchange Bank v. Hartford,
Prov. &F. R. R. Co., 1048
Nat. Exchange Bank of Baltimore v.
Peters, 558
National Exchange Bank of Dallas v.
Beal, 710
National Exchange Co. v. Drew, 394
National Foundry & Pipe Works v.
Oconto Water Co., 1022
National Gold Bank v. McDonald,
601, 698
National Life Ins. Co. of Montpelier
V. Board of Education of City of
Huron, 880, 891, 893, 894, 897
National Pahquioque Bank v. First
Nat. Bank of Bethel, 689
Nat. Park Bank v. German American
Mut. W. & S. Co., 78, 80, 100,
362, 465, 568
National Park Bank v. Remsen, 397
National Pemberton Bank v. Porter,
515, 516
National Security Bank v. Cushman,
837
National Spraker Bank v. Treadwell
Company, 197
National State Bank v. Independent
District, 66
National State Bank v. Young, 1398
Nat. State Bank of La Fayette v.
Ringel, 638
National Trust Co. v. Miller, 354
National Tube Works Co. v. Ballou,
1139
National Water & Mining Co. v.
Clarksou, 454, 494
Naugatuck R. R. v. Waterbury But-
ton Co., 469
Neal V. Briggs, 404
Neall V. Hill, 303, 311
Neary v. Phila., Wilm. & Bait. R. R.
Co., 1880, 1300
Nebr. & Kans. Farm Loan Co. v.
Bell, 311, 334, 335
Needham v. Wilson, 1157
Neely v. Rood, 597, 748, 753
Neely v. Yorkville, 446
Neff V. Greene County Nat. Bank, 608
Negley v. Counting Room Co., 310
Neiffer v. Bank of KnoxviDe, 198
Neill V. Spencer, 359
Nelligan v. Campbell, 351
Nelson v. City of La Porte, 39
Nelson v. Eaton, 103
Nelson v. Haywood County, 900, 907
908
Nelson v. Hubbard, 1057
Nelson v. Luling, 386
Nelson v. Mayor, 444
Nelson v. Milford, 35, 61
Nemaha County v. Frank, 948
Neosho County v. Stoddart, 135
Nesbit V. Riverside Independent Dis-
trict, 879, 885, 886, 897, 1188
Nesmith v. Washington Bank, 535
Neuse River Nav. Co. v. Comrs., 166
Nevada Bank of San Francisco v.
Portland Nat. Bank. 546, 547
Nevitt V. Bank of Port Gibson, 494
New Albany, etc.. Plank Road Co. v.
Smith, 949, 955
Newark Banking Co. v. Bank of Erie
660
Newbery v. Fox, 443, 831
Newbery v. Garland, 391
New Buffalo v. Iron Co., 935
New Chester Water Co. v. Holly Man-
ufacturing Co., 1108
Newell V. Bank, 534
New, etc., Co. v. Erlanger, 391
New England, etc. , Ins. Co. v. Robin-
son, 97
Newgass v. Atlantic & D. Ry. Co.
(Central Car Trust Co., Inter-
vener), 1855, 1356
Newgass v. City of New Orleans, 11
New Hampshire Savings Bank v.
Downing, 596
TABLE OP CASES.
Ixxvii
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
New Haven, M. & W. R. R. Co. v.
Town of Chatham, 1053
New Haven & Northampton Co. v.
Hayden, 155
New Jei-sey Ins. Co. v. Meeker, 395
New London v. Brainard, 33
Newman v. City of Emporia, 114, 889,
890
New Market Savings Bank v. Gillet,
858
New Orleans v. Clark, 66, 880, 860
New Orleans Canal Co. v. EscofHe,
688
New Orleans, Fla. & Havana St. Ship
Co. V. Ocean Dry Dock Co., 77
New Orleans Gas Light Co. v. City of
New Orleans, 29, 30
New Orleans, M. &0. R. Co. v. Dunn,
11, 43, 44, 950
New Orleans & Pac. Ry. Co. v. Union
Trust Co., 1101
New York & S. C. Co. v. F. Bank,
499
New York, etc., R. R. Co. v. Smith,
697
New York Firemen's Ins. Co. v. Ben-
nett, 90
New York Firemen's Ins. Co. v. Ely,
96, 439, 469
New York Bremen's Ins. Co. v.
Sturges, 90, 100
New York Iron Mine v. Citizens'
Bank, 180, 209
New York Iron Mine v. First Nat.
Bank of Negaunee, 152
New York Iron Mine v. Negaunee
Bank, 180, 209
New York. Lake Erie & West. R. R.
Co. V. Commonwealth of Pennsyl-
vania, 1291, 1304
New York Life Ins. Co. v. Beehe, 343
New York & N. H. R. R. Co. v.
Ketchum, 379
New York & N. H. R. R. Co. v.
Schuyler, 333, 325, 333, 335, 338,
339, 340, 986
New York, P. & B. R. R. Co. v.
Dixon, 183
New York, P. & N. Ry. Co. v. Bates,
156
New York, P. & O. R. R. Co. v. New
York, L. E. & W. R. R. Co.,
1189, 1201
New York Security & Trust Co. v.
Saratoga Gas & Electric Light
Co., 1100, 1155
New York State Loan & Trust Co. v.
Helmer, 538
Niagara County Bank v. Baker, 515,
537
Niantic Savings Bank v. Town of
Douglas, 974
Nichol V. Mayor, etc., 4, 48, 49, 901
Nicholas V. Oliver, 306
Nichols V. Howe, 133
Nichols V. Mase, 1083, 1096
Nichols V. Pinner, 634
Nichols V. Scranton Stee) Co., 151
Nichols V. Stephens, 713
Nickerson v. Ruger, 621
Niles V. Shaw, 1299
Niles Water Works v. Mayor, etc.,
City of Niles, 68
Nims v. Mt. Hermon Boys' School, 336
Ninth Nat. Bank v. Knox County, 907
Nixon V. State ex rel., 123
Noble V. Andrews, 742
Noble V. City of Viucennes, 951
Nolan County v. State, 14, 67, 838, 830,
833, 834
Noland v. Busby, 1373
Nolle v. Penwick, 446
Nolton V. Railroad Co., 348
Nonotuck Silk Co. v. Flanders, 738,
750
Norcross v. Benton, 721
Norfolk & Western R. R. Co. v. Penn-
sylvania, 1393
Norfolk & Western R. R. Co. v. Ship-
pers' Compress Co., 458
Norris v. Despajrd, 657
Norris v. Hall, 533
North America Bank v. Bangs, 668
Northampton Bank v. Pepoon, 208,
548
Northampton County v. Easton Pas-
senger Railway Co. , 1266
North Brookfield 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, 353
North Pa. R. R. Co. v. Adams, 955,
1047
Northern Pac. R. R. Co. v. Clark,
1379
Northern Pacific R. R. Co. v. Ray-
mond, 1300
North River Bank v. Aymar, 363, 334
North Side Ry. Co. v. Worthington,
89, 1031
North Ward National Bank v. City of
Newark, 1396
Northwestern Coal Co. v. Bowman &
Co., 707
Northwestern Union Packet Co. v.
Shaw, 497
Norton V. Alabama National Bank,
385
Ixxviii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1807.]
Norton v. Deny 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., 39
Norwich & "W. R. R. Co. v. County
Comrs., 1283
Norwood & Butterfield Co. v.
Andrews, 93
Nosser v. Seeley, 55, 917
Nougue V. Clapp. 1137
Nougues V. Douglass, 63
Noyes v. Marsh, 1153
Novas V. Rutland & Burlington R. R.
Co., 153, 489
Nugent v. The Supervisors, 935, 949
Nunnemaker v. Lanier, 703
o.
Oakes v. Cattaraugus Water Co., 155,
500
Oakland v. Carpenter, 59
Oaliland Bank of Savings v. Wilcox,
563
Oakland Paving Co. v. Rier, 190
Oakland Township v. Martin, 136
Oaldey v. Valley County, 117
Gates 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, 319
Odd Fellows' Bank v. GuiUen, 847
Odd Fellows' Hall Assn. of Portland
V. Hesele, 470
Oddie V. National City Bank, 600, 639,
1313
Odiorne v Maxcy, 150; 152
Oelhermann v. New York & N. Ry.
Co., 470
Ogden V. County of Daviess, 866, 873,
933
Ogden V. Murray, 360, 380, 383
Ogilvie V, Knox Insurance Co., 1133
Ollare v. Second Nat. Bank of Titus-
ville, 530
Ohio Central R. R. Co. v. Central Trust
Co. of New York, 1181
Ohio Life & Trust Co. v. Deholt,
957
Ohio & M. R. R. Co. v. McCarthy,
1089
Ohio & Mississippi Ry. Co. v. Com-
missioners, 1371
Ohio & Mississippi Ry. Co. v. Davis,
1338
Ohio & Mississippi Ry. Co. v. People,
1031
Ohio Valley Nat. Bank v. Walton
Architectural Iron Co., 1081
Oil Co. V. Densmore, 375
Oil Creek, etc., R. R. Co. v. Pennsyl-
vania Transportation Co., 1079
Olcott V. The Supervisors, 903, 957
Olcott V. Tioga Railroad Co., 142, 153,
198, 233, 333
Oldham v. Bank, 510, 539
O'Leary v. Board, etc., 793
Oliphaut V. Woodburn C. & Mining
Co., 165, 316
Oliver v. Piatt, 363
Olmstead v. Distilling & Cattle Feed-
ing Co., 1193
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. McPherson, 365
Oneida Bank v. Ontario Bank, 65, 653,
858
O'Neil V. Battie, 139
O'Neill V. Bradford, 638
Onstott V. People, 907, 930
Opd3rke 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.,
533
Oriental Vienna Bakery, CofiEee &
Natatorium Co. v. Heissler, 1133,
1334
Ornn v. Merchants' Nat. Bank, 510
Oro Mining & MilUng Co. v. Kaiser,
155
Oroville, etc., R. R. Co. v. Super-
visors, etc., 801
Orphan Society of Lexington v. Fay-
ette County, 137
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, 637
Otis V. Gross, 643
Otoe County v. Baldwin, 998
TABLE OF CASES.
Ixxix
[The references are to pages: vol. I oontaius pp. 1-707; vol. U, pp. 708-1807.]
Ottawa V. Carey, 70, 873
Ottaya v. National Banlc of Ports-
mouth, 70, 872, 895
Otter V. Brevoort P. Co., 455
Ouachita Pacliet Co. v. Aiken, 1394
Oubre v. Donaldsonville, 857
Outterson v. Fonda Lake Paper Com-
pany, 155
Overseers of Norwich v. Overseers
of New Berlin, 446
Oviatt V. Hughes, 396
Owensboro & N. Ey. Co. v. County of
Daviess, 1301
Owensboro & N. Ry. Co. v. Logan
County, 1303
O wings v."G-rubbs' Admr., 359
Ownings v. Hall, 172
Oxford Iron Co. v. Spradley, 100, 103
Pacific Coast Ry. Co. v. Ramage,
1300
Pacific Express Co. v. Seibert, 1268
Pacific Insurance Co. v. 8oule, 1374
Pacific Nat. Bank v. Baton, 519, 756
Pac. Postal Telegraph Cable Co. v.
Western Union Telegraph Co.,
464
Pac. R. R, Co. V. Seely, 493
Pacific Rolling Mill Co. v. Dayton, S.
& G. R. Ry. Co., 220, 336
Pack v. Thomas, 645, 660
Packard v. Jefferson County, 46
Packard v. Society, 227
Packet Co. v. Catlettsburg, 1393
Packet Co. v. Keokuk, 1293
Packet Co. v. St. Louis, 1393
Paducah Land, Coal & Iron Co. v.
Hays, 361
Paducah Land, Coal & Iron Co. v.
MulhoUand, 263
Page v. Fall River, W. & P. B. Co. ,
231
Page V. Supreme Lodge K. & L, of
Protection, 1118, 1130
Pahlman v. Taylor, 153
Pahquioque Bank v. Bethel Bank,
554
Paine v. Guardians of Strand Union,
98
Paine v. Lake Erie & L. R. Co., 350,
1220
Pairpont Manufg, Co. v. Phila. 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, 530
Paola & Pall River Railroad v. Ander-
son County Comrs., 889, 890, 899
Pape V. Capitol Bank of Topeka, 513,
51 5 527
Parish V. Wheeler, 153, 496, 1096
Park V. Grant Locomotive Works,
162, 815
Park V. New York, L. E. & W. R. R.
Co., 1301, 1303, 1222
Parker v. Commonwealth, 48
Parker v. Hartley, 649
Parker v. Jones, 753
Parker v. McKenna, 259
Parker v. Nickerson, 248, 359, 275,
810
Parker v. Scogin, 49
Parker v. Smith, 977
Parker v. Supervisors of Dakota
County, 798
Parker t. Supervisors of Saratoga,
130
Parkersburg v. Brown, 44, 788, 860
Parkhurst v. Northern Central R. R.
Co., 1096
Parks V. Boston, 19
Parr v. Attorney-General, 121
Parrott v. Byers, 311
Parry v. Highley, 509
Parsel v. Bames & Bro., Ill
Parsons v. Goshen, 33, 34
Parsons v. Monmouth, 13
Partridge v. Badger, 72, 75, 102, 317
Pasley v. Freeman, 294
Passaic Water Co. v. City of Patersou,
1379
Patriotic Bank v. Farmers' Bank of
Alexandria, 693
Patteson v. Ougley Electric Co., 155
Patterson v. Bank, 609, 610
Patterson v. Robinson, 154, 183, 187,
400, 401, 403
Patterson v. Stewart, 388
Pattison v. Yuba, 49
Paul V. City of Kenosha, 857
Pauling V. London Ry. Co. , 334
Pauly V. Coronado Beach Co. , 470, 477
Pauly V. Pauly, 491
Pauly V. State Loan & Trust Co., 717,
765
Paxson V, Brown, 895
Paxton Cattle Co. v. First Nat. Bank,
334
Payne v. BuUard, 857
Peabody v. Flint, 306, 336
Peak v. EUicott, 621, 731, 747
Pearce v. Madison, etc., R. R. Co., 94,
450, 471, 473, 478, 493
Pearson v. Concord R. R. Corporation,
383
Pearson's Case, 433
Peck V. Doran Wright Co. (Lira.>, 493
Peck V. First National Bank, 634, 706
Ixxx
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Peck V. School District, 139
Peddicord v. Oonnard, 639
Peek V. Deny, 393
Peek V. Detroit Novelty Works, 163
Pelton V. Bank, 1373, 1397
Pemigewassett Bank v. Rogers, 583
Pendleton v. Bank of Kentucky, 575
Pendleton Co. v. Amy, 897
Peninsular Bank v. Hanmer, 309, 573
Penley v. City of Auburn, 438
Penobscot R. Co. v. Dunn, 358
Penn v. Calhoun, 1179, 1193
Pennell v. Deffell, 636, 743
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. Dandridge, 145, 334, 439, 453,
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, 1173
Pennsylvania R. R. Co. v. City of
Philadelphia, 46
Pensacola Telegraph Co. v. "Western
Telegraph Co., 1393
Pentz V. Stanton, 360
People V. American Bell Telephone
Co., 1389
People V. Argucllo, 69
People V. Assessor, 1301
People V. Baker, 130
People V. Ballard, 465
People V. Bank of Dansvllle, 633
People V. Bank of North America, 667
People V. Barker, 1388, 1390, 1399
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, 978
People V. Cheetham, 1303
People V. Chicago Gas Trust Co., 517
People V. City Bank of Rochester,
633, 731
People V. Commrs. of Taxes, 1301
People V. Common Council of Detroit,
39
People V. Davenport, 1306
People v. Demarest, 131
People V. Dutcher, 977
People V. Eel River & B. R. Co., 336
People V. Flagg, 114
People V. Gage, 1269
People V. Garner, 979
People V. Glaun, 918
People V. Hamill, 67
People V. Haren, 1303
People V. Hicks, 1301
People V. Holden, 918, 919, 953, 977
People V. Home Insurance Co., 1305
People V. Horn Silver Mining Co.,
1390
People V. Johnson, 63, 803
People V. Lawrence, 133
People V. Logan County, 905
People V. May, 445
People V. Maynard, 880
People V. Mayor, 1369
People V. Mayor of Brooklyn, 901
People V. Meach, 181
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, 853
People V. New England Mut. Life
Ins. Co., 1889
People V. North River Sugar Refining
Co., 498, 500, 501
People V. Overyssel Township Board,
343
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, 1389
People V. St. Clair County OfBcers,
138
People V. SaJomon, 1369
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 Dutchess
County, 131
People V. "Supervisors of New York,
57, 130
People V. Supervisors of Rensselaer,
130
People V. Supervisors of Warren
"County, 131
People V. Tazewell County, 898
People V. Town of Bishop", 973, 976
People V. Town of Clayton, 974
People V. Town of Harp, 975
People V. Town of Loenna, 1)76, 983
People V. Town of Oldtown, 904
People V. Town of Santa Anna, 976, 982
TABLE 'OF CASES.
Ixxxi
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
People V. Town of Waynesville, 977
People V. Trustees of Schools, 70
People V. Utica Insurance Co., 1058
People V. Van Valkehburg, 976
People V. Village of Crotty, 4, 5
People V. Warfield, 979
People V. "Wayne Auditors, 128
People V. Weaver, 1397, 1398
People V. Wiant, 979
People, etc., v. Reliance Marine Ins.
Co. (Lim.), 1307
People, etc., v. Wemple, 1388
People ex rel. v. Caruthers 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, 434
People ex rel. v. Kingsbury, 434
People ex rel. v. La Salle County, 434
People ex rel., etc., v. Mayor of
Chicago, 1005
People ex rel. v. Supervisors of Broome
County, 131
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 Sure% Co. v.
Campbell, 1289 ■
People ex rel. Bay State Shoe &
Leather Co. v. McLean, 1387
People ex rel. Brooklyn Traction Co.
V. Board of Assessors, 1388
People ex rel. Chase v. County Court
of Macoupin County, 130
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, 1388
People ex rel. Edison General Electric
Co. V. Barker, 1388
People ex rel. Geneva Looking Glass
Plate Co. v. Barker, 1388
People ex rel. Kilmer v. McDonald,
994
People ex rel. McCagg v. Mayor, etc.,
of City of Chicago, 54
People ex rel. McCauley v. Brooks, 68
People ex rel, McCuUoughv. Pacheco,
63
xi
People ex rel. Peabody v. Chicago Gas
Trust Co., 503
People ex rel. Pennsylvania R. R. Co.
V. Wemple, 1305
People ex rel. Postal Telegraph Co. v,
Campbell, 1289
People ex rel. Pratt Institute v. Board
of Asse.ssors of Brooklyn, 1289
People ex rel. Prettyman 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. Fraser, 1399
People ex rel. Southern Cotton Oil Co.
T. Wemple. 1389, 1305
People ex rel. Stockwell v. Earle, 130
People ex rel. Singer Manufacturing
Co. V. Wemple, 1389
People ex rel. Thurber-Whyland Co.
V. Barker, 1287
People ex rel. Tiffany & Co. v. Camp-
bell, 1390
People ex rel. Union Trust Co. v. Cole-
man, 1388
People ex rel. Western Electric Co. v.
Campbell, 1390
People ex rel. W. & J. Sloane v. Bar-
ker, 1389
People ex rel. Wood, Collector, v.
Smith, 1371
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,
1133
Peoria, Decatur & Evansville Railway
Co. V. Commissioners, 1371
Peoria & Springfield R. R. Co. v,
Thompson, 487, 1013, 1038
Percy v. Millandon, 247, 553
Perkins v. Bradley, 319
Perkins v. Hart, 676
Perkins v. Lewis, 901, 953
Perkins v. Portland, Saco & Ports-
mouth Railroad, 153
Perkinson v. St. Louis, 445
Perley v. Muskegon County, 597
Perpetual Ins. Co. v. Cohen, 639
Perrin v. City of New London, 953
Perrine v. Chesapeake & Del. Canal
Co., 95, 471, 478
Perry v. Council Bluffs Water Works
Co., 327
Perry v. Phelips, 742
Perrvv. Simpson Waterproof Manufg.
bo., 193
Perry v. Superior' City, 446
Ixxxii
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Perry v. Tuskaloosa Cotton Seed Oil
Mill Co., 262
Teterborough Railroad v. Wood, 218
Peters V. Bain, 626, 736, 737, 750, 753,
1114
Petersburg t. Metzker. 4
Petersburgli 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. Leacbman, 742
Phelps V. Town, 627
Philadelphia v. Barber, 1265, 1366
Philadelphia v. Fox, 29
Philadelphia v. Masonic Home of
Pennsylvania, 1265
Philadelphia v. Pennsylvania Hospital,
1366
Philadelphia v. Philadelphia & Gray's
Perry Pass. Ry. Co., 104
Philadelphia v. Ridge Avenue Ry.
Co., 104
Philadelphia, etc.. Railroad v. Mary-
land, 1283
Philadelphia Loan Co. v. Towner, 90,
463
Phil. & Read. R. R. Co. v. Fidelity
Ins. & Trust Co., 1047
Phil. & Read. B. R. Co, v. Smith,
1047
Philadelphia Steamship Co. v. Penn-
sylvania, 1393
Philadelphia & Sunbury R. R. Co. v.
Lewis, 1043
Philadelphia Trust Co. v. Philadelphia
&BrieR. R. Co., 1049
Philadelphia, Wilm. & Bait. R. R. Co.
V. Neary, 1282
Phil., Wilm. & Bait. R. R. Co. v.
Woelper, 1096
PhiUps V. Wickham, 153
Philipps V. Franciscus, 639
Philler v. Yardley, 723
Phillip V. Aurora Lodge No. 104, etc.,
169
Phillips V. Campbell, 98, 173, 217
Phillips V. Huth, 539
Phillips V. Mercantile Nat. Bank of
the City of New York, 589
Phillips V. Winslow, 1096, 1169
Phillips Academy v. King, 456
Phinizy v. Augusta & K. R. R. Co.,
1018, 1093, 1148, 1155, 1188, 1303,
1344
Phipps V. Millbury Bank, 683
Phcenix Bank v. Risley, 597, 676
Phoenix Ins. Co. v. Allen, 702
Picard V. Tennessee, etc.. Railroad,
1282
Pickard v. Pullman Southern Car Co.,
473, 1293
Pickett V. School District, 139, 263
Piece V. Daniel, 660
Pier V. George, 398
Pier V. Hanmore, 407, 413
Pierce v. Emery, 1054, 1096
Pierce v. Holzer, 748
Pierce v. Milwaukee Construction Co.,
1133
Pierce v. Milwaukee & St. Paul R. R.
Co., 1096
Pierson v. Cronk, 350
Pike v. Middletown, 63
Pimental v. City of San Francisco,
788
Pine Civil Township v. Huber Manu-
facturing Co., 133. 437
Pine Lake Iron Co. v. La Fayette Car
Works (Adams, Intervener), 1130
Pinkard v. Allen, 1183
Piscataqua Bank v. Carter, 603
Pittsburg Mining Co. v. Spooner, 298
Pittsburg R. R. Co. v. Allegheny
County, 1056
Pittsburgh, Cin., Chicaa;o & St. Louis
Ry. Co. V. Backus, -1303, 1303
Pittsburgh, C. & St. L. Ry. Co. v.
Keokuk &H. Bridge Co., 191, 335,
467,473
PittsburPi & Connellsville R. R. Co.
V. Stewart, 191
Pitzman v. Freeburg, 970, 971
Pixley V. Western Pac. R. R. Co., 333
Planters' Bank v. Markham, 690
Planters' Bank v. Sharpe, 575
Planters' Bank v. Snodgrass, 530
Planters' Bank v. Union Bank, 269,
597
Planters' Bank v. Whittle, 1108
Plaquemines Tropical Fruit Co. v.
Buck, 307
Piatt V. Beach, 715
Piatt V. Birmingham Axle Co., 146
Piatt V. Philadelphia & Reading R. R.
Co., 1193
Piatt V. Railroad Company, 1034
Piatt V. Sauk County Bank, 638
Pleasant Township v. .^tna Life In-
surance Co., 877, 1011
Pneumatic Gas Co. v. Berry, 263, 367,
307
Police Jury v. Britton, 12, 425
Polk V. Railway Company, 1105
Pollard V. Bailey, 387, 772
PoUitz V. Farmers' Loan & Trust Co.,
1035, 1163
TABLE 0¥ OASES.
Ixxxiii
[The references are to pages; vol. I contains pp. 1-707; Tol. H, pp. 708-1307.]
Pollock V. Farmers' Loan & Trust Co.,
1373, 1376, 1278
Pondir v. New York, L. E. & W. K.
Co., 318
Pondville Company v. Clark, 1108
Pontifex v. Bigold, 394
Poock V. La Fayette Building Assn. ,
496
Pool V. Farmers' Loan & Trust Co.,
1314
Poole V. Jackson & Whyte's Case,
1108
Poole V. West Point Butter & Cheese
Assn., 316, 831
Pope V. Bank, 655
Pope V. Bank of Albion, 576
Pope V. Board of Comrs. of Lake
County, 685
Port V. Russell, 244, 363, 316
Porter v. Bessemer Steel Co., 858,
1095
Porter v. Lidustrial Information Co. ,
1133
Porter v. Pittsbui'g Bessemei' Steel
Co., 1341
Porter v. Railroad Company, 1033
Portland & O. C. R. R. Co. v. In-
habitants," etc., of Hartford, 962
Portland Stone Ware Co. v. Taylor,
800
Portsmouth Savings Bank v. Village
of Ashley, 857
Post V. Kendall County, 446
Post V. Pulaski County, 933, 940, 941,
966
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. , 387
Potter V. Town of Greenwich, 984
Potter V. United States, 783, 783
Potts V. Bennett, 36
Potts V. Wallace, 193, 193, 1113
Pottsville V. Norwegian Township, 135
Powder River Live Stock Co. v. Lamb,
155
Powell V. Blain, 1090
Powell V. City of Madison, 14, 850
Powell V. Supervisors of Brunswick
County, 898
Powell V. Willamette Valley R. R. Co.,
361
Powers V. Briggs, 357, 359
Powers V. Dougherty County, 49
Prather v. Kean, 537
Pratt V. Beaupre, 358
Pratt V. Brown, 957
Pratt V. Jewett, 318
Pratt V. Luther, 34
Pratt V. Short, 441, 497
Pratt V. Taunton Copper Mfg. Co., 335
Prentice v. United States & Central
Am. St. Ship Co., 156
Presbyterian Church v. City of New
York, 483
Prescott Nat. Bank v. Butler, 516
President, etc., v. Railway Co., 363
Pres't, etc., of Springfield Bank v.
Merrick, 456
Pres't Mining & Milling Co. v. Oo-
quard, 170
Pres't & Trustees of Town of Peters-
burg V. Mappin, 121
Press Printing Co. v. State Board of
Assessors, 1395
Preston v. Grand Collier Dock Co.,
334
Preston v. Prather, 537, 553
Preston v. Loughran, 373
Preston National Bank of Detroit v.
Emerson, 1139
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., 363
Prindle v. Washington Life Ins. Co.,
156
Printing Co. v. Green, 397, 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, 1374
Paget Sound National Bank v. King
County, 1397
Pugh V. City of Little Rock, 437
PuUau V. Cin. & Chic. Air Line R. R.
Co., 1054, 1096
Pullman v. ElUs, 1141
Pullman's Palace Car Co. v. Common-
wealth, 1292
Pullman Palace Car Co. v. Pennsyl-
vania, 1374. 1294, 1303
Pulman v. Upton, 1028
Pumphrey v. Threadgill, 1098
Purdy V. Lansing, 976
Purifier Co. v. McGroarty, 1087, 1114
Ixxxiv
TABLE OF CASES.
[The references are to pages: vol. I contaiiis pp. 1-707; vol. II, 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
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, 1203
Quincy, O. & K. C. Ry. Co. v. People,
1305
Racine & Mississippi R. R. Co. v.
Farmers' Loan & Trust Co., 1055
Rahm v. King Wrought Iron Bridge
Manufactory of Topeka, 205
Railroad v. Cleghom, 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, 92
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,
1322
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,
254, 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,
1283
Railroad Co. v. Quigley, 831, 546
Railroad Co. v. Railroad Co., 479,
1341
Railroad Co. v. Schutte, 1050
Railroad Co. v. Sloan, 1191
Railroad Co. v. Wilson, 1351, 1259
Railroad National Bank v. City of
Lowell, 133, 231
Railway Co. v. AUerton, 166
Railway Company v. Dey, 1237
Railway Co. v. Harris, 321
Railway Co. v. Iron Co., 480
Railway Co. v. Johnson, 1234, 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, 987
Railway Fro^ v. Haven, 396
Ralph V. ShiaTvassee Circuit Judge,
1133
Ralls County Court v. United States,
73, 847, 933
Ralston v. Washington & C. R. Ry
Co 1193
Ramsey v. Erie Ry. Co., 495, 1048
Ramson v. Mayor, etc., of New York,
59
Ranger V. Champion Cotton-Press Co.,
312, 1134
Rapp V. Bank, 601
Rasmusson v. County of Clay, 436
Ratclife V. Teters, 806
Rathbone v. Parkersburg Gas Co., 316
Rathbone v. Sanders, 535
Rathbun v. Snow, 103, 183
Ratterman v. Western Union Tele-
graph Co., 1368, 1293
Raub v. Blairstown Creamery Assn.,
203
Ray V. Bank of Kentucky, 636
Raymond v. Clark, 1096
Raymond v. Sun Gabriel Val. Land &
Water Co., 363
Re, A«atic Banking Co., 76
Re, Barned's Banking Co. , 76
Re, Bates, 1144
Re New York Catholic Protectory,
1388
Reagan v, Aiken, 780
TABLE OF OASES.
Ixxxv
[The references are to pages: vol. I contains pp. 1-707; toI. II, pp. 708-1307.]
Recamier Manufg. Co. v. Lyman, 317
Eedington v. Woods, 674
Redmond v. Dickerson, 350, 258
Redmond v. Railway Company, 1350
Red Willow County v. Chicago, B. &
L. R. R. Co., 1803
Reed v. BuflEum, 155
Reed v. Plattsmouth, 859, 925
Reed v. Powell, 175
Reid 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
Reineman v. Covington, Columbus &
Black Hills Railroad, 928
Relfe V. Rundle, 466
Removal Cases, 730, 1150
Reno Water Co. v. Leete, 191
Resor v. Ohio & Mississippi R. R. Co.,
1096
Rew V. Pettet, 98
Reynes v. Dumont, 533, 544, 1373
Reynolds v. Commissioners of Stark
County, 1055, 1058
Reynolds v. Continental Insurance
Co., 153, 193
Reynolds v. Crawfordsville Bank, 513
Reynolds v. Shreveport, 857
Reynolds & Henry Construction Co. v.
Police Jury, 151
Rhodes v. McDonald, 365
Rhodes, Assignee, v. Webb, 175, 349
Rice V. Plymouth County, 124
Rice's Appeal, 275
Rich V. Errol, 134
Rich V. Town of Mentz, 976
Richards v. Crocker, 407
Richards v. Insurance Company, 1108
Richards v. Merrimack & Connecticut
River Railroad, 1054, 1055, 1158
Richards v. New Hampshire Ins. Co.,
235
Richards v. Railroad, 93
Richardson v. Green, 263
Richardson v. Lawrence County, 904
Richardson v. Massachusetts Chari-
table Mechanics' Assn. ,'457
Richardson v. St. Joseph Iron Co.,
144
Richardson v. Sibley, 466, 471, 1063
Richardson v. Vermont & Mass. R. R.
Co., 485
Richardson's Executor v. Green, 366,
1025, 1085, 1113
Richelieu Hotel Co. v. International
Military Encampment Co.., 470,
478
Richmond v. Irons, 175, 758, 766, 768,
769, 770, 773
Richmond County Gas Light Co. v.
Town of Middletown, 39
Richmond, etc., R. R. Co. v. Snead,
210 359
Richter'v. Jerome, 1158, 1162
Rickets v. Spraker, 1373
Rickford v. Ridge, 658
Ricord v. Railroad Co., 93
Riddle v. County of Bedford, 161
Rider Life Raft Co. v. Roach, 170
Ridgley Nat. Bank v. Patton, 637,
644
Ridgeway v. Farmers' Bank of Bucks
County, 75, 102
Riley v. Pettis County, 129
Ring V. County of Johnson, 971
Ringling v. Cohn, 504, 573
Rings V. Binns, 251
Rings V. Biscoe, 1113
Ring & Reil v. Foster, 608
Rio Grande Cattle Co. v. Bums, 821
Ripley v. Sampson, 387, 769
Risk V. Banking ComnAy, 1129
Risley v. Ind., B. & WR. R. Co., 342,
278 I
Risley v. Phenix Bank,\653, 666
Ritchie v. Franklin County, 830
Rittenhouse v. Mayor, etc., of Balti-
more, 29
Roan V. Winn, 254, 550, 1119
Robbins v. Bacon, 665
Bobbins v. Board of Comrs. of Morgan
County, 31
Robbins v. Railroad Company, 957
Robbins v. Shelby Taxing District,
1267
Robbins v. Shelby County, 1393
Roberts v. Austin Corbin & Co., 663
Roberts v. Breedlove, 14
Roberts v. Broome, 742
Roberts v. Hill, 544
Roberts v. Pottawatomie County, 38,
126
Roberts & Co. v. Iron Car Equipment
Co., 1048
Robertson v. Breedlove, 838
Robertson v. Buffalo County Nat.
Bank, 566
Robertson v. City of Rockford, 49,
953
Robinson v. Alabama & Georgia
Manufg. Co., 1334
Robinson v. Ames, 703
Robinson v. Atlantic & Great Western
Ry. Co., 1059
Robinson v. Hawksford, 658
Robinson v. Iron Railway Co., 1173
Robinson v. Land Company, 1057
Robinson v. Nat. Bank of NewbemcL
554
Ixxxvi
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.]
RolDinson v. Smith, 283, 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, 856
Rock River Bank v. Sherwood, 527
Rockwell V. Elkhorn Bank, 75, 103,
574
Rockwell V. Farmers' Nat. Bank of
Longmont, 531
Rodman vi«y Justices of Larue County,
127 \
Rogan V. Cim of Watertown, 18
Rogers v. Bo!»d of Comrs. Le Sueur
County, Ol?, 428
Rogers v. Burlington, 13, 49, 56, 338,
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, 39
RoUand v. Hart, 338
Rolling Stock Co. v. Railroad, 282
RolUns V. Clay, 358, 335
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, 353
Rosenberg v. First Nat. Bank of Tex-
arkana, 534
Rosenblatt v. Habermann, 661
Rosenthal v. Martin Rank, 665
Ross V. City of Philadelphia, 198
Rothrock v. Carr, 37, 133, 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, 361
RufEnerv. 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, 983
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. RoUe, 623, 626
Ryan v. L. A. & N. W. Ry. Co., 258,
261, 275
Ryan v. Lynch, 851, 853, 1004
Ryder v. Alton & Sangamon River R.
R. Co., 49
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. WyckofE, 102, 469
Sage V. Culver, 818
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.,
1303
TABLE OF OASES.
Ixxxvii
[The references are to pages: vol. I contains pp. 1-707; vol. H, pp. 708-13W.]
St. Louis Car Co. v. Stillwater Street
Ry. Co., 1188
St. Louis Drug Co. v. Robinson, 493
St. Louis, etc., R. R. Co. v. Cleveland,
etc., R. R. Co., 1339, 1241
St. Louis, etc., R. R. Co. v. Johnston,
634, 750
St. Louis, Ft. Scott & W. R. Co. v.
Grove, 156
St. Louis, Ft. Scott & Wichita R. R.
Co. V. Tiernan, 276
St. Louis, Iron Mountain & So. Ry.
Co. V. Anthony, 139
St. Louis, Iron Mountain, etc., R. R.
Co. V. Berry, 1282
St. Louis & Sandoval Coal & Mining
Co. V. Sandoval Coal & Mining
Co., 356
St. Louis & S. F. Ry. Co. v. Apper-
son, 1803
St. Louis & Santa Fe Ry. Co. v.
Gracy, 1263
St. Louis & S. F. Railway Co. v.
Johnston, 612, 613, 614, 619
St. Louis & S. F. R. Co. v. Kirkpat-
rick, 389
St. Louis S. W. Ry. Co. v. Graham,
Intervener, 1347
St. Louis S. W. Ry. Co. v. Stark, 1175
St. Louis, Vandalia & T. H. R. R Co.
V. Terre Haute & Ind. R. R. Co.,
486
St. Mary's Industrial School for Boys
V. Brown, 30
St. Nicholas Insurance Co. v. Howe,
193
St. Nicholas Nat. Bank v. Bank of the
State of New York, 654
St. Paul, M. & M. Ry. Co. v. City of
St. Paul, 1383
St. Paul & Sioux City R. R. Co. v.
Robinson, 1303
St. Paul & Sioux City R. R. Co. v.
Shanks, 1303
St. R. Co. V. Morrow, 1807
Salena Bank v. Gloucester Bank, 567
Salem Land Co. v. Montgomery Land
Co., 198
Salem Turnpike v. County of Essex,
871
Salem "Water Co. v. City of Salem,
68
Saline County v, Anderson, 798
Saline County v. Wilson, 138
Salmon v. Richardson, 289, 847
Salmon Falls Bank v. Leyser, 514
Salomons v. Laing, 77, 453
Salt Company v. Guthrie, 1178
Salt Lake City v. HoUister, 821, 473
Saltmarsh v. Spaulding, 373, 809,
1073, 1075
Sammis v. Clark, 603
Sampson v. Bcwdoinham Steam Mill
Corporation, 159
San Antonio v. Jones, 49
San Antonio v. Lane, 955
San Antonio v. Lewis, 108
San Antonio v. Mehaflfy, 838, 488, dSO
San Antonio & G. S. R. R. Co. v.
Davis, 1133
Sanborn v. Deerfield, 134
San Diego County v. California Nat
Bank, 735, 788
San Diego, S. D. & L. A. R. R. Co.,
196
San Diego Water Co. v. City of San.
Diego, 44, 113
Sands v. Matthews, 665
Sandy River Bank v. Merchants &
Mechanics' Bank, 578
Sandford v. Prentice, 803
San Francisco Gas Co. v. City of Saa
Francisco, 39
San Francisco Water Co. v. Pattee,
373
Sang V. City of Duluth, 438
Sangamon, etc., R. R. Co. v. County-
of Morgan, 871
Sanger v. Upton, 1038
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, 363
Sargent v. Franklin Ins. Co. , 763
Sargent v. Kansas Midland R. R. Co.,
363
Sargent v. Webster, 1074, 1084, 1113,
Sartwell v. North, 887
Satterlee v. Strider, 901
Sauer v. Town of Nevadaville, 376
Savage v. Rix, 359
Savage Mfg. Co. v. Worthington, 78-
Savannah & Memphis R. R. Co. v..
Lancaster, 93
Savings Bank v. Hamlin, 571
Savings Bank v. Holt, 563
Savings Bank of New Haven v. Davis,
143
Sawyer v. Hoag, 255, 1038, 1108
Sawyer v. Manchester & Keene R. R^
Co., 976
Sayers v. First Nat. Bank, 155
Saylor v. Bushong, 646
Sayles v. Bates, 774
Sayre v. Association, 1178
Scanlan v. Keith, 357, 358, 859
Schaeffer v. Bonham, 971, 977
Schallard v. Eel River Steam Nav..
Co., 155, 220
Schanck v. Mayor, 43
Schenck v. Andrews, 164
Ixxxnii
TABLE OF CASES.
[The referenaes are to pages: toI. I contains pp. 1-707; vol. II, pp. 708-1307.]
Schenci v. Bandmann, 884
Schetter v. Southern Oregon Improve-
ment Co., 263
Schierenberg v. Stephens, 712
Schindelholz v. CoUum, 11X8
Schneider v. Irving Bank, 602, 646
Schneitznan v. Noble, 176
Schoff V. Bloomfield, 137
Schofield V. Henderson, 416
Scholey v. Rew, 1275
School District v. Padder, 139
School Distriet 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. 448, 445
SchuiT V. Investment Co., 458
Schuyler County v. The People, 898,
1004
Schuylkill County v. Citizens' Gas
Company, 1267
Scipio V. Wright, 15, 915
Scohey v. Decatur County, 123
Scofield V. Parlin & Orendorfl Co.,
810
Scofield V. State Nat. Bank, 511
Scotland County v. Hill, 858, 1021
Scott V. Armstrong, 525, 733, 734
Scott V. Avery, 1153
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
Snott 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. Trentop Delaware Palls
Co., 917
Sc'idder v. Union National Bank, 1021
Seal V. Puget Sound Loan & Invest-
ment Co., 236, 1078
Scale V. Baker, 288
Seaman v. Baughman, 22
Search v. ElUcott, 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-
musMfg. Co., 335, 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, 131
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
Sewanee Mining Co. v. McCall, 152
Seward County v. Cattle, 597
Sewell V. Beach Company, 1123
Sewickley Borough v. Tholes, 1265
Seybert v. City of Pittsburg, 16, 954
Seymour v. Canandaigua & Niagara
Falls R. R. Co., 1096
Seymour v. Spring Forest Cemetery
Assn., 236, 457, 470
Shaffer v. Hahn, 809
TABLE OF CASES.
Ixxxix
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307."
Shafcner t. Edgerton, 655
Shamokin Valley R. R. Co. v. Liver-
more, 1096
Shand v. Du Buisson, 665
^hank t. Shoamaker, 121
Shannon v. Portsmouth, 798
Shapley v. Abbott, 995
Sharpless v. Mayor, 44, 48, 49, 964
Shaver V. Bear River, etc., Co., 190, 198
Shaver v. Hardin, 236
Shaw v. Bill, 1055
Shaw V. Campbell Turnpike Road Co.,
830
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., 334, 335, 344, 1148
Shaw V. Railroad Company, 1001,
1080, 1158, 1162
Shaw V. Spencer, 539
Shawmut Bank v Plattsburg &
Montreal R. Co., 819
Shea V. MabxT, 563, 1108
Shear v. K. & K. R. R. Co., 563
Sheboygan County v. Parker, 1000
Sheffield School Township v. Andress,
20 39
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
Shelby viUe, etc.. Turnpike Co. v.
Barnes, 471
Shelby viUe Trustees v. S. & E. T. Co.,
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 Nat. Bank, 169, 363
Sherlock v. Village of Winnetka, 849,
878, 879
Sherman v Carr, 60
Sherman v. Fitch, 197, 238
Sherman v. Slayback, 397
Sherman Center Town Co. v. Fletcher,
490, 821
Sherman Center Town Co. v. Morris,
103, 821
Sherman Center Town Co. v. Russell,
461. 821
S'iierman Center Town Co. v. Swigart,
198
Sherwood v, Milford State Bank, 748,
752
xii
Shields v. Ohio, 1382
Shields v. Thomas, 738
Shinbone v. Randolph County, 943,
944
Shinkle v. First Nat. Bank of Ripley,
505, 536
Shipman v. Bank of the State of New
York, 378, 590
Shipman v. Sbite, 446
Shipsey v. Bowery Nat. Bank, 705
Shirk V. Pulaski Countj, 437
Shockley v. Fisher, 111
Shorb V. Beaudry, 258
Shotwell V. Mali, 386, 287
Showalter v. Improvement Co., 1123,
1129
Shrewsbury & Birmingham Ry. v.
Northwestern Ry. , 448 '
Shrewsbury v. Blount, 294
Shrieve v. Duokham, 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
Sniiman 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, 693
Simpson v. Waldby, 703
Simpson Centenary College v. Bryan,
455
Sims V. Board of Comrs., etc., 132
Singer Manufg. Co. v. Holdfodt, 153
Sioux City v. Weare, 446, 851
Sioux City & St. Paul R. R. Co. v.
King, 1303
Sioux City & St. Paul R. R. Co. v.
Osceola County, 826, 840
Sioux City & St. Paul R. R. Co. v.
Robinson, 1803
Sistare v. Best, 183, 466
Sisters of St. Francis v. Mayor, etc.,
of New York, 1289
Skiddy v Railroad Company, 1138
Skiles V Houston, 712
Skinner v. City of Santa Rosa, 969
Skinner v. Merchants' Bank, 830,
332
Skinner v. Smith, 377
xc
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. 11, pp. 708-1307.]
Skinner v. Walter A. Wood Mowing
& Reaping Machine Co., 317
Slack V. Maysville & Lexington E. E.
Co., 13, 49, 54, 901
Slark V. Highgate Archway Co., 90
Slater v. Oriental Mills, 738, 753
Slater Woolen Co. v. Lamb, 515, 832
Slattery v. St. Louis & N. O. Transp.
Co., 316
Slaughter v. State ex rei, 793
Slaymaker's Admr. v. Jaffray & Co.,
418
Small V. Minneapolis Electro-Matrix
Co., 475
Small, Receiver, v. City of Lawrence-
hurgh, 1372
Smallwood v. La Fayette County,
139
Smead v. Ind., Pittsburgh & Cleve-
land R. E. Co., 78, 98, 464
Smedes & Utica Bank, 681
Smith V. Ala. Life & Fire Ins. Co., 74,
439, 477
Smith V. Alexander, 186
Smith V. Appleton, 41
Smith V. Aylesworth, 641
Smith V. Bank, 508, 538
Smith V. Branch Bank at Mobile, 652
Smith V. Case, 761
Smith V. Cheshire, 857
Smith V. Chicago & North Western
Railway, 1178
Smith V. City of Newburgh, 114, 444
Smith V. Commissioners, 128
Smith V. County of Clark, 903
Smith V. County of Los Angeles, 119,
480
Smith V. Cramer, 86
Smith V. Essex County Bank, 688
Smith V. Eureka Flour Mills, 74, 99
Smith V. Exchange Bank, 515
Smith V. First Nat. Bank of Crete,
535
Smith V. FirstNaX. Bank of Wsstfleld,
636
Smith V. Flanders, 522
Smith V. Florida Central & Western
R. R. Co., 1043
Smith V. Hodson, 332
Smith V. Hull Glass Co., 154
Smith V. Kurd, 213, 320, 560
Smith V. Inhabitants of Dedham, 68
Smith V. Janes, 707
Smith V. Law, 78, 75, 102
Smith V. Los Angeles Immigration
Land Co., 261
Smith V. McLean, 690
Smith V. McNair, 879
Smith V. Martin Anti-Fire Car Heater
Co., 151, 284, 336
Smith V. Mayor, etc., of New York, 57
Smith V. Mechanics' Bank, 671
Smith V. Mosby, 638
Smith V. Nashua & Lowell Railroad,
145
Smith V. Ossipee Savings Bank, 617
Smith V. Poor, 560
Smith V. Prattville Manufg. Co., 348
Smith V. Prior. 1135
Smith V. Rathbun, 551
Smith V. Sac County, 980
Smith V. Sage, 394
Smith V. Shawnee County, 38
Smith V. Skeary, 1084, 1108, 1113
Smith V. Smith, 193, 194, 310, 363
Smith V. Tracy, 173
Smith V. White, 470, 495
Smith Bridge Co. v. Louisville, N. A.
& St. L. R. R. Co., 1351
Smith Canal or Ditch Co. v. City of
Denver, 444
Snelling v. Sofifrion, Prest. of Police
Jury, 18'
Snyder's Sons Co. v. Armstrong, 730
Snyder Township v. Bovaird, 136
Societe des Mines D' Argent et Fon-
deries de Bingham v. Mackintosh,
364
Society for Savings v. Coite, 1374
Soens V. Racine, 957
Solomon v. Penoyar, 850
Sombrero Phosphate Co. v. Erlanger,
297, 399
Southern California Colony Assn. v.
Bustamente, 155, 304
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, 398
South Ottawa v. Perkins, 446, 873
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, 730, 734, 735
Spafford v. First National Bank of
Toma City, 506
Spann v. Webster County, 67
Sparhawk v. ferkes, 1303
Sparks v. Dispatch 'Transfer Co., 183,
184
Sparrow v. Evansville, etc., R. R. Co.,
471
Spaulding v. Lowell, 33, 85, 41, 42
Spear v. Crawford, 756
Spear v. Ladd, 577
Speidel v. Henrici, 368
Spence v. Mobile & Montgomery R.
R. Co., 1388
TABLE OF OASES.
XCl
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1307.]
Spering's Appeal, 341, 347, 348,364, 553
Spies V. Chicago & Eastern Iowa Ry.
Co., 1046
Spilman v. City of Partersburg, 67
Spilman v. Mendenhall, 1136
Spokane County v. Clark, 736
Spring & Axle Co.'s Appeal, 534
Springer v. United States, 1375
Springfield & I. S. E. Ry. Co. v. Cold
Spring Township, 975
Springfield Marine & Fire Ins. Co. v.
Peck, 610, 629
Spyker v. Spence, 193
Squire v. Cartwright, 36
Squire v. Preston, 36, 57
Stafford v. Harris, 490
Stair V. Bank, 731
Stallcup V. National Bank of the Re-
public, 193
Stamp V. Cass County, 137
Stanley v. Sheffield, L. I. & C. Co,,
156
.Stanton V. Allen, 1178
Stanton v. Wilkeson, 715, 773
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, 831
Stark Bank v. U. S. Pottery Co., 144,
173, 305, 330
Star Line v. Van Vliet, 309
State V. Allen, 939
State V. Babcock, 883
State V. Baltimore & Ohio Railroad,
816
State V. Bank of Commerce, 1300
State V. Bank of Louisiana, 531
State V. Bank of New England, 1133,
1135
State V. Bell, 59
State V. Bevers, 446
State V. Board of Assessors, 1380
State V. Brobston. 1144
State V. Branin, 1393
State V. Buck, 1146
State V. Carroll, 55
State V. Cassidy, 1370
State V. Catron, 1399
State V. Central Pac. R. R. Co., 1303
State V. Cincinnati Gas Light & Coke
Co., 39
State V- City ol Bayonne, 438
State V. City Council, 860
State V. City of Omaha, 1263
State V. Clark, 798
State V. Commercial Bank of Man-
chester, 530, 548, 573
State V. Commercial State Bank, 733
State V. Commissioners of Clinton
County, 49
State V. Commissioners of Hancock,
49
State V. Common Council, 41
State V. District Court, 1306
State V. Echolo, 803
State V. Estabrook, 48
State V. Farmers & Drovers' Bank of
Battle Creek, 740
State V. Fields, 1146
State V. Hannibal & St. Jos. R. R.
Co., 975, 1364, 1383, 1301, 1303
State V. Harris, 907
State V. Haskell, 446
State V. Hastings, 446
State V. Hausen, 59, 864
State V. HofE, 1363
State V. Jersey City, 113, 890, 1383
State V. Keim, 597
State V. Keokuk & W. R. R. Co., 1382
State V. Liun County Court, 49
State X- McCauley, 68, 69
State V. Macon County Court, 915
State V. Mayor, 68
State V. Mayor, etc., City of New
York, 39
State V. Medberry, 68
State V. Milwaukee Gas Light Co. , 39
State V. Missouri Pac. Ry. Co., 1300
State V. Morris & Essex R. R. Co.,
331, 1383
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.,
1383, 1301
State V. Pierce, 136
State V. Powers, 1293
State V. Rice, 1055
State V. Roggen, 934
State V. Saline County Court, 46
State V. Second Jud. Dist. Court of
Silver Bow County, 1133
State V. Shortridge, 138
State V. Smith, 396
State V. Standard Oil Co., 1178
State V. Stone, 1304
State V. The Mayor, 989
State V. Thome, 917
State V. Trustees of Union, 49
State V. Union Trust Co., 1301
State V. Van Home, 49
State V. Wabash, St. L. & Pac. Ry.
Co., 1301
State V. "Washington Social Library-
Co., 50
State V. Webber, 1383
State V. Winterbottom, 803
State V. Worth, 1263
State Bank v. Andrews, 381
State Bank v. Comegys, 144
State Bank v. Fox, 76, 455
xcu
TABLE OF CASES.
[The references are to pages: vol. I contains pp. l-TOT; vol. H, pp. 708-1307.]
State Bank v. Holcomb, 173, 200
State Bank v. Kain, 599
State Bank of Troy v. Bank of the
Capitol, 687
State Board of Agricjilture v. Citizens'
St. Ry. Co., 39, 65,441
State Board of Assessors v. Paterson
&R. R. R. Co., 1301
State, Bradley, v. Hammonton, 63
State of California v. Central Pac.
R. R. Co., 1303
State, De Baun, Prosecutor, v. Smith,
Collector, etc., 1396
State, Edison Phonograph Co., Prose-
cutor, V. State Board of Assessors,
1386
State, Hoxsey, v. Mayor, etc., of the
City of Paterson, 59
State, fadney. Prosecutor, v. Passaic,
1369, 1370
State, Smith, Prosecutor, v. Ramsey,
Collector, 1398
State, Walls, Prosecutor, v. Mayor &
Aldermen of Jersey City, 1370
State ex rel. v. Allen, 135
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, 135
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. 0., C. & C. R. Co. v.
Whitesides, 1008, 1010
State ex rel. Clinton County v. Hanni-
bal & St. Joseph R. R. Co., 139
State ex rel. Copes v. Charleston, 49,
964
State ex rel. Dean v. City of Madison,
48
State 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. Mayor, 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, 1368
State Railroad Tax Cases, 1378, 1303
State Savings Assn. v. Boatmen's Sav-
ings Bank, 538, 641, 650, 661
State Sav. Assn. v. Nixon-Jones
Printing Co., 583
State Tax on Foreign Held Bonds,
1391
State Tax on Railway Gross Receipts,
1394
State of Tennessee v. Davis, 575
Steamboat Co. v. Brockett, 331
Steamboat Co. v. Locke, 753
Steam Engine Co. v. Hubbard. 398
Steckel v. Bank, 628
Steel Edge Stamping & Retinning
Co. V. Manchester Savings Bank,
1141
Steele v. Russell, 683
Stein V. Mayor, etc., of Mobile, 47, 48,
909
Stein V. Mobile, 964
Steyer v. Davis, 490
Stephens v. Benton, 1018
Stephens v. FoUett, 758
Stephens v. Fox, 394, 399
Stephens v. McNeill, 658
Stephens v. Monongahela Bank, 530,
528
Stephens v. Overstoln, 558
Stephens v. Railroad, 1228
Stephens, Receiver, v. Schuchmann,
711, 713
Sterling v. Parish of West Feliciana,
18
Sterrett v. Rosencrantz, 661
Stetson V. Kempton, 30, 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 Tork City
R. R. Co., 1083
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
Stevens.on v. Bay City, 113, 571
Stewart's Appeal, 471, 1173
TABLE OF CASES.
XCIU
[The references are to pages: vol. I oontains pp. 1-70?; toI. II, pp. 708-1307.]
Stewart v. Board of Supervisors of
Polk County, 49
Stewart v. City of Council Bluffs, 110
Stewart v. Dunham, 1150
Stewart v. Lansing, 980, 1003
Stewart v. Lehigh Valley R. R. Co.,
241, 342, 265
Stewart v. Otoe County, 786
Stewart v. St. Louis, Ft. S. & W. R.
Co., 167, 259, 375
Stewart v. Smith, 697
Stewart v. Wyoming Ranche Co., 294
Stidger v. Red Oak, 446
Stillwell V. Mayor, etc., of New York,
60
Stiz V. City of Indianapolis, 1371
Stobie V. Dills, 357, 359
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. S.
Bank, 366
Stockton &. Visalia R. R. Co. v.
Stockton, 49
Stockwell V. State ex rel., 792
Stokes V. Jersey Pottery Companv,
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, 343
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
Stoudinger v. City of Newark, 42
Stout V. Yaeger Muling Company, 103,
350
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. ISTorth Baltimore Water
Works Co., 1133
Strang v. Cook, 976
Stratton v. Allen, 263, 569, 1084, 1108,
1112
Straus v. Trotter, 380, 394
Strauss v. Eagle Ins. Co., 73, 74, 90,
479
Strauss v. Sage, 894
Street v. Maryland Cent. Ry. Co.,
1193,1211
Street Ry. Co. v. Morrow, 1307
Streeter v. First Nat. Bank, 511, 686'
Streight v. Junk, 318
Strieb v. Cox, 33, 874
Stringer's Case, 815
Strong V. Southworth, 773
Strong V. Sproul, 393
Strough V. Supervisors, 997
Stuart V. Boulware, 1333, 1333
Stuart V. Supervisors, 933
Sturdivant v. Hull, 359
Sturgeon v. Hampton, 128
Sturges V. Keith, 635
Sturges V. Knapp, 489
Sturges V. Stetson, 166
Sturtevant v. Liberty, 857
Stutz V. Handley, 1140
Stuyvesant Bank v. National Mechan-
ics' Bkg. Assn., 673
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
SulUvan 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, 363, 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, 835, 904
Supervisors of Richmond County v.
Ellis, 131
Supervisors of Schuyler County v.
Bank of Havana, 609
Supervisors of Schuyler County v.
Farwell, 834
Supreme Sitting of the Order of Iron
Hall V. Baker, 1133
Susquehanna Bridge & Bank Co. v.
General Ins. Co., 102, 808
Sutcliffe & Bird v. McDowell, 667
SutlifE V. Board, etc.. Lake County,
835, 842, 869, 897, 927
Sutliff V. Cleveland & Mahoning R. R.
Co., 1043
Sutro V. Pettit, 445
Sutro Tunnel Co. v. Segregated
Belcher Mining Co., 76, 818
XCIV
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 706-1307.]
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
Swazey v. Union 'Manufacturing Co.,
210
Sweeney v. Easter, 683, 706, 744
Sweet V. City of Syracuse, 857
Sweet V. County Comrs. of Carver
County, 876
Swentzel v. Penn Bank, 347, 867, ,368
Swift V. Jewsbury, 547
Swift V. Smith, 1001
Swift V. Tyson, 982
Swift V. "Whitney, 627
Symmes v. Union Trust Co., 363
Syracuse Savings Bank v. Town of
Seneca, 998
Taft V. Brewster, 300
TafEt V. Pittsford, 446
Tagg V. Tennessee Nat. Bank, 531
Talbot V. Dent, 49, 901, 979
Talcott V. First Nat. Bank of Larned,
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
Tappan v. Bailey, 151
Tappan v. Bank, 227
Tappan v. Merchants' National Bank,
1296
Tash v. Adams, 33
Tatlock Y. 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. 825
Taylor v. Henry & Bruscup, 680
Taylor v. Holmes, 816
Taylor v. Insurance Company, 1116
Taylor v. Miami Export Co., 76, 358
Taylor v. Newberne, 49
Taylor v. Philadelphia & Reading R.
R. Co., 94
Taylor v. Plumer, 635, 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., 815
Tehan v. Bank, 734
Teitig V. Boesman, 151, 809
Telegraph Co. v. Texas, 1268
Templiu v. Chicago, B. & P. R. Co.,
156
Tennessee v. Davis, 720
Tennessee v. Whitworth, 1383, 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. Gfoay, 1283
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, 887
Thayer v. Butler, 519, 756
Thayer v. Montgomery County, 824,
836, 946
Thayer v. Union Tool Co., 387
The Banks v. Poitiaux, 494
The Charitable Corporation v. Sutton,
301, 348, 364, 554
The Distilled Spirits, 337
The Floyd Acceptances, 153, 936
The Liquidators of Western Bank v.
Balrd, 364
The People v. Dupuyt, 70
The People v. Utica Insurance Co., 50
The State Freight Tax, 1298
The State, MuUer, Prosecutor, v.
Mayor & Council of City of
Bayonne, 1369
The State, Raymond, Prosecutor, v.
Mayor & Council of Borough of
Rutherford, 1269
The State, Simmons, Prosecutor, v.
City of Passaic, 1370
The State, Singer Mfg. Co. Prosecu-
tors, V. Heppenheimer, 1392
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. Brown ville, etc., R. R.
Co., 93, 368, 268, 378, 384, 451,
467, 473, 497
Thomas v. Cincinnati, N. O. & T. P.
Ry. Co., 1210
Thomas v. Citizens' Horse Ry. Co.,
487, 1054
TABLE OF OASES.
XCV
[The references are to pages; vol. I contains pp. 1-707; vol. n, pp. 708-1307.]
Thomas v. City National Bank of
Hastings, 335, 507
Thomas v. City of Port Huron, 5
Thomas v. City of Richmond, 4, 787
Thomas v. East Tennessee, V. & S.
Ry. Co. (Cook, Intervener), 1310
Thomas v. Leland, 901
Thomas v. Minot, 1341
Thomas v. Morgan County, 899.
Thomas v. Peoria & R. I. Ey. Co.
(Western Car Co., Intervener),
1319, 1333, 1340
Thomas v. Railroad Co., 830
Thomas v. Railway Co., 1330
Thomas v. Sweet, 361
Thomas v. Western Car Co. , 1340
Thomas Kane & Co. v. School District
of Calhoun, 115
Thompson v. Charnock, 1153
Thompson v. City of Peru, 39, 951
Thompson v. Giles, 615
Thompson v. Lambert, 77, 103, 469
Thompson v. Lumber Company, 1111,
1139
Thompson v. McKee, 193
Thompson v. New York & Harlem
Railroad, 1050
Thompson v. Perrine, 1007
Thompson v. Riggs, 597, 598
Thompson v. St. Nicholas Nat. Bank,
540, 543
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, 633, 753
Thomson v. Bank of British No.
America, 673
Thomson v. Harris, 1363
Thomson-Houston Electric Co. v.
Capitol Electric Co. (Read, Inter-
vener), 1044
Thomson v. Lee County, 4, 49, Tl,
909, 946
Thomson v. Madison Building & Aid
Assn., 497
Thorington v. Gould, 304
Thorne 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, 139
Thurher v. Cecil Nat. Bank, 538
Ticonic Bank v. Johnson, 537, 640
Tiffany v. Nat. Bank of Missouri, 538,
533
Tifft v. Bank, 563
Tiffi V. City of Buffalo, 994
Tilden v, Sacramento Co., 118
Tillinghast v. Troy & Boston R. R.
Co., 1163
Tillotson V. City of Saginaw, 853
Tinle)f v. Bellingham Bay Boom Co.,
336
Titus V. Cairo, etc., R. R. Co., 183,
199
Titus v. Great Western Turnpike Co.,
333, 334, 836
Titus V. Mabee, 1096
Tobey v. County of Beland, 1153
Tobin Canning Co. v. Eraser, 373
Tod V. Kentucky Union Land Co., 79,
81, 83
Tod V. Kentucky Union Ry. Co. (Ros-
ser et al,. Interveners), 1351, 1353
Todd County v. St. Paul, M. & M.
Ry. Co., 1301
Toledo, Delphos & Burlington R. R.
Co. V. Hamilton, 1347, 1348
Toledo, etc. R. R. Co. v. Hamilton,
1095, 1096
Tombigbee R. R. Co. v. Kneeland,
478
Tome V. Parkersburg Branch, 334
Tompkins v.Saltmarsh, 368
Tomlinson v. Branch, 1383
Tomlinson v. Jessup, 1383
Tootle V. First Nat. Bank of Port An-
Topeka Primarv Assn. v. Martin, 156,
310
Toppan V. Cleveland, Col. & Cin. R.
R. Co., 1053
Topping V. Biokford, 159
Torbett v. Eaton, 401
Torbett v. Goodwin, 408
Torrey v. Bank of Orleans, 251, 836
Torrey v. Dustin Monument Assn.,
98, 150, 337
Tovey v. Culver, 894
Towle V. American Buildg., Loan &
Inv. Society, 1123, 1136
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,
973
Town of Brewton v. Spira, 1013
Town of Bruce v. Dickey, 58
Town of Cabot v. Britt, 137
Town of Cherry Creek v. Becker, 973
Town of Cicero v. Clifford, 945
Town of Colona v. Eaves, 897, 973, 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 Duanesburgh v. Jenkins, 994,
1007
XCVl
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.]
Town of Durango v. Pennington, 113
Town of Eagle v. Kohn, 977, 978
Town of East Liccoln v. Davenport,
935
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. iEtna Life
Ins. Co., 973
Town of Mt. Vernon v. Patton, 58, 59
Town of Newport v. Batesyille & 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, 993,
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, 33,
874
Township v. County, 133
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, 37
Township of Washington v. Coler,
972, 999
Tracy v. Talmage, 65, 514, 527
Traders' Nat. Bank v. Manufacturing
Co., 1031
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,
1393
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
Treichler v. Berlss County, 133
Trenton Mut. Life & Fire Ins. Co. v.
McKelway, 91, 481
Trimmer v. City of Rochester, 1288
Tripp V. Swanzey Paper Co., 147,
153, 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, 1332
Trust Company v. Shepherd, 1223
Trust Co. V. Souther, 1320, 1323
Trust Company v. Thomason, 1239
Trustees v. Greenough, 1183, 1233
Trustees, etc., v. Shoemaker, 49
Trustees of Belleview v. Hohn, 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
TuUer v. Arnold, 151
Tunno v. Lague, 681
TurnbuU 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, 1303
Turner v. Woodson County, 54
Tuscaloosa Manufg. Co. v. Cox, 317
Tuskaloosa Cotton Seed Oil Co. v.
Pen-y, 334
Tuttle V. Frelinghuysen, 711
Tutt V. Sand Hills Hotel Co., 1233
Twin-Lick Oil Co. v. Marbury, 168,
214, 254, 268, 270, 278, 285, 1084
Twiss v. Guaranty Life Assn. of Iowa,
469
Tyler v. E. & P. R. R. Company, 46
Tyler v. Hamilton, 1176, 1237
Tyler v. Savage, 391
Tyng V. Clark, 394
Tyson v. State Bank, 686
u.
Underbill v. Gibson, 135
Underbill v. Santa Barbara Land,
Building & Improvement Co., 99,
TABLE OF CASES.
XCVIL
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-130r.]
XJnderhill v. Sonora, 846
Union Bank v. Bagley, 176
Union Bank v. Board of Comrs. of
Town of Oxford, 1013
Union Bank v. Cochran, 639
Union "Bank v. Corcoran, 537
Union Bank v. Jacobs, 75, 103
Union Bank v. Jones, 176
Union Bank v. Kansas City Bank, 1114
Union Bank v. Laird, 526
Union Bank v. Eidgely, 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., 563
Union Bank of Georgetown v. Mackall,
595, 596
Union Bank of Quincy v. Tutt, 688
Union Bridge Co. v. Troy & Lansing-
burgliR. R. Co., 235
Union Gold Mining Co. v. Rocky Mt.
Nat. Bank, 73, 103, 153, 191, 193,
648
Union Insurance Co. v. Keyser, 158
Union Loan & Trust Co. v. Southern
California Motor Road Co., 1015,
1038, 1077, 1333, 1333
Union Mut. Life Ins. Co. v. Frear
Stone Mfg. Co., 258
Union Mut. Life Ins. Co. v. White,
154, 194, 363
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. Goetz,
750
UniQD Pacific Railroad v. Commis-
sioners, 917
Union Pacific Railroad v. Lincoln,
55
Union Pac. Ry. Co. v. Chicago, R. I.
& P. Ry. Co., 83, 458
Union Pac. R. R. Co. v. United States,
433, 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,
609
Union Stock Yards Nat. Bank v.
Dumond, 607
Union Township v. Gibboney, 34
Union Trust Co. v. Illinois Midland
Ry. Co., 1207, 1312, 1222
Union Trust Co. v. Missouri, Kansas,
etc., Ry. Co., 1103
Onion Trust Co. v. Souther, 1339
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-
Fluming 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, 341, 553, 635
United States v. Allen, 776
United States v. Babbit, 1058
United States v. Bank, 674
United States v. Britton, 773, 777, 778
United States v. City Bank of Colum-
bus, 111, 177, 570, 5'78, 588
United States v. Dandridge, 233, 806
United States v. Dodge County, 917
United States v. Eno, 773
United States v. Eque, 776, 778
United 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., 1103
United States v. Northway, 773, 774,
778
United States v. Potter, 777, 778, 783
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. Co. ,
301
United States v. Western Union T 1
Co , 475
United States Bank v. Carneal, 691
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, 1300
United States Express Co. v. Ellyson,
1298
United States Rolling Stock Co. v.
Atlantic & G. W. R. Co., 233,
250
XCVIU
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. 11, pp. 708-1307.]
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, 1390
Upton V. South Reading Bank, 513
Upton V. Tribilcock, 1038, 1108
Upton V. Vail, 394
Usher v. Raymond Skate Co. , 78
Utica Water Works Co. v. City of
Utica, 66
Vaglino v. Bank of England, 344
Vail V. Hamilton, 1067
Vail V. Newark Savings Institution,
711
"Vairin v. Hobson, 643
Van Allen v. Assessors, 1374, 1396
Van Brocklin v. Tennessee, 1377
Van Cott V. Van Brunt, 375, 1031,
1033
Van Courtlandt v. Underbill, 348
Vandall v. Dock Company, 88
Vandegrift v. Delaware R. R. Co.,
805
T'anderpoel v. Gorman, 1113, 1390
Vanderwerken v. Glenn, 773
'Van Dresser v. Navigation Co., 465
"Vane v. City of Evanston, 1369
Vane v. Newcombe, 1351
Van Epps v. Van Epps, 351, 363
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, 1396, 1399
Van Vechten v. Terry, 1158
Van Vleet v. Jones, 410
Van Weel v. Winston, 1143
Van Wagoner v. Gas Light Co., 713
Van Wart v. Wooley, 681
Van Weel v. Winston, 390
Vaughn v. School Dist. No. 8, etc.,
1364
Veazie Bank v. Fenno, 1374
Veazie 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.
Bradley, J383
Vicksburg, S. & T. R. R. Co. v.
Ouachita, 49
Victory Webb Printing Co. v. Beecher,
390, 396
Vidal V. Glrard's Excrs., 494
Viets V. Union Nat. Bank of Troy,
610
Vigers v. Pike, 168
Vilas v. Milwaukee, etc., Railway,
1:73
Vilas V. Page, 1313, 1315
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., 1344
Virginia, Tenn. & Carolina Steel &
Iron Co. V. Wilder, 1133
Volger V. Siddner, 1271
Von Roun v. Superior Court, 726
Von Schmidt v. Widber, City Treas-
urer, 32
Voris V. Renshaw, 310
Vosburgh v. Diefendorf, 630
w.
Wabash, St. Louis & Pac. Ry. Co. v.
Ham, 1109
Wabash, St. Louis & Pac. Ry. Co. v.
Illinois, 1393
Wabash, St. Louis & Pac. Ry. Co. v.
McKissock, 1100
Wachob V. Bingham School District,
138
Waco Water & Light Co. v. City of
Waco, 443
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, 1331
Wahl V. Milwaukee, 109
Wahlig v. Standard Pump Manufg.
Co., 78, 333
Wait V. Nashua Armory Assn., 183
Waite V. Dowley, 733
Waite V. Mining Company, 163, 247
TABLE OF CASES.
XCIX
[The references are to pages: vol. I contains pp. 1-707; vol. II, pp. 708-1807.]
Wakefield Bank v. Truesdell, 571
Wakeman v. Dalley, 410, 553
Walburn v. Ingilby, 394
Waldo V. Chicago, St. P. & Fond du
LacR. R. Co., 95, 463
Walker v. Bank of State of New York,
696
Walker v. Birchard, 885
Walker v. City of Cincinnati, 53, 877,
924, 964
Walker v. Detroit Transit R. Co., 143,
162
Walker v. Linn County, 129
Walker v. Miller, 1120
Walker v. Oswald, 803
Walker v. Richards, 734
Walker v. St. Louis Nat. Bank, 596
Wall V. Monroe County, lOO*-
Wall V. Spurlock, 597
Wallace v. Agry, 702
Wallace v. Exchange Bank of Spencer,
582
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,
138, 134, 426, 437
Walnut V. Wade, 946
Walsh V. Barton, 1096
Walsh V. Dart, 703
Walter v. Kirk, 641
Walters y. Anglo-American Mortgage
& Trust Co., 1191
Walters v. Town of Lake, 1269
Walther v. Seven Corners' Bank, 1128
Walton V. Godwin, 408, 411
Walton V. Hake, 249
Walton V. Oliver, 372
Walton V. Riley, 54
Walworth County Bank v. Farmers'
Loan & Trust Co., 180, 182, 236
Ward V. Allen, 670
Ward V. Davidson, 345, 262, 278
Ward V. Johnston, 488
Warden 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
Warfield v. Canning Company, 1074
Warner v. De Witt County Nat. Bank,
509
Warner v. Littlefield, 1081
Warner v. Martin, 539
Warner v. Mower, 1112
Warren v. First Nat. Bank of Colum-
■' bus, 1115, 1117
Warren v. Gilman, 571
Warren v. Ocean Insurance Co., 144
Warren County v. Marcy, 1037
Warren County Agr. Joint Stock Co.
v. Barr, 27, 437
Warrensburg Co-op. Building Assn.
V. Zoll, 650
Wasatch Mining Co. v. Jennings, 263-
Washburn v. Blake, 580
Washburn v. Board, etc., 31
Washington v. Lewis, 571
Washington County Court v. Thomp-
soQ, 137
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, 633, 624
Waterbury v. City of Laredo, 64
Waterhouse v. Comer, 1208
Waters v. Quimby, 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, 303,
317
Watts V. Shipman, 636
Watts- Campbell Co. v. Yucugling,
490, 832
Waverly Company v. Worthington
Company, 1123
Waxahachie Nat. Bank t. 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, 800
Webb V. Spokane County, 383
Webber v. Williams College, 146,
337
Weber v. Ohio & Mississippi Ry. Co.,
1371
Weber v. Spokane Nat. Bank, 509
Webster v. Howe Machine Co., 464
Webster v. School District, 139
Webster v. Upton, 763, 1038
Webster County v. Taylor, 442
Weckler V. First Nat. Bank of Hagers-
town, 508
Weeks v. Love, 380
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.J
"Weeks v. Silver Islet Consolidated
Mining Co., 193
Weeks v. Texarkana, 799
Weiner v. Sturgis, 1131
"Weirick v. Mahoning County Bank,
608
"Weismer v. Village of Douglas, 43, 44
"Weisser v. Denison, 604, 673, 679
Welch V. Sage, 1014
Weld V. Gorham, 690
Welles V. Graves, 557, 558
Welles V. Stout, 773
Welhesburg, etc., Co. v. Young, 74
Wells V. Jewett, 387
Wells V. Morrow, 569
Wells V. Supervisors, 71, 873, 930, 1000
Wells V. Town of Salina, 8
Welsh V. Ferd Heim Brewing Co.,
470
Welsh V. German- Ajnerican Bank, 667,
668, 679
Welsh V. St. Paul & Pac. R. R. Co.,
1047, 1048
Welton V. Missouri, 1367
Wentworth v. Lloyd, 168
Wentworth v. Whittemore, 69
Werk V. Mad River Valley Back,
697
Werner v. Murphy, 1804
Wesley Church v. Moore, 198
West V. Camden, 368
West V. City of Utica, 113
West V. Errol, 135
West V. First Nat. Bank of Elnaira,
638
West V. Menard County Agr. Board.
488
West V. St. Paul National Bank, 6S3
Westburg v. City of Kansas, 798
Westchester Bank v. Donner, 531
Westchester Gas Co. v. County of
Chester, 1366
Westchester, etc., R. R. Co. v. Jack-
son, 485
Westerfield v. Radde, 103, 183, 193,
333, 393
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, 183,
193, 360
Western Saving Fund Society of Phila-
delphia V. City of Philadelphia, 39
Western Union v. Smith, 359
Western Union Telegraph Co. v.
Alabama. 1368
Western Union Tel, Co. v. American
Union Tel. Co., 1178
Western Union Telegraph Oo. v. Mas-
sachusetts, 1394
Western Union Telegraph Co. v. Pen-
dleton, 1393
Wescern Union Telegraph Co. v.
Texas, 1293
Western Union Telegraph Co. v.
Yopst, 155
Weston V. City of Syracuse, 30, 69
Wepton V. Charleston, 1376
West Salem Land Co. v. Land Co., 234
West St, Louis Sav. Bank v. Shawnee
Co. Bank, 350, 568, 571, 576, 579,
588
West School District v. MerriUa, 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, 399
Wheeler v. Alton, 140
Wheeler v. County of Wayne, 5
Wheeler v. Northwestern Sleigh Co.,
816
Wheeler v. Reed, 359
Wheeler v San Francisco & A R. Co.,
819
WheelocK v. Kost, 709, 757, 773
Wheelwright v. St. Louis, N. O. & 0.
Transportation Co., 1043, lOTO,
1x56
Whelan v. McOreary, 569
Whelen's Appeal, 955
Whelpdale v. Cookson, 343
Wherry v. Hale, 513
Whetstone v. Ottawa University, 88,
461
Whilden v. Bank, 655
Wbitalcer v. Grummond, 163
Whitaker v. Hartford, Prov. & F. R.
R. Co., 1048
Whitaker v. Kilroy, 156, 310, 338
WhiXaiier v. Masterton, 393, 415
Whitbeck v. Mercantile Bank, 757
White v. City of Rahway, 114
White V. Hosford, 385 ^
White V. Knox, 737, 729, 759
White V. Madison, 369, 373
White V. Mechanics' Nat. Bank, 667
White V. National Bank, 706, 744
White V. People, 1368
White V. Syracuse & Utica R. R. Co.,
76
White V. Vermont & Massachusetts
' Railroad, 1000, 1014, 1043
White V. Westport Cotton Manufg,
Co., 150, 153, 157, 193
White, etc., Manufg. Co. v. Pette Im-
porting Co., 254, 374, 1087
Whitehead v. Vineyard, 1098
White Mountains I^ilroad v. White
iMjuntains (N. H.) Railroad, 345
TABLE OF GASES.
ei
[The references are to pages: vol. I contains pp. 1-707: tol. n, pp. 70&-180l'J
WMteside v. United States, 446
White Water Valley Canal Co. v. Val
lette, 1014, 1088
Whiting V. Railroad Co., 49
Whiting V. Town of Weat Point, 1264
Whiting V. Wellington, 180, 327
WTiitman Mowing Oo. v. Baker, 494
Whitney 7. Butler, 766, 768
W'utaev T. Cammann, 392
Whitney v. Fairbanks, 303, 318
"Whitney v. National Bank of Brattle-
boro, 634, 636
Whitney v. South Paris Manufg. Co.,
148
Whitney v. Union Trust Co., 1071
Whitney Arms Co. v. Barlow, 394,
826, 398, 399, 415, 467, 469, 489,
495, 497, 943
Whittaker v. Amwell Nat. Bank, 1085,
lose, 1130
"Whittenton MiUs v. Upton, 499, 501
Whitwell V. Johnson, 685
Whitwell V. Warner. 150 180 1084,
1108, Ilia
"Whyte V. Mayor, etc., 59
Wichita Nat. Bank v. Maltby, 607
Wickens v. Foster, 413
Wiokersham v. Chicago Zinc Co., 570
Wickham 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
Wilcox V. Bickel, 316
Wild V. Bank of Passamaquaddy, 176
Wild V. New York, etc., M. Co., 234,
433
Wile & Brickner Co. v. Rochester &
K. F. Land Co., 157, 167, 260
Wiles V. Suydam, 398, 400
Wiley V. Silliman, 972
Wiley V. Starbuck, 530, 534
Wilhelm v. Cedar County, 124
WilMns 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,
1086, 1112, 1114
Wilkinson v. City of Peru, 950
Wilkinson v. Johnson, 670
Willamette, etc., Co. v. Bank of British
Columbia, 473
Willard v. Denise, 289
Willard v. Killingworth, 5
Willard v. Newburyport, 83, 35
Willets V. Phoenix Bank, 651
Willetts V. Paine, 605, 648, 659
Williams v. American Bank, 1341
Williams v. Cheney, 326
Williams v. Dorrier, 576
Williams v. Hood, 661
Williams v. Jackson County Patrons
of Husbandry, 347
Williams v. Jones, 254
Williams v. McKay, 554
Williams v. Manufacturing Co., 296
Williams v. Miami Powder Co., 357
Williams v. Morgan, 1184
Williams v. People, 911, 940
Williams v. Riley, 365
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.,
181
Williams v. Western Union Tel. Co.,
815, 1289
WilHims V. Wood, 294
Williamsburg City Fire Ins. Co. t.
Frothingham, 1071
Williamsburgh Sav. Bank v. Town of
Solon, 987
Williamson v. Keokuk, 853
Williamson v. Wash. City, Va. Mid.
& Great Southern R. R. Co., 1239
Williamson, Trustee, v. New Jersey
Southern Railroad, 1082, 1348
Willim V. Bernheimer, 857
Willink V. Morris Canal & Bkg. Co.,
1054, 1096, 1097
Wilmington & Weldon Railroad V.
Alsbrook, 1283
Willis V. Philadelphia & Darby R, R.
Co., 338, 1079
Willis V. St. Paul Sanitation Co., 114,
336
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 Comrsi Of Onslow
County, 948
Wilson V. Bank, 583
Wilson V. Beckwith. 1098
Wilson V. Boyce, 1098
Wilson V. Brett, 348
Wilson V. City CounftiJ. lOlSl
Wilson V. Coburn, 633
Wilson V. Dawson, 636
Wilson V. Gaines. 1307
cu
TABLE OF CASES.
[The references are to pages: vol. I contains pp. 1-707; vol. n, pp. 708-1307.]
Wilson V. Kings County Elevated K.
R. Co., 333
Wilson V. M. E. R. Co., 343
Wilson V. Rocke, 630
Wilson V. Salamanca, 830, 935, 938
Wilson V. Supervisors, 1 364
Wilson V. Union Savings Assn., 973
Wilson v. Williman, 641
Wilson Mfg. Co. v. Schwind, 894
Wilson Sewing Machine Co. v. Boy-
ington. 158, 195
Winchester v. Baltimore & Susque-
hanna R. 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 Payette -County Bank,
153
Winter v. Bank of Nevs^ York, 603
Winter v. City Council of Mont-
gomery, 48, 51, 53, 950
Winters v. Hub Mining Co., 300
Winton y. Little, 509
Wisconsin v. Pelican Insurance Co.,
413
• Wisconsin Central R. R. Co. v. Corn-
stock, 1283
Wiser v. Blachly, 991
Witherow v. Slayhack, 397
Witter V. Grand Rapids Flouring Mill
Co., 881
Witters v. Sowles, 558, 771
Wolf V. Aioninus 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, 1346, 1856, 1860
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
Woodhridge v. City of Duluth, 863
Woodhall V. Rosenthal, 1101
Wood Hydraulic Hose Mining Co. v.
King, 98
Woodin v. Frazee, 656
Woodley v. Town Council of CUo,
1013
Woodroof V. Howes, 373
WoodrufE V. Comrs. of Noble County,
123, 443
Woodruff V. Merchants' Bank, 656
WoodrufE 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. , 368
Woodward v. Reynolds, 874
Woolverton v. Taylor, 403, 1134
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 &
Copper Mining Co., 306
Wright's Appeal, 183, 387
WuUenwaber v. Dunigan, 883
Wyandotte v. Zeitz, 850
Wylie V. Northampton Bank, 635
Wyman v. Colorado Nat. Bank, 524
Yale Gas Stove Co. v. Wilcox, 897
Yancey v. Hopkins, 446
Yardley v. Clothier, 713, 716, 717, 720
Yardley v. Dickson, 715
Yardley v. Philler, 723
Yardley v. Wilgus, 765
Yarish v. Cedar Rapids, L F. & N. W.
Ry. Co., 906
Yarnell v. City of Los Angeles, 736
Yazoo & M. V. R. R. Co. v. Board of
Levee Comrs., 1382
Yellow Jacket Silver Mining Co. v.
Stevenson, 172
Yoakum v. Kroeger, 1388
York Buildings Co. v. Mackenzie, 343,
351
York Co. V. Mackenzie, 1089
York & Maryland Railroad v. Winans,
473
York & North Midland Ry. Co. v.
Hudson, 301
Young V. Board of Education of Ind.
School Dist. No. 47, 895
Young V. Camden County, 873
Young V. Clarendon, 17
Young V. Clarendon Township, 485,
1000
Young V. Hudson, 574
Young V. McKay, 766
Young V. Railroad Company, 907, 920
TABLE OF OASES.
cm
[The references are to pages: vol. I. contains pp. 1-707; vol. II, pp. 708-1307.]
Young V. "Wempe, 773
Youngman v. Blmira & WlUiamsport
R. R. Co., 1096
Young Men's Christian Association v.
Donohugh, 1366
Youngs V. Hall, 847
z.
Zabriskie v. Railroad, 49, 79, 473,
1018
895,
Zearfoss v. Farmers & Mechanics' In-
stitute of Northampton Couijty,
161
Zellerbach v. AUenherg, 815
Zelle V. German Sav. Inst., 660
Ziegler v. Bank, 638
Ziegler v. Hoagland, 380
Zieverink y. Kemper, 1133
Zihlman v. Cumberland Glass Co.,
807
Zook V. Spray, 379
COEPOEATE FIl^AI^CE
THE FINANCIAL OPERATIONS AND ARRANGEMENTS
OF PUBLIC AND PRIVATE CORPORATIONS
CHAPTEE I.
GENERAL POWER TO INCUR PECUNIARY LIABILITY— PUBLIC
CORPORATIONS.
§ 1
General rules applicable to pub-
lic corporations.
Distinction between public and
private corporations.
Borrowing money.
The United States Supreme
Court on borrowing money.
5. The New Jersey Court of Errors
and Appeals on borrowing
money.
6. Issue of negotiable securities.
7. Power of Indiana cities to issue
bonds.
8. Miscellaneous rules as to issuing
bonds.
9. Bonds issued for the erection of
a county court house.
10. Funding county indebtedness
by issuing interest-bearing
bends.
Issue of bonds to pay subscrip-
tion to stock of railroad cor-
porations.
Notes or warrants to cover funds
to be set aside in future
taxation.
13. The issue of scrip.
14 Purchase of real estate for erec-
tion of public buildings on
time.
Erection of town buildings.
Purchase of sites for erection of
and repair of school build-
ings.
The same subject continued.
Purchasing on credit.
Building and repair of bridges.
Incurring liability under Cali-
fornia statutes.
Incurring liability under Indiana
statutes.
11
12.
15.
16,
17,
18,
19.
30.
21.
g 22. Incurring liability under Kansas
statutes.
23. For lighting the streets of a
city.
24. Contract on time for lighting
streets.
25. Caring for the indigent, etc.
26. Employment of physicians for
the poor — Indiana statute
construed.
27. Expenses connected with epi-
demic diseases.
28. For' what towns may not be made
liable.
29. Expenses of a committee to se-
cure legislation.
30. For the payment of bounties to
volunteers.
81. Validating a contract of village
trustees.
32. Illustrations of liabilities in-
curred for a " corporate pur-
pose."
33. Purchase of fire engines and
apparatus.
34. Illustrations of wrongfully in-
curred liability.
35. Purchase of cemetery grounds.
36. Erection of crematory for
garbage.
37. Use of private property for
sewers.
38. Detection of criminals.
39. Aiding private corporations.
40. Subscription to capital stock of
railroad corporation.
41. Power of the legislature as to
compensations in such mat-
ters.
42. Constitutionality of legislation
authorizing such aid.
4
GENERAL POWEE TO INCUE PEOUNIAEY LIABIUTT.
[§1
§ 43. In what respect the power of the
municipality is restricted.
44. Subscription for less than the
amount voted.
45. The effect of subsequent legisla-
tion upon such a subscription.
46. Statutory authority to construct
a railroad.
Constitutional provisions con-
strued.
What is not a work of "internal
improvement " in the mean-
ing of Nebraska statutes.
What is such a work.
Contracts of guaranty.
51. Employment of agents or at-
torneys.
52. Contracts for legal services -
when allowed.
53. Contracts for legal services -
how made.
47.
48.
49.
50.
§ 54. When a public corporation is
bound for legal services.
Employment of counsel for de-
fense of officers.
Indemnity for expenses of liti-
gation.
When a public corporation is
not bound for professional
services of an attorney.
The same subject continued.
What contracts with attorneys
are contrary to public policy.
Limitations upon the indebted-
ness to be incurred.
61. The same subject continued.
62. Limitations upon power to incur
indebtedness — procuring a
supply of water.
68. The same subject continued.
64. Donation of bonds to aid in de-
veloping water power.
55.
56.
57.
58.
59.
60.
Section i. General rules applicable to public corporations.
— All public corporations are limited to the exercise of those pow-
ers which are expressly granted or which are necessarily or fairly
implied in or incident to the powers expressly granted, or which
are essential to the declared objects and purposes of such cor-
porations.' Corporations and their officers can only act within
the scope of the powers conferred by their charters, and such
powers are to be construed strictly.^ A municipal corporation
'Town of Harwood v. Hamilton,
(1883) 18 Bradw. 358; Cook County
«. McCrea, 93 111. 236; People «. Vil-
lage of Grotty, 98 111. 180; Petersburg
». Metzker, 21 111. 205; Schott v. People,
89 111. 195. In Law e. People, (1877) 87
HI. 385, the Supreme Court of Illinois
said upon the power of municipal cor-
porations: "The law is, and all persons
are presumed to know it, that munici-
pal bodies can only exercise such pow-
ers as are conferred upon them by
their charters, and all persons dealing
with them must see that the body has
power to perform the proposed act.
Such corporations are created for
governmental and not for commercial
purposes. Hence power to borrow
money or create indebtedness is not
an incident to such local governments,
and the power cannot be exercised un-
less it is conferred by their charter,
and no one has the right to presume
the existence of such power, and per-
sons proposing to loan money to these
bodies must see that the power
exists."
''Minturn j;. Larue, 23 How. 435;
Thomson ». Lee County, 3 Wall. 327;
Thomas v. City of Kichmond, 12 Wall.
349; Clark «. Davenport, 14 Iowa, 494;
Merriam v. Moody's Exrs., 25 Iowa,
163; Nichol V. Mayor, etc., 9 Humph.
252; Leonard v. Canton, 35 Miss. 189;
§ 2] PUBLIC COEPOEATIONS. 5
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.^ A municipal corporation, as a general rule, can-
not incur any liability not authorized by the statute or charter by
which it is created.' 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.^ 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/
§ 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 tlie people, the latter to pro-
mote trade, manufactures and a variety of other interests. Pri-
vate corporations are usually endowed with all the po\\5er8 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 V. Placerville, 18 Cal. 643; 'Wheelers. County of Wayne, (1890)
Argentiu San Francisco, 16 Cal. 255, 133 111. 599; s. c.,34 N. B. Rep. 635,
282; Wallace i>. San Jose, 39 Cal. 180; affg. 31 111. App. 399; Cook County*.
City of Lafayette v. Cox, 5 Ind. 38; McCrea, 93 111. 386; City of Cham-
Bank V. Chillicothe, 7 Ohio, 31, pt. IX; paign v. Harmon, 98 111. 491; Schott
Collins V. Hatch, 18 Ohio, 523; Kjlev. •». People, 89 111. 195; People v. Vil-
Malin, 8 Ind. 84; Willard v. Killing- lage of Crotty, 93 111. 180.
worth, 8 Conn. 347; Brady v. Mayor, ' Crittenden County Court v. Shanks,
etc., 30 N. Y. 313; Hodges v. Buffalo, (1889) 88 Ky. 475; s. c, 11 S. W.
2Denio, 110; Halstead «. Mayor, etc., 3 Kep. 468.
K. Y. 430; Boom «. Utica, 2 Barb. 104. * Lewis v. Comanche County, 35 Fed.
' Cooi.KT, J. , in Thomas v. City of Rep. 348.
Port Huron, (1873) 27 Mich. 320
6 GENERAL POWEK TO INCTJE PEOTJNIAEY 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 vsdth 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 ipay 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 sftch 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.^ The court upheld the
' President, etc., Bank of Chillicothe be, as is insisted by counsel, a subsian-
V. Mayor, etc., Town of Chillicothe, tial legislative power, or, according to
(1836) 7 Ohio (Pt. II) 31. It was said my apprehension of the subject, an in-
by Hitchcock, J. , delivering the opin- 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 efEect 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 efEect. 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 COBPOEATIONS. 7
power of tlie corporation to borrow money as incident to the
powers expressly granted in the charter of the town. But a
municipal corporation in Ohio has 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,
and under what ordinance," and another statutory provision that
such bonds shaU be advertised and sold at auction to the highest
bidder.^
§ 4. The United States Supreme Court on borrowing
money. — A majority of the Supreme Court of the United States
has held that the power to borrow money does not belong to a
municipal corporation as an incident of its creation. To be pos-
sessed, it must be conferred by legislation either express or
implied. Indebtedness may be incurred to a limited extent in
carrying out the objects of the incorporation. For its payment,
however, the corporation must look to and rely on taxation, the
legitimate mode of raising the funds for the purpose.'
priety be borrowed * * * An ter than by borrowing. And really, I
amendment to the charter conferred cannot seethe great difference whether
upon the mayor and common council a corporation shall be indebted to A.
the power to pass and publish all such for labor in repairing streets or build-
laws and ordinances as to them shall ap- ings, or to B. for money borrowed to
pear necessary for regulating the pay A. for the same labor. The moral
streets, alleys and highways, and for obligation to pay would be the same in
cleansing, raising, draining, paving, either case."
turn piking or otherwise keeping the ' Mt. Adams, etc., Inclined Ey. Co.
same in repair. * * * If , in effecting «. City of Cincinnati, 35 Wkly. Law
any of these objects, it become neces- Bull. 91; Rev. St. Ohio, §§3703, 3709.
sary to borrow money, the corporation ^ Mayor «. Ray, (1873) 19 Wall. 468.
might with propriety do it. In one of Justice Bkablby in the opinion ren-
the cases now before the court the dered by him for the majority of the
money v^as borrowed expressly for im- court, said: "A municipal corpora-
proving one of the streets. For the pur- tion is a subordinate branch of the
pose of purchasing real estate, erecting domestic government of a state. It is
and repairing public buildings, cleans- instituted for public purposes only ;
ing, raising, paving, draining, turnpik- and has none of the peculiar qualities
ing and otherwise keeping streets in re- and characteristics of a trading cor-
pair contracts must necessarily be poration, instituted for purposes of
made. Ultimate payment, it is true, private gain, except that of acting in
must be made from taxation. But a corporate capacity. Its objects, its
until money could be thus raised it responsibilities, and its powers are
seems to the court that it might be different. As a local governmental
provided otherwise, and in no way bet- institution it exists for the benefit of
8 GENERAL POWEE TO INCtTE PEOTJNIAET LIABILITT. [§ 5
§ 5. The New Jersey Court of Errors and Appeals on
borrowing money. — Soon after this ruling of the Supreme
Court of the United States, the Court of Errors and Appeals of
New Jersey held that municipal corporations, in the absence of a
specific grant of power, do not, in general, possess the power of
borrowing money, and that a note given by a town in New Jer-
sey for an unauthorized loan could not be enforced, even though
the money borrowed had been expended for municipal purposes.'
the people within its corporate limits, a view to pecuniary profit, has, by
The legislature invests it with such implication, when not in this particu-
powers as it deems adequate to the lar specially restricted, the power in
ends to he accomplished. The power question. The law was so held in
of taxation is usually conferred for this state, in the case of Lucas v. Kt-
the purpose of enabling it to raise the ney, 37 N. J. Law, 221, and the same
necessary funds to carry on the city rule has been repeatedly recognized in
government and to make such public other decisions. And this result is
improvements as it is authorized to the appropriate product of the princi-
make. . As this is a power which pie that corporate powers which are
immediately affects the entire con- the necessary accompaniments of pow-
stituency of the municipal body which ers conf en'ed, will be implied. In
exercises it, no evil consequences these instances the ability to borrow
are likely to ensue from its being con- money is so essential that without it
ferred ; although it is not unusual to the business authorized could not be
afiBx limits to its exercise for any single conducted with reasonable efficiency,
year. The power to borrow money is and as it cannot be supposed that it
different ; when this is exercised the was the legislative intent to leave the
citizens are immediately affected only company in so imperfect a condition;
by the benefit arising from the loan ; the inference is properly drawn that
its burden is not felt till afterwards, the power to raise money in this mode
* * * The system of local and mu- is inherent in the very constitution of
nicipal government is copied in its gen- such corporate bodies. Such a deduc-
eral features from that of England. No tion is simply, in effect, a conclusion
evidence is adduced to show that the that the lawmaker designed to author-
practice of borrowing money has ize the use of the means fitted to ac-
been used by the cities and towns of complish the purpose in view. It has
that country without an act of Parlia- been often said that the means which
ment authorizing it. We believe no can be thus raised up by implication
such practice has ever obtained." See must be necessary to the successful
Wells V. Town of Salina, 119 N. Y. prosecution of the enterprise, and that
280 ; s. c, 23 N. B. Eep. 870. the circumstance that they are conven-
' Town of Hackettstown v. Swack- lent will not deputize their introduc-
hamer, (1874) 37 N.J. Law, 191. Bbas- tion. But the necessity here spoken
LBY, Ch. J., in an elaborate opinion, of does not denote absolute indispen-
discussed the question in the follow- sableness, but that the power in ques-
ing language: " At the present time it tion is so essential that its non-existence
seems to be generally conceded that a would render the privileges granted
private corporation, constructed with practically inoperative or incomplete.
§ 6] PTTBLia COEPOEATIOKS. 9
§ 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 hona fide
holders absolute obligations to pay, however irregularly or fraud-
It is consequently obvious that a pre- eating that under certain special con-
sumption, resting on such a basis as ditions an opposite deduction may not
this, must spring up in favor of al- be legitimately drawn. It is plain
most the entire mass of commercial that it is practicable to impose a duty
and manufacturing corporations, for on a municipality requiring the imme-
without the franchise to effect loans diate use of sums of money, and in
the chartered business could be but such a situation the inference may be-
imperfectly transacted. And, yet, come irresistible that it was intended
even in such instances, the usual in- that funds were to be provided by
ference that such an implied power loans. My remarks are to be restricted
exists may be repelled by the language to that class of cases where charters
of the particular charter or the pecu- are granted containing nothing more
liar circumstances of the case. In a than the usual franchises incident to
word, the rule of law in question is municipal corporations, and under
nothing but the discovery, by the such conditions it seems clear to me
courts, of the legislative intent, such that the power to borrow money is
intent having been ascertained by a not to be deduced. I have already
construction of charters, as applied to said that it does not appear to be a
the subject-matters. Taking this as necessary incident to the powers
the ground of our reasoning I am at a granted, for such powers can be
loss to perceive how it can be inferred readily and eflBciently executed in its
that a power to borrow money is an absence. It would be to fly in the
appendage to the usual franchises face of all experience to claim that the
given to municipal corporations, ordinary municipal operations cannot
Such a right cannot, in any reasonable be efficiently carried on except with
sense, be said to be necessary within the assistance of borrowed capital,
the meaning of that term as already Without any help of this kind, it is
defined. Under ordinary circum- well known that our towns and cities
stances it is not certainly indispensable have long been, and are now being,
as common experience demonstrates, improved and governed. For the at-
In the great majority of instances the tainment of these ends it has not gen-
municipal affairs are, with ease and erally been found necessary to resort
completeness, transacted without it. to loans of money. The supplies de-
I do not wish to be understood as indi- rived annually from taxation have
2
10
GENEEAL POWEE TO INCtTE PECTJNIAEY LIABILITY.
[§6
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.* 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."
' Mayor v. Bay, (1873) 19 Wall. 468.
Mr. Justice BKADiiBT, 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 perfonmed, the expense of
which is beyond the immediate re-
sources of reasonable taxation, and ca-
pable of being fairly and ] ustly 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 net 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
iona fide 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
bona fide 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 COEPOEATIONS. 11
Supreme Court of Louisiana has held that, in the absence of
express legislative authority, a municipal corporation has no power
to utter unconditional obligations to pay money. Such a corpo-
ration may, however, issue evidences of liability for consideration
received for ultimate payment, depending upon contingencies
whijeh must have happened before any right of action can accrue.*
holders take CMm o?i«r« and are afEected such. They are invested with public
by the same defect. Much less can trusts of a governmental and adminis-
any precedent be found (except of trative character; they are the local
modern date and in this country) for governments of the people, established
the issue, by local civil authorities, of by them as their representatives in the
promissory notes, bills of exchange management and administration of
and other commercial paper. At a municipal affairs affecting the peace,
period within the memory of man the good order and general well-being of
proposal of such a thing would have the community as a political society
been met with astonishment. The and district, and invested with power
making of such paper was originally by taxation to raise the revenues nec-
confined to merchants. But its great essary for those purposes. The idea
convenience was the means of extend- that they have the incidental power to
ing its use, first, to all individuals, and issue an unlimited amount of obliga-
afterwards to private corporations hav- tions of such a character as to be irre-
ing occasion to make promises to pay trievably binding on the people, with-
mouey. Being only themselves re- out a shadow of consideration in re-
sponsible for the paper they issue, no turn, is the growth of a, modern mis-
evil consequences can follow sufficient conception of their true object and
to counterbalance the conveniences and character. If, in the exercise of their
benefits derived from its use. They important trusts, the power to borrow
know its immunity in the hands of a money and to issue bonds or other com-
bona fide holder from all defenses and mercial securities is needed, the legis-
equities. Knowing this, if they choose lature can easily confer it under the
to issue it, no one is injured but them- proper limitations and restraints, and
selves. But if city and town officials with proper provision for future re-
should have the power thus to bind payment. Without such authority it
their constituencies it is easy to see cannot be legally exercised. It is too
what abuses might and probably would dangerous a power to be exercised by
ensue. We know from experience all municipal bodies indiscriminately,
what abuses have been practiced where managed as they are by persons whose
the power has been conferred. Fraud- individual responsibility is not at
ulent issues, peculations and embezzle- stake."
ments and the accumulation of vast ' Newgass v. City of New Orleans,
amounts of indebtedness without any (1890) 43 La. Ann. 163; s. c, 7 So.
corresponding public benefit have been Rep. 565. That a municipal corpora-
rendered easy and secure from merited tion has not an incidental or implied
punishment. The purpose and object power to make or issue negotiable pa-
of a municipal corporation do not or- per, see New Orleans, M. & C. R. R.
dinarily require the exercise of any Co. v. Dunn, 51 Ala. 128; Blackman v.
such power. They are not trading Lehman, 63 Ala. 547.
corporations and ought not to become
12
GENERAL POWEE TO INCTJE PECTTNIAEY 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.^
§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.* A county in Kansas has
power to borrow money for the erection of county buildings, and
to issue its bonds for the money borrowed.' 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,
<1894) 60 Fed. Rep. 718; s. c, 9 C. 0.
A. 344, following Railroad Co. ■». Ev-
ansville, 15 Ind. 395, which adopted the
following from Slack ». Railroad Co.,
13 B. Mon. (Ky.) 1, to wit: "Moreover,
the first act under which the debt was
created gave full power to the County
Court to provide for its payment either
by taxation or by borrowing the
money, which, of course, implied the
power, as it did the necessity, of fur-
nishing some evidence of indebtedness,
another court might doubtless have
issued the bonds of the county in
some form to the lender." In City of
Evansville v. Woodbury, supra, the
United States Circuit Court of Appeals,
speaking through Seaman, D. J., had
this to say as to the rule declared in
the text: " The borrowing of money
to pay outstanding indebtedness of the
city was clearly a borrowing for the
use of the city; and If this ruling (in
Railroad Co. v. Evansville, supra) must
govern here, the power to issue the
bonds is well shown. That decision
a,ppears to have remained undisturbed,
and is in accord with the doctrine con-
stantly held by that court. Dill, on
Mun. Corp. § 119. It is worthy of
note that the Supreme Court of the
United States held directly the same
construction upon a grant of power
'to borrow money for any public
purpose' in Rogers v. Burlington, 3
Wall. 654, and Mitchell «. Burlington,
4 Wall. 270. These decisions were
five and six years after that in Indiana;
and although they appear to have been
overruled in recent years, they would
constitute some justification, if any
were needed, for reliance by pur-
chasers upon the Indiana interpreta-
tion. The federal courts have main-
tained a rule from their organization
that in all cases depending upon a
state statute, they will adopt and fol-
low the adjudications of the court of
last resort in its construction, when
that construction is well settled, and
without injury as to its original sound-
ness. * » * Therefore, the recent
decisions in Merrill «. Monticello, 138
U. S. 673; s. c, 11 Sup. Ct. Rep. 441,
and Brenham v. Bank, 144 U. S. 173;
8. c, 13 Sup. Ct. Rep. 559, » * *
are not applicable."
'Police Jury v. Britton, 15 Wall. 566.
' Comanche County v. Lewis, 133
U. S. 198.
§ 8] PUBLIC COEPOEATIONS. 13
evidence the credit price of any works for wMcli they are
authorized to contract, which in the hands of a iona fide holder,
will be protected by the law merchant.^ 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.' 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.' Towns in Maine must be expressly or impliedly
authorized by statute, or they cannot borrow money and issue
notes of a commercial character for the execution of their ordi-
nary business.* 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 county funds and
county business, except as otherwise specifically provided," to
issue bonds without a vote of the people.^ 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.* A municipal corporation having statutory power to issue
bonds for loans lawfully made has, by necessary implication, also
' Holmes v. City of Shreveport, (1887) " Rogan ». City of Watertown, (1872)
31 Fed. Rep. 113, in whioli case the 30 Wis. 359.
bonds sued upon were issued for pub- ' City of East St. Louis v. Maxwell,
lie improvements. As to authority of (1881) 99 111. 439.
corporations to give notes to evidence * Parsons ». Monmouth, 70 Me. 263.
indebtedness, see Erode «. Firemen's ' Locke v. Davison, 111 111. 19. As to
Ins. Co., 8 Rob. (La.) 344; Edey v. authority to issue bonds, see Bannock
City of Shreveport, 36 La. Ann 636; Countyc. Bunting, (Idaho) 37 Pac. Rep.
City of Shreveport v. Floumoy, 36 La. 377; Hotchkiss % Marion, 13 Mont. 218.
Ann. 709; Desmond v. Jefferson, 19 « Coffin ®. City of Indianapolis,
Fed. Rep. 483. (1894) 59 Fed. Rep. 331.
li GENEEAL POWER TO INOUE PECUNIAEY LIABILITY. [§ 8
the power to make the bonds negotiable.' 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.^ 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.* 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.* 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.'
' City of Cadillac ». Woonsocket of bonds, see Francis c. Howard
Inst, for Savings, (1893) 58 Fed. Rep. County, 50 Fed. Rep. 44, following
935; s. C, 7 0. C. A. 574; Ltirton, Russell v. Cage, 66 Tex. 428; s. c, 1
Ch. J., said: "The case of Brenham v. S. W. Rep. 370.
Bank, 144 U. S. 173; s. c, 12 Sup. Ct. « Moore v. City of Walla Walla,
Rep. 659, has no hearing upon this (1894) 60 Fed. Rep. 961.
question. Nothing more is there de- ' Powell ®. 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
'Catron v. LaFayette County, 106 creation. of a new indebtedness. Nor
Mo. 659; s. c, 17 S. W. Rep. 677. 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 V. Howard County, 50 Fed. after accrue upon a pre-existing in-
Kep. 44, following Nolan County v. debtedness, either the creation of a
State, 83 Tex. 182; s. c, 17 8. W. Rep. new debt, or, in legal contemplation,
833; Robertson v. Breedlove, 61 Tex. an increase of such pre-existing in"
316. As to a limitation upon the issue debtedness."
§ 9] PUBLIC COEPOEATIONS. 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.*
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 wiU 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.'
§ 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 interest-
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-
' Lewis «. Board of County Commis- that they were issued conformably to
sionera of Sherman County, (1881) 3 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 sioners of Sherman County, (1881) 2
any other purpose by the county; and McCrary, 464, supported by Scipio v.
because the bonds contained no recitals Wright, 101 U. S. 665.
showing that they had been issued ' Brown v. Board of County Commis-
conformably to law. Certain bridge sioners of Sherman County, (1881) 3
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.*
§ 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;* 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.'
The following are the views entertained by the Supreme Court
of Pennsylvania : The power given a municipal corporation to
• Locke ». Davison, (1884)111111.19, They further said; "It was held in
afBrming a decree granting an injunc- Commissioners of Highways «. 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) 83 111. 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 Count}' ». Bartlett, 1 Scam. (111.) 67;
to take up its outstanding orders and County of Pike v. Hosford, 11 HI. 170;
give bonds in lieu thereof, bearing Hall «. Jackson County, 95 111. 352;
interest, as such obligations could not County of Jackson ii. Rendleman, 100
be issued in the absence of statutory 111. 379.
authority. The court in this case dis- ' City of Bridgeport i). Housatonue
tinguished City of Galena v. Corwith, • B. R. Co., (1843) 15 Conn. 475.
48 111. 423, in that "the decision in »Seybert ®. City of Pittsburg, 1
that case was based upon the ground Wall. 372; 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. v. City of Evansville, 15
restricted as to the means of exercls- Ind. 895.
ing this power, could issue the bonds,"
§ 11] PUBLIC C0EP0EATI0N8. 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 vaUd obligations of the corporation.' The Supreme
Court of the United States has lield 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.^ 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 such
appropriation, and prescribing no other mode of payment.' 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
such subscriptions.
' Commonwealth ex rel. Reinljotli ». 'Concord v. Robinson, 131 TJ. S.
Councils of Pittsburgh, (1861) 41 Pa. 165. See, also, Scott's Exrs,«. Shreve-
St. 378. port, 30 Fed. Rep. 714; Katzenberger
^Kelley«. Milan, 137 U. S. 139, af- «. City of Aberdeen, 16 Fed. Rep. 745;
firming Kelley v. Town of Milan, 31 Board of Comrs. of Delaware County
Fed. Rep. 843; Norton v. Dyersburg, v. McClintock, Auditor, (1875) 51 Ind.
127 TJ. S. 160; Young v. Clarendon, 335; La Fayette, M. & B. R. R. Co. v.
133 U. S. 840; Hill «. Memphis, 134 Geiger, 34 Ind. 185; Harney v. Indian-
U. 8. 198. apolis, C. & D. R. R. Co., 32 Ind. 244.
3
18 GENEEAL POWEE TO INOUE PECUNIAET LIABILITY. [§§ 13, 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.'
§ 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.^ And a city authorized, for the pur-
'Snellinge.JofErion, President Police promissory note, draft or warrant in
Jury, (1890) 43 La. Ann. 886; s. c, 8 advance to cover this amount which
So. Bep. 609, in which case the court may go into the treasury. It must be
aiBrmed 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 36 La. Ann. 59."
in each of the ten years to come from ' Foote v. City of Salem, (1867) 14
the date, to a bridge company which Allen, 87, Bigblow, 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 COEPOKATIONS. 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.^ The issue of change bills or promises in the simili-
tude of currency are prohibited in Georgia by statute, and no
recovery can be had upon such change bills issued by a city.'
§ 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 tlie city for the purchase money.* 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,' 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.^
' Foote V. City of Salem, (1867) 14 tween a transaction like this and bor-
Allen, 87. rowing money, the court referred to
« Cothran «. City of Rome, 77 Ga. Gelpcke ®. City of Dubuque, 1 Wall.
582. 175, 231, where it was held that the ex-
'Ind. R. S. 1881, § 3106, clause 4. ecution of bonds to pay an existing in-
^City of Richmond v. McGirr, debtedness of the city was not within
(1881) 78 Ind. 192. That courts can- the prohibition of the charter against
not interfere with the exercise by gov- the borrowing of money, and distin-
erning authorities of their discretion in guished Mayor, etc., of Baltimore ®.
such matters, as a general rule, see Gill, 31 Md. 875, and Jonas «. City of
Kelley v. City of Milwaukee, 18 Wis. Cincinnati, 18 Ohio, 318. There was
88; Baker v. Boston, 12 Pick. 184; a limitation in the charter of this city
Ex parte Fay, 15 Pick. 243; Parks v. upon the borrowing of money, but no
Boston, 8 Pick. 218; Benjamin ». restriction upon the creation of indebt-
Wheeler, 8 Gray, 409; Evansville, etc., edness. The court said: "The charter
R. R. Co. ». City of Evansville, 15 expressly grants to the council the
Ind. 395; Macy ». City of Indianapolis, power to purchase the real estate;
17 Ind. 267; City of Greencastle d. * * * and in the absence of any
Hazelett, 23 Ind. 186; Brinkmeyer v. statutory mode being pointed out for
City of Evansville, 29 Ind. 187. the exercise of such power, it may
'Ind. R. S. 1881, § 3159. contract with reference to such power
' City of Richmond v. McGirr, (1881) as a natural person; and such power
78 Ind. 192. As to the distinction be- is implied from the general unlimited
20 GENERAL POWER TO IHCUE PEOUNIAET 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 fixed sum.^ 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 hmit 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.^
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 «. specifying some of the more promi-
Mayor, etc., Brooklyn, 1 Barb. 584; nent ones provide that towns may
Halstead ®. Mayor, etc.. New York, 5 grant and vote such sums as may he
Barb. 318; Mott d. Hicks, 1 Cow. 513; required "for all other necessary
Moss «. Oakley, 3 Hill, 265; Kelley ■». charges arising therein." Gren. St.
Mayor, etc., Brooklyn, 4 Hill, 363; Mass. chap. 18, § 10. It is under this
Field on Corp. § 371; City of Galena general provision that towns have the
V. Corwith, 48 Jll. 433; City of "Wil- power to vote money for the erection
liamsport e. Commonwealth, 84 Pa. of town houses. Stetson 11. Kempton,
St. 487; City of Lafayette ®. Cox, 5 18 Mass. 373. The right to build car-
Ind. 38; Hardy «. Merriweather, 14 ries with it by implication the power
Ind. 303; Daily 11. 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- ^ Dearborn ®. Brookline, (1867) 97
cuted in such contracts by the authori- Mass. 466. In Inhabitants of West-
ties, see Sheffield School T'p v. An- brook v. Inhabitants of Deering,
dress, 56 Ind. 157; School Town of (1874) 63 Me. 331, the words " neces-
Monticello v. Kendall, 73 Ind. 91; sary charges" in the statute as to
Bicknell v. Widner School T'p, 73 the powers of towns to incur expense
Ind. 501. received a full discussion from the
"Friends. Gilbert, (1871) 108 Mass. court in these words : " The construc-
, 408, MoBTON, J., said: "The power tion of this clause came before this
§ 16] PUBLIC OOEPOEATIONS. 21
§ i6. Purchase of sites for, erection of, and the repairs of
school buildings. — The schooltrustees of an incorporated town,
nnder 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 the
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 «. Gilmore, 3 Me. 191, by erality of this phrase has received in
which a tax 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 maybe 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 raise money for ' neces- penses as are clearly incident to the
sary charges' extends only to those execution of the power granted or
expenses which are 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
thority 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 «. Kemp- charges ' do not constitute a new and
ton, 13 Mass. 273, 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
defined 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
fied, as well from considerations of their authority and incur expenses in
public policy as from a sound con- no way arising in its exercise."
struction of the law, we have no dis- Opinion of the Justices, 53 Me. 595,
position to modify or change it if we 598.
had the power to do so, which we
22 GENEEAL POWER TO INOUE PEC0NIAET LIABILIIT. [§ 17
exceeding a limit specified in the statute.' 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.' And these two bodies cannot delegate the power of
purchasing a schoolhonse site to a board of commissioners of such
city without an express grant from the legislature of authority to
do so.' 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.^ 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.^ 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.' 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.''
§ 17. The same subject continued. — A statute conferring
express authority upon a municipal corporation " to aid in the
' 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 v. City of Fond du Lao, tract to pay money generally, and
(1871) 38 Wis. 336. hence this case is not within the doo-
' Ibid trine of such cases as Quill v. City of
< Seaman v. Baughman, (1891) 83 Indianapolis, 124 Ind. 393; s. c, 23 N.
Iowa, 216; s. c, 47 N. W. Rep. 1091. E. Rep. 788; Strieb v. Cox, 111 Ind.
'Ibid. 299; s. c, 12 N. E. Rep. 481; and
'Town of Winamac ®. Huddleston, Board, etc., v. Hill, 115 Ind. 316; s. c,
(1882) 183 Ind. 317; s. c, 31 N. E. 16 N. E. Rep. 156.
Rep. 561. The court said: "The debt ' Clark e. Town of Noblesville, (1873)
created by a bond executed by a pub- 44 Ind. 83.
I 17] PUBLIC OOEPOEATIONS. 23
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.* 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.^ 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.' 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.* 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.'
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.«
'Mayor, etc., of Cartersville v. ■'Ibid.
Baker, (1884) 73 Qa,. 686. ^'Krwizi v. St. Joseph Board of Pub-
«Ibid; citing Frederick «. City Coun- lie Schools, (1880) 3 McCrary, 608.
oil of Augusta (1848) 5 Ga. 561; Dan- ^Ibid; approving the reasoning in
ielly D. Cabaniss, (1874) 53 Ga. 311. Gause v. Clarksville, 19 Alb. L. J.
» Banielly ». Cabaniss, (1874) 52 Ga. 353.
211.
2i GENEEAL POWEB TO INCTJE PECUNIARY LIABILITY. [§§ 18-19
§ l8. 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.*
§ 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.^ 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.' But
a municipal corporation cannot erect a toll bridge unless expressly
authorized by law ; nor has it power to lend its credit or make its
accommodation paper for the benefit of citizens to enable them
> Pratt V. Luther, (1873) 45 Ind. 350. ' Maneval 11. Jackson Township,
See Ketchum v. City of BufCalo, 14 N. (1889) 9 Pa. Co. Ct. Eep. 28. The
T. 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, 123 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."
so there is nothing in the charter or ^ Mullarky v. Town of Cedar Palls,
general law of the state forbidding the (1865) 19 Iowa, 21.
purchase to be made on credit."
§ 20] PUBLIC OOEPOEATIONS. 25
to execute private enterprises.* Authority being given by a
charter of a city to its common council " to appropriate in any
one yeaVy 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 .
same 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." 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 denies
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
mdividual, association or corporation.* 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.*
§ 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.'
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-
' Clark v. City of Des Moines, (1865) to build a bridge at its own cost across
19 Iowa, 199. a boundary creek, one end of the bridge
' Howard v. City of Osbkosh, (1873) extending into the territory of another
33 Wis. 309. county, in which the Supreme Court
' Garland v. Board of Revenue, 87 of the United States construed the
Ala. 228; B. c, 6 So. Rep. 403. Kentucky statutes relating thereto.
* Elliotts. Gammon, (1886) 76 Ga. 766. "Douglass v. Mayor and Common
See Washer v. Bullitt County, (1884) Council of PlacerviUe, (1861) 18 CaL
110 U. 8. 558, involving the question 648.
of the power of a county in Kentucky
4
26 GENEBAL POWEE TO INOUE PECTJNIAEY 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.'
§ 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.*
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 apph-
cable.' 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.* Such a board cannot make a contract
' Low V. Mayor and Common Coun- patent or their own usurpation, we
cil of Marysville, (1855) 5 Cal. 314. 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- ' Potts v. Bennett, (Ind. 189.5) 39 N.
lation — such as gas, water, alms- E. Kep. 518.
houses, hospitals, etc. — and cannot be ^ Marks, Treasurer of Tippecanoe
extended to subjects foreign to the ob- County «. Trustees of Purdue TJm-
ject of the incorporation and beyond versity, (1871) 37 Ind. 155; see Cashv.
its territorial limits. Without refer- Auditor of Clark County, 7 Ind. 327;
ring to the many privileges exercised Stocking v. The State, 7 Ind. 326.
by the free cities of Europe, some of * Driftwood Valley Turnpike Go. o,
which exercised almost all the power Board of Comrs. of Bartholomew
of sovereignty by virtue of royal County, (1880) 72 Ind. 226.
§ 22] PUBLIC C0EP0KATI0N8. 2T
conditionally to pay certain expenses of boring wells for oil and
digging for minerals.* 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.' 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 duties
outside of his official duties.^
§ 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.^ 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.' 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.^ 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.'' Though made their duty, unless the charter of munic-
ipal corporations expressly permits it, they cannot levy a tax for
the erection of schoolhouses.' A trustee of a town in Kansas
' Burnett «. Abbott, 51 Ind. 254. ' Citizens' Savings Association v.
' Warren County Agricultural Joint Topeka, (1874) 3 Dill. 376.
Stock Co. V. Barr, 55 Ind. 30; Roth- * Commercial National Bank v. lola,
rock V. Carr, 55 Ind. 334. (1873) 2 Dill. 353.
8 City of Brazil v. McBride, (1879) ' Thacher v. Jefferson County, 13
69 Ind. 344. Kans. 182.
■• Township of Rock Creek ». Strong, * Leavenworth v. Norton, 1 Kans.
(1877) 96 U. S. 271. 432.
28 GENERAL POWEE TO INCUE PECUNIAEY TJAHTT.TTY. J|§ 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.' JiTeither 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.*
§ 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.^
' Smith «. Shawnee County, 31 Kans. to legislate witMn the authority dele-
669. gated to them by law is distinct from
'^ Roberts ». Pottawatomie County, the power to contract, although exer-
10 Kans. 39. cised by the same corporation. They
' City of Indianapolis «. 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 Biddlb, 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 COEPOEATIONS.
29
§ 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 24-48 of
the Kevised 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 liabihty without
fully providing in the ordinance creating the debt the means of
paying the principal and interest of the debt as contracted.'" The
upon Roll V. City of Indianapolis, 53
Ind. 547, and distinguislied Ritten-
house ». Mayor , & City Council of
Baltimore, 25 Md. 336; Gale v. Village
of Kalamazoo, 23 Mich. 344, and City
of Oakland v. Carpentier, 18 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. ®.
City of Evansville, 15 Ind. 395; Nel-
son V. City of La Porte, 33 Ind. 358;
City of Indianapolis v. Ely, 39 Ind.
373; City of Crawfordsville v. Hays,
43 Ind! 200; State Board of Agricul-
ture 1). Citizens' St. Ry. Co., 47 Ind.
407; Board of Comrs. of Tippecanoe
County B. Everett, 51 Ind. 543; San
Francisco Gas Co. ®. City of San Fran-
cisco, 9 Cal. 453; Roll v. City of In-
dianapolis, 53 Ind 547; Davenport v.
Inhabitants of Hallowell, 10 Me. 317;
Bailey v. Mayor, etc.. City of New
York, 3 Hill, 531; Masterton «. Mayor,
etc., City of Brooklyn, 7 Hill, 61; Mil-
hau 1). Sharp, 27 N. Y. 611; Rich-
mond County Gas Light Co. ■». Town
of Middletown, 59 N. Y. 338; Devlin
®. Mayor, etc.. City of New York, 63
N. Y. 8; Mayor & Council of Rome v.
Cabot, 28 Ga. 50; Intendant & Town
Council of Livingston i>. Pippin, 31
Ala. 543; State of New York ®. Mayor,
etc.. City of New York, 3 Duer, 119;
Britton v. Mayor, etc., New York, 31
How. Pr. 251; Louisville City Ry. Co.
«.. aty of Louisville, 8 Bush, 415;
Harlem Gas Light Co. v. Mayor, etc..
New York, 33 N. Y. 309; Illinois &
St. Louis R. R. & Canal Co. i>. City of
St. Louis & Pacific Elevator Co., 2
Dill. 70; State of Ohio v. Cincinnati
Gas Light & Coke Co., 18 Ohio St.
363; Gall v. City of Cincinnati, 18
Ohio St. 563; Minturn i). Larue, 23
How. 435; Memphis City «. Dean, 8
Wall. 64; Chicago «. Sheldon, 9 Wall.
50; Hitchcock ®. Galveston, 96 U. S.
341; Edwards «. Kearzey, 96 U. S.
595; People v. Common Council of De-
troit, 38 Mich. 338; Mayor, etc., of
Jackson v. Bowman, 39 Miss. 671;
Davenport Gas Light & Coke Co. «.
City of Davenport, 13 Iowa, 229; State
of Wisconsin ». Milwaukee Gas Light
Co., 29 Wis. 454; Norwich Gas Light
Co. «. Norwich City Gas Co, , 35 Conn.
19; Western Saving-Fund Society of
Philadelphia ». City of Philadelphia,
31 Pa. St. 175; Philadelphia «. Fox,
64 Pa. St. 169.
' New Orleans Gas Light Co. v. City
of New Orleans, (1890) 43 La. Ann.
188; s. 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 absolul;e and binding obli-
gations on the part of the city to pay
any sum of money for a consideration
pre-existing or execiited on the part of
the obligee which is of the essence of a
30 GENERAL POWEB TO INOUE PECTJNIAET 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.^
§ 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.^
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 hac vice, naunicipal officers.^
debt. The obligation of the city for of Valparaiso «. Gardner, 97 Ind. 1; s.
future disbursements in favor of the c, 7 Am. & Eng. Corp. Caa. 626.
company is conditioned on the per- ' New Orleans Gas Light Go. v. City
formance 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 cou- support of the ruling City of Indian-
tract itself from mouth to month. apolis». 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 ». Gardner, 97
several hundred thousand dollars, it is Ind. 1; Atlantic Water Works ». Atlan-
certainly not correct to argue that the tic City, 15 Am. & Eng. Corp. Cas. 337.
effect of the contract was to place it in ' Vionet «. Municipality No. 1, 4
debt to that amount. If under the La. Ann. 42.
terms of the contract the company fur- 'St. Mary's Industrial School for
nishes and operates in quality and Boys «. 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-
Westono. Syracuse, 17N. Y. 110; City cretion of those to whom it is confided."
§§ 26, 2T] PUBLIC COKPOEATIONS. 31
§26. Employment of physicians for the poor — Indiana
statute construed. — The Indiana statute ' makes it the duty
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.^
§27. Expenses connected with epidemic diseases. — The
Supreme Court of Alabama has held that a contract by a city
■Ind. Rev. St. (1881) § 5764. 104 lud. 321; s. c, 3 N. E. Rep. 757;
'Morgan County v. Seaton, (1889) see, also, Comrs., etc., «. Holman, 34
132 Ind. 531; s. c, 34 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, ». Board of Comrs. of Morgan County,
under this statute, has power to em- (1888)91 Ind. 537. Astothetenns, 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 «. Ritter, (1883) 90 Ind. 363. As to the
the poor by contract. Board, etc., v. duty and power of a town trustee
Boynton, 30 Ind. 359; Board, etc., v. 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 is not accessible, etc., ». Jennings, (1885) 104 Ind.
and an emergency is deemed to exist, 108; s. c, 3 N. E. 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 v.
ployment of a regular physician by Lomax, (1893) 5 Ind. App. 567; s. c,
the county. Board, etc., v. Seaton, 90 32 N. E. Rep. 800.
Ind. 158; Washburn v. Board, etc..
32 GENERAL POWER TO INCUR PECTTNIARY LIABILITY. [§ 28
with a physician, entered into during the late war, to attend to
indigent persons sick with the smallpox, whether belligerents or
non-belligerents, was not such a contract as is forbidden by the
law of the land or public policy.' 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.^ 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.*
§ 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
' 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 Columbia B.Patterson, 7 Cranch, 299; fer an unlimited authority upon the
Bank of U. S. v. Dandridge, 13 Wheat, board of supervisors to expend any
64; Danforth «. Schoharie & Duanes- amount of money that it might choose
burgh Turnpike Road, 13 Johns. 337; for the purchase of a site for the hos-
Montgomery County «. Barber, 45 pital for whose support it had thus
Ala. 337. provided."
' Von Schmidt ». Widber, City Treas- * Von Schmidt v. Widber, City Treas-
urer, (1894) 105 Cal. 151; s. c, 38 Pac. urer, (1894) 105 Cal. 151; s. 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 e. City of
plied from the power conferred upon Buffalo, 14 N. T. 856.
§28]
PUBLIC COEPOEATIONS.
33
as a town, in procuring the passage of its charter.* 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.^ !Nor has it authority to appropriate
money for the celebration of the Fourth of July.' 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.*
'Frost v. Belmont, (1863) 6 Allen,
152.
«Tash 1). Adams, Treasurer, (1852)
lOCush. 252.
' Hood «. Lynn, (1861) 1 Allen, 103.
BiGBLOw, Ch. J., said, after referring to
the power of towns to raise money for
"all other necessary charges": The
appropriation is neither necessary to
the exercise of any power expressly
granted 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. Sti tson
V. Kempton, 13 Mass. 272; Parsons ».
Goshen, 11 Pick. 896; Willard «. New-
buryport, 12 Pick. 227; Allen e.
Taunton, 19 Pick. 485; Spaulding
V. Lowell, 23 Pick. 71; Anthony ®.
Adams, 1 Mete. 284. See, also, Gerry
«. Stoneham, (1861) 1 Allen, 319. In
New London ». Brainard, 32 Conn.
553, an appropriation which had been
voted by the city for the celebration
of Independence Day was held to
have 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 «. Buffalo, 2 Den. 110;
New London v. Brainard, 23 Conn.
553.
* Morrison, Admx., «. Lawrence,
(1867) 98 Mass. 219. In Morton ®.
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 trustees 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 nroper assent of voters.
34 GENERAL POWER TO INCUR PEOtJNIARY 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.^ Neither can it raise
' Minot v. West Roxbury, (1873) the accommodation of the inhabitants,
113 Mass. 1. Endioott, J., as to such as town houses to assemble in
proper construction of the words and market houses for the sale of pro-
" necessary charges," referred to the visions, may also be a proper town
various Massachusetts cases previous charge, and may come within the fair
to this one as follows: " The lead- meaning of the terra necessary, for
ing case is Stetson «. Kempton, 13 these may be essential to the corn-
Mass. 273. The meaning of the word fort and convenience of the citizens.
^ ' necessary ' in the statute is discussed * * * With respect to the defense
at length by Chief Justice Pakkbb, 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 isnota corporate duty,' etc. In another
the subject, and has not been mate- case * * * Kumford School District
rially enlarged by later decisions. He «. 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 jMasi corporations, with
very generality of the expression shows limited powers co-extensive with the
that it must have a reasonable limita- duties imposed on them by statute or
tion. For none will suppose that un- usages. The rule of construction laid
der this foiTn of expression every tax down 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 u. 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 ». Kempton.'
to meet the ordinary expenses of the In Anthony «. 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.' InVin-
tion, making and repairing highways cent ». 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 COEPOEATIONS. 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.^ 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 levies 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." '
But here is the extent at once of their demnify its officers against liabilities
right and their power. They cannot incurred in the bona fide discharge of
engage 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
porated, nor assume responsibilities highway, the report of a school com-
which involve undertakings not within mittee, 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 (Nelsons. Milford, 7 Pick. 18; Bancroft
to be legal though not within the ex- «i. Lynnfield, 18 Pick. 566; Fuller ».
press terms of the statute, but inci- Groton, 11 Gray, 340; Hadsell v. Han-
dental to and within the scope of a cock, 3 Gray, 536; Babbitt «. Savoy, 3
power of a town, as for the erection of Gush. 530), and may pay for prof es-
market and town houses, and the con- sional services in the defense of suits,
struction of reservoirs to supply fire independent of the result of the suit,
engines. Spaulding v. Lowell, 33 and whether the town acted legally or
Pick. 71; French «. Quiucy, 3 Allen, illegally in the matter in controversy,
9; Hardy «. Waltham, 3 Met. 163. 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 Gush. 389."
manner as hay scales, burying grounds, 'Coolidge «. Brookline, (1874) 114
wells and reservoirs, being objects of Mass. 593.
convenience and necessity to the in- ' Inhabitants of Westbrook v. In-
habitants. Willard v. Newburyport, habitants of Deering, (1874) 63 Me. 331.
12 Pick. 337. A town may also in- 'Taylors. Thompson, (1866)42111. 9.
36 GENERAL POWER TO INCUR PECUNIARY LIABILITY. [§ 31, 33
§ 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.^ 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.*
§ 32. Illustrations of liabilities incurred for a " corporate
purpose." — The Illinois Supreme Court has held that 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
' Squire v. Preston, (1894) 83 Hun, v. Cramer, 14 N. Y. Wkly. Dig. 107;
88; s. c, 31 N. Y. Supp. 174. The Hassan «. City of Rochester, 67 JST. Y.
statute referred to is N. Y. Laws 1873, 528. As to ratification of the contracts
chap. 737, § 5, as amended by N. Y. hy a vote the court considered appli-
Laws 1885, chap. 423. cable the language of Judge Dbnio in
2 Squire*. Preston, (1894) 82 Hun, 88; Peterson v. Mayor, etc., 17 N. Y. 449,
s. 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,50]Sr.Y. 498; has committed a class of acts to par-
In re Evergreens, 47 N. Y. 316. The ticiilar officers or agents other than
questionsinvolvedin Squire B.Preston, the general governing body, or where
supra, were considered also in Squire it has prescribed certain formalities as
V. Cartwright, (1893) 67 Hun, 218; s. conditions to the performance of any
c, 33 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 COKPOEATIONS. 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."^ 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." 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.^ 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.* Should a
municipaT 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 issiied to him at the request of the contractor and
the money received by the city and paid over to the contractor.'
§ 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.° The statute of
' Burr V. City of Carbondale, (1874) 304; Chapman v. Douglas County,
76111. 455. 107 U. S. 348; s. c, 2 Sup. Ct. Rep.
« Ibid. 62; Hitchcock v. Galveston, 96 U. S.
' Ibid. In support of these views the 341.
court cited Merrick v. Inhabitants of * Corporation of Bluffton ». Studa-
Amherst, 12 Allen, 500. baker, (1885) 106 Ind. 129. The court
* Hequembourg «. City of Dunkirk, said: "The power to purchase fire
49 Hun, 550; s. c, 2 N. Y. Supp. 447. engines by an incorporated city or
' Bangor Savings Bank v. City of town does not, however, of necessity,
Stillwater, (1892) 49 Fed. Rep. 721; depend upon the question whether
Louisiana v. New Orleans, 102 U. S. the charter of such city or town has,
38 GENERAL POWER TO INCUK PEC0NIAET 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 casli.^ 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.'
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 mouey 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 object of the corporate existence. It
power. In 1 Dill, on Mun. Corp. was long ago declared that the power
(3d ed.) § 143, the learned author says : to prevent danger from fire is an ia-
" The prevention of damage by fire is cidental one, belonging to all munic-
usually an object within the scope of ipal corporations." So, also, in
municipal authority, either by ex- Baumgartner ». Hasty, 100 Ind. 575 ;
press grant or by the power, in a s. c, 50 Am. Rep. 830, the court
chartered town or city, to make police said : ' ' The rule has always been that
regulations or needful by-laws, and a municipal corporation has the in-
fer this purpose it may regulate the herent power to enact ordinances for
mode and removal of ashes. And the protection of the property of its
where the town or municipal body citizens against fire. * * * The
has such power, it is authorized to exercise of such a power is not the
appropriate money for the purchase exercise of a new power, nor of one
of engines, or for the repair thereof, not connected with the purposes for
if to be used for the purpose of ex- which public corporations are organ-
tinguishing fires therein, and this, ized ; on the contrary, it is the
whether they belong to the corpora- exercise of a power long possessed by
tion or were purchased by private municipal corporations and closely con-
subscription." So in Clark v. City of nectod with the purposes for which
South Bend, 85 Ind. 376 ; s. c, 44 such corporations are organized."
Am. Rep. 13, the court said : " A ' Second National Bank of New
municipal corporation has such Albany v. Town of Danville, (1878)«60
powers as are expressly granted and Ind. 504.
also such implied or incidental ones ^Second National Bank of New
as are necessary to carry into effect Albany v. Town of Danville, (1878) 60
the express powers and effectuate the Ind. 504.
§ 34] PUBLIC COEPOEATIONS. 39
iii'this case on credit, and notes commercial or otherwise might be
executed for the price by the board of trustees of the town.'
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 sup-
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.^
Under a statutory authority to purciiase fire 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.'
§ 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
' 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
V. 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. V. City of Evansville, to effectuate the intent involved in the
15 Ind. 395; City of Indianapolis?), grant by the execution of its incidents.
Miller, 37 Ind. 394 ; Thompson b. City The contracts for the purchase of
of Peru, 39 Ind. 305. On the prin- apparatus are clearly among the
ciple, Halstead i\ Board of CAmrs. incidents of the grant. The power to
of Lake County, 56 Ind. 363. purchase fire engines has been, in
' Green v. 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
the power to obtain the means by measures for the prevention of fires,
which the suppression can be effected. 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 carries with it the right to purchase
in the management of which duties fire engines. 1 Dill, on Mun. Corp.
shall arise and become the subject of § 94."
municipal regulation. The power to ' Leonard v. Long Island City, (1893)
organize a fire department unaccom- 47 N. Y. St. Rep. 761 ; s. c, 20 N. Y.
panied with the power to equip the Supp. 26.
40
GENERAL POWEB TO INCtTR PECUNIAEY LIABILITY.
[§35
district board.' 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.^
§ 35- Purchase of cemetery grounds. — A charter of a
municipal corporation conferring the power to purchase fire
' School District No. 3 in Carbon
County «. Western Tube Co., (Wyo.
1895) 38 Pac. Eep. 933. It was said
by the court: "Certainly our statute
does not permit the contracting of
debts far in excess of the appropriation
made for contingent purposes for that
year, and we doubt that such author-
ized expenditures would be counte-
nanced anywhere in the absence of a
statute giving a district school board
express powers to contract for the dis-
trict beyond the annual appropriations
made by the annual school meeting,
where such meeting is made the
source of the power of taxation. It
would authorize the creation of a
floating indebtedness which should
bind the district the same as a bonded
indebtedness permitted by an act of
the legislature. In some of the states
the district board or some of its mem-
bers are authorized either in express
statutory terms or by implication,
where the board or officer are charged
with certain duties, to incur expenses
for the district in limited sums for
specific purposes, but this power to
bind the district is strictly limited to
the purposes named in the statutes.
Conklin v. School District, 33 Kans.
531; School District «. Suell, 24 Mich. '
850; Gibson v. School District, 36
Mich. 404; Johnson v. School District,
67 Mo. 319."
' School Dist. No. 3 of Carbon
County V. Western Tube Co., (1895) 38
Pac. Eep. 933; Acts 49th Cong. (1st
Sess.) chap. 818, § 4. It was urged
before the court that the debt at-
tempted to be incurred by the district
board for the heating apparatus was a
necessary one, and that the very exist-
ence and maintenance of the public
schools required that they should be
kept open and the pupils comfortably
seated and warmed. The court said to
this: "But this question is settled.
The provisions of the act of congress
were probably borrowed from the
Constitution of Illinois, which con-
tains a similar restriction, a limitation
which has been judicially interpreted.
The clause shall not become indebted
' in any manner or for any purpose '
in the Illinois Constitution is construed
to mean just what it says, and not to
permit an exception that would allow
a public corporation to incur indebted-
ness for supplies to meet its ordinary
wants and necessities, an exception
which the framers of the Constitution
did not see fit to make and which the
courts have no power to insert. Prince
V. City of Quincy, 105 111. 138, 143,
216; City of Springfield v. Edwards,
84 111. 636; Law v. People, 87 111. 385.
The same principle is sustained by the
Supreme Court of the United States
in construing a similar construction in
the Constitution of Colorado. Lake
Co. V. Rollins, 130 U. S. 662; s. c, 9
Sup. Ct. Rep. 651; Lake Co. v.
Graham, 130 U. S. 674; s. c, 9 Sup.
§ 36] PUBLIC COEPOEATIONS. 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.* A power of taxation conferred in the
charter cannot be deemed to exclude the power of borrowing.^
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.^
§ 36. Erection of crematory for garbage, etc. — The
Supreme Court of Wisconsin has held that, under the general
power given by the statutes of Wisconsin to prevent or abate
nuisances, a vUlage board may contract for the buUding of a
crematory for garbage, dead animals, etc.*
Ct. Rep. 654. It makes no difference for destroying them, instead of foul-
for what purpose or in what manner ing the watei's 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
' Mills ®. Gleason, (1860) 11 Wis. 470. a new nuisance. To this end, if a
* Ibid. ; Clarke ». School District, 3 garbage crematory becomes necessary,
R. I. 199. the board may, within a fair and hona
' Mills V. Gleason, (1860) 11 Wis. 470; fide exercise of their discretion, con-
see State V. Common. Council, 7 Wis. tract for its construction, and the vil-
688; Smith v. Appleton, 19 Wis. 468. lage will be bound by the contract.
■*Kilvington ®. City of Superior, -Speaking of the powers of such cor-
(1893) 83 Wis. 333. The court said: porations, in Spaulding v. Lowell, 33
" The power ' to prevent or abate nui- Pick. 71, 74, Shaw, Ch. J., says: ' They
sauces ' — 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 are 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 plishment of the purposes of their as-
hy any one that if garbage, manure, sociation.' French «. Quincy, 8 Allen,
or dead animals were found within the 9, 13. This rule has been afflrmed
village, in the interest of good order, in this state, with the just qualification
cleanliness or public health, 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- ecuting the 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 lage, in ctder to prevent or abate nui-
6
4:2 GENERAL POWEE TO INCUR PECUNIARY LIABILITY. [§ 37-39'
§ 37- Use of private property for sewers. — Under the
authority to coastruct sewers as incident to the general right of
a municipal corporation to maintain streets and highways/ 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.^
§ 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.'
§ 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, miglit resort to such means as 444; Spaulding ®. Lowell, 33 Pick. 17,
were usual and convenient. Mills v. 80. It was not necessary, therefore,
Gleason, 11 "Wis. 470, 491; Gilman «. that there should have been express
Milwaukee, 61 Wis. 588, 593; Bell v. power conferred onthe village to build,
Platte ville, 71 Wis. 139, 143; Meinzer v. or contract for building, the crematory.
Racine, 68 Wis. 241, 345. 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 «. City of Hartford, 38 Conn,
pose of their creation which are rea- 363. 366; Fisher v. Harrisburg, 2 Grant
sonably proper to give effect to powers (Pa.), 391; 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 103 Ind. 373. In the iDOwer 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-
excepl where the substantive power is ers of lapds 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. §§91, 94, and cases ^Murphy i>. City of Jacksonville,
cited; Benson v. Waukesha, 74 Wis. (1881) 18 Pla. 318. Whether or not
31, 39; 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 COEPORATIONS.
43
objects, unless the power be expressly granted.' 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,
and provide for the payment of the same, all such real estate and
personal property as may be required for the use, convenience
and improvement of the city." ^ Even with power, granted by
sion of a felon who had been guilty of
homicide in the town has been ques-
tioned in Kentucky. Lee v. Trustees
of Flemingsburg, (1838) 7 Dana (Ity.),
28.
' Mayor v. Wetumpka Wharf Co., 63
Ala. 611; Low «. Marysville, 5 Cal.
314; Douglass ■». Placerville, 18 Cal.
648.
« City of Eufaula v. McNab, (1880)
67 Ala. 588. Somerville, J., speak-
ing for the court, said: "It may be
conceded that if the land in question
had been purchased for an exclusively
public use, 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. 3 Dill, on Mun. Corp.
§ 444; Weismer v. Village of Doug-
las, 64 N. Y. 91; s. c, 31 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 suflBclent. It is not con-
templated or permitted that such
property shall be acquired in aid of
private enterprise not of a public
character, however laudable may be
its purpose, or however useful may be
its encouragement. As said by Mr.
Justice Miller in Loan Association
». Topeka, 30 Wall. 635, 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 authopty to make it. The
same view was expressed by Bbick-
ELL, Ch. J., in the N. O. M., etc., R.
R. V. Dunn, 51 Ala. 138, 136, where
the following language is used: ' The
power of taxation thus conferred (by
the charter) must be limited and con-
fined 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 in 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 is a want of
power in the corporate authorities.' It
was said by the Supreme Court of
Maine in Allen «. Inhabitants of Jay,
60 Me. 134, 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 pubHc 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.*
There being no provision in the Constitution of West Yirginia
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 held 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 ; tlie act,
therefore, was invalid and all bonds issued under its authority
were, as against the city, void.^ 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.'
§ 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.* And if such authority be given
by the legislature the mode and procedure prescribed by the
statute must be strictly f ollowed.° The legislature of a state may
grant to municipal corporations power to subscribe to the capital
raising of money for pvMic uses, and ' San Diego "Water Co. v. City of
excludes the raising it for private ob- San Diego, (1881) 59 Cal. 517.
jects and purposes.' 'I concede,' ^Parkersburg «. Brown, (1882) 106
says Black, Ch. J., in Sharpless v. U. S. 487; s. c, 1 Sup. Ct. Eep. 443.
Mayor, 21 Pa. St. 147, 168, 'that a law « Russell v. Tate, 53 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 ». 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. Bep. 185; 73 Tex. 443; "s. c, 11 S. W. Rep. 404.
Lowell V. City of Boston, 111 Mass. * French v. Teschemaker, (1864) 24
454; s. c, 15 Am. Rep. 39; Hanson Cal. 518; Gulf Railroad Co. v. Miami
V. Vernon, 37 Iowa, 28; s. c, 1 Am. County, 12 Kans. 482.
Rep. 215; Railroad Co. ■». Dunn, 51 ' French ». Teschemaker, (1864) 24
Ala. 138, "Weismer v. Village of Doug- Cal. 518.
las, 64N. Y. 91; s. 0., 21 Am. Rep. 586."
§ 40] PUBLIC COEPOEATIONS. 45
stock of private corporations formed to carry out such public
improvements as tend to increase the trade and business interests
of the municipality.^ 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.' 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
citv issuing its bonds in aid of the company.^ The statute of
Arkansas authorizing counties "having or controlling internal
improvement funds, or credits granted to it by the state," to sub-
scribe to the capital stock of any valid and duly organized rail-
road, has been held not to confer power upon counties to sub-
scribe for stock in a railroad company 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.^ 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.' The Iowa Supreme Court has held that to aid in the con-
struction of a railroad was not a, pviiUc 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 public purpose the question shall be submitted," etc., and
' City of Bridjreport «. Housatonuc bonds, see Bard v. City of Augusta,
R. R. Co., (1843) 15 Conn. 4V5. 30 Fed. Rep. 906.
" Taylor v. City of Ypsilanti, 11 Fed. " Moulton v. City of Evanaville, 35
Rep. 935. Fed. Rep. 383.
' Ibid. As to the power of Kansas ^ English v. Chicot County, (1871) 36
cities under the legislation of that Ark. 454.
state to become interested in railroad ^ Hancock «. Chicot County, (1877)
enterprises and to issue railroad aid 33 Ark. 575.
46
GEHEEAL POWBE TO INCUE PECtTNIAET 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.^ The Supreme Court of Eli-
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 raih-oad company and the one incorpo-
rating the town.''
' Chamberlain v. City of Burlington,
(1865) 19 Iowa, 395.
» Hutchinson ». Self, (1894) 153 111.
542; s. c, 39 N. E. Rep. 37. As to the
constitutionality of acts authorizing
municipHl 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. ». 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. •».
Clark Co. Ct., (1860) 3 Mete. 144;
Shelby Co. Ct. ■». C. & O. R. R.
Co., (1871) 8 Bush, 316; Mercer Co.
Ct. ■». S. M. & H. T- Co., (1874)
19 Bush, 257; Mercer Co. Ct. ■».
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.
i\ Barren Co. Court, (1874) 10 Bush,
610. Constitutionality of acts author-
izing subscriptions settled. Shelby
Co. Ct. 1). 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 «. L. H. C. & W.
R. Co., 9 Bush, 248; Shelby ville Trus-
tees «. S. & 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. 0. & L. R. R. Co. v.
Kenton County Court, (1851) 12 B.
Mon. 150; M. T. Co. ■». How, (1854)
14 B. Mon. 482. In Missouri: Osage
Valley & Southern Kansas R. R. Co.
V. Morgan County Court, (1873) 53 Mo.
156; Rubey «. 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, 89 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 v. Anson, 78 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 COEPOEATIONS. 47
§ 41. Power of the legislature as to corporatipns in such
matters. — It is in the power of the legislature of a state to
confer on manicipal corporations larger 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 subscription to stock and issue of
bonds in the construction of railroads as constitutional.^ 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 re-
' Mayor & Aldermen of Wetumpka ferred to as internal improvements in
V. 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- ments, see Fielder 11. M. &E. R. R. Co.,
men of [the city], for any purpose of 51 Ala. 178.
internal improvement for the benefit ' Gibbons «. Mobile & Great North-
of the citizens of [the city]." These em R. R. Co., (1860) 36 Ala. 410,
bonds were used to aid in the con- adhering to the doctrine declared in
struction of a plank road which was Stein '«. Mayor, Aldermen, 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-
generally confined to police and sani- ministration; that the power author-
tary regulations within the chartered izes tlie 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 GENEEAL POWEE TO INCUR PECUNIAET 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.' 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-communicatlon with other parts issue of bonds in payment for it, and
of the state, etc. Mayor, etc., of declared this rule: "Tojustify a court
Wetumpka v. Winter, 39 Ala. 651 ; in pronouncing a statute void, it must
.Sharpless «. Mayor, etc., 31 Penn. St. be apparent that it is an exercise of
147; Louisville & Nashville R. Co.®. 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- departmentsof 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 the statute is sound —
to wit: Battle i>. Corporation of whether it will promote the public
Mobile, 9 Ala. 834; Intendant of good — whether it is in harmony with
Marion i>. Chandler, 6 Ala. 899; natural right or will obstruct justice
State ». Estabrook, 6 Ala. 653; are not judicial questions. Dorman
Nichol V. Mayor of Nashville, 9 v. State, 34 Ala. 316."
Humph. 353; Hope v. Deaderick, 8 ' Clark ®. City of Janesville, (1859)
Humph. 1; Commonwealth «. McWil- 10 Wis. 136, following State ex rel. Dean
liams, 11 Penn. St. 61; Parker v. Com- ». City of Madison, 7 Wis. 688. See,
monwealth, 6 Barr, 507; Common- also, Watertown v. Cady, 30 Wis. 501.
wealth V. Judges, etc., of Lebanon In Buslmell v. Beloit, (1860) 10 Wis.
County, 8 Barr, 391; Commonwealth 195. the same court has declared that
V. Painter, 10 Barr, 314; Goddiu v. the Constitution of Wisconsin clearly
Crump, 8 Leigh, 120; Burgess ®. Pue, recognized the principle that mu-
8 Gill, 19. In Winter ■». City Council nicipal corporations may be clothed
of Montgomery, (1880), 65 Ala. 403, with power to "borrow money,"
the Supreme Court of Alabama sus- "contract debts" and to "loan their
tained the act which in this case au- credit;" and that the legislature being
thorized the subscription by this city required to restrict such corporations
to stock in a matured company and in the exercise of such powers was an
§43]
PUBLIC COEPOEATIONS.
49
improvements ; and tlae corporation would be liable for the pay-
ment of such indebtedness.^
§ 43. In what respect the power of a municipality is
restricted. — A city, the charter of which fully empowers and
admission that the power existed.
See Fosters. Kenosha, 13 Wis. 616.
' Bushnell v. Beloit. (1860) 10 Wis.
195. See, also, Brodhcad v. Milwau-
kee, 19 Wis. 684; State ex rel. Car-
penter V. Beloit, 20 Wis. 79; Whiting
V. Railroad Co., 25 Wis. 167; Bridge-
port aHousatonuc R. R. Co., 15 Conn.
475; Sharpless ■». Mayor, etc., 21 Penn.
St. 147; Comm. ex rel. Thomas v.
Comrs. Allegheny Co., 7 Am. Law
Reg. 92; Talbot v. Dent, 9B. Mon. 526;
Slack B. Maysville & Lexington R. R.
Co., 13 B. Mon. 1; Cheaney «. Hooser,
9 B. Mon. 250; Goddin v. Crump, 8
Leigh, 120; Nichol i>. Mayor, etc.,
Nashville, 9 Humph. 252; Cincinnati
R. R. Co. 11. Clinton County, 1 Ohio
St. 77; Steuhenville & Ind. R. R. Co.
«. North Township, 1 Ohio St. 105;
Shaw V. Dennis. 5 Gilm. (111.) 405;
Ryder ■». Alton & Sangamon River
R. Co., 13 111. 516, Duhuque County
■0. D. & P. R. R. Co., 4 G. Gr. 1; Vicks-
burg, Shreveport & Texas R. R. Co. 0.
Ouachita, 11 La. Ann. 649; Parker «.
Scogin, 11 La. Ann. 629; City of Au-
rora V. West, 9 Ind. 74. As to the
constitutionality of legislative enact-
ments aaithorizing a subscription to
stock, etc., in aid of railroads, see
Stewart «. Board of Supervisors of
Polk County, (1870) 30 Iowa, 9; Goddin
V. Crump, 8 Leigh, 120; Starinu. Genoa,
29 Barb. 443; Bank of Rome v. Village
of Rome, 18 N. Y. 38; Prettyman d.
Supervisors, etc., 19111. 406; Robertson
«. Rockford, 21 111. 451; Johnson v.
Stark Co., 24 111. 75; Pattison*. Yuba
Co., 13 Cal. 175; Blanding v. Burr,
13 Cal. 343; Hobart «. Supervisors, 17
Cal. 23; Taylor ». Newberne, 2 Jones
Eq. (N. C.) 141; Caldwell 11. Justices
7
of Burke, 4 Jones Eq. (N. C.) 323;
Louisville, etc., R. R. Co. «. David-
son, 1 Sneed, 637; Nichol «. Mayor,
etc., of Nashville, 9 Humph. 252;
Railroad Co. ». Comrs. of Clinton
Courty, 1 Ohio St. 77; Trustees of
Paris v. Cherry, 8 Ohio St. 564; Cass
V. Dillon, 3 Ohio St. 607; State v.
Comrs. of Clinton County, 6 Ohio St.
380; State ®. Van Home, 7 Ohio St.
327; State 11. Ti-ustees of Union, 8
Ohio St. 394; Trustees, etc., ■». Shoe-
maker, 13 Ohio St. 624; State v.
Comrs. of Hancock, 13 Ohio St. 596;
Powers B. Dougherty County, 23 Ga.
65; San Antonio i). Jones, 28 Tex. 19;
Commonwealth D. McWilliams, 11
Penn. St. 61; Moersu. City of Reading,
21 Penn. St. 188; Slack v. Railroad Co.,
13 B. Mon. 1; Talbot v. Dent, 9 B.
Mon. 536; City of, St. Louis n. Alex-
ander, 33 Mo. 483; City of Avirora «.
West, 9 Ind. 74; Cotton «. Comrs. of
Leon, 6 Pla. 610; State ex rel. Copes b.
Charleston, lORich. (S. C.)491; Comrs.
of Knox County v. Aspinwall, 31 How.
539; Comrs. of Knox County ». Wal-
lace, 31 How, 546; Zabriskie «.
Railroad Co., 33 How. 381; Amey ».
Mayor, etc., 24 How. 364; Gelpcke*.
Dubuque, 1 Wall. 175; Thomson «.
Lee County, 3 Wall. 337; Rogers v.
Burlington, 3 Wall. 654; Gibbons
V. Mobile & G. & Northern R. R. Co.,
36 Ala. 410; St. Joseph, etc., R. R.
Co. ». Buchanan County Court, 39
Mo. 485; State v. Linn County Court,
44 Mo. 504; Stewart ». Board of
Supervisors of Polk County, 30 Iowa,
9; John v. 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. V. Stockton, 41 Cal. 147.
50
GENERAL POWER TO INCUR PECUNIARY LIABILITY.
[§43
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 thing 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.'
' City Couucil of Montgomery v.
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; Stone, 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 ». Lessee of Knowler, 4 Pet.
152-171, the Supreme Court of the
United States held the following lan-
guage: ' Th'e 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
conld dispose of the land and vest the
proceeds in any numner 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 construc-
tion.' " Citing The People d. Utica
Ins. Co., 15 Johns. 358, 383; Stetson
«. Kempton, 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 Iiam 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 tlie 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
§M]
PUBLIC COEPOEATIONS.
51
§ 44. Subscription for less than the amount voted. — ^When
authorized by the legislature to issue bonds which may be
delivered to a railroad corporation 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.'
words, ' every otliermatter and thing,'
as found in the act, to such subjects
as are cognate to the powers expressly
conferred."
' Chicago, Kansas & Western R. R.
Co. ■». Ozark Township, (1891) 46 Kans.
415. The court cites Turner v. Wood-
son County, 27 Kans. 314, and then
said: " This question has also been
virtually decided * * * by the
Supreme Court of Alabama [in] Win-
ter V. City Council of Montgomery, 65
Ala. 403; s. c, 7 Am. & Eng. R. R.
Cas. 307. This case is as nearly in
point, as nearly applicable, as nearly
analogous to the present case as it
could well be, and we know of no
authority to the contrary, and the
principle enunciated in the cases cited
is substantially that when authority is
given to the officers of a public corpo-
ration, by an election or otherwise, to
issue a certain amount of the bonds of
the corporation, the officers will have
the power and the right, wherever
there is a sufficient reason therefor, to
issue a less amount of the bonds of
the corporation." The court further
on in the opinion said: "The object
of the law in permitting public corpo-
rations to subscribe for stock in rail-
road companies, and to issxie their
bonds in payment therefor, is not in-
tended as a business transaction like
that consummated hj an individual
when he purchases stock and pays
therefor in money or in something
else. It is merely for the purpose of
procuring greater facilities for travel
and transportation for the general
public which is always considered as a
public purpose and not merely as a
private purpose, enterprise or busi-
ness transaction. The act itself auth-
orizing counties, townships and
municipal corporations to subscribe
for stock in and to issue bonds to rail-
road companies, is entitled, ' An act to
enable counties, townships and cities
to aid in the construction of railroads,'
etc. Laws of 1876, chap. 107. This
shows that the main object of the act
was to enable counties, townships and
cities ' to aid in the construction of rail-
roads,' and was not to permit such cor-
porations to engage in such trans-
actions as a mere business venture, or
as an investment in stock or a specu-
lation in bonds and stocks." Twenty
years ago it was said by this court in
the case of Comrs. of Leavenworth
Co. 1). Miller, 7 Kans. 479, 538, 539, 533,
among other things, as follows: " If a
railroad company is purely a private
corporation, and if the construction
and operation thereof is purely a
private purpose, neither the govern-
ment nor any municipal corporation
has any right to become a stojkholder
therein. Governments were not or-
ganized for the ptirpose of engaging
in private enterprises or private busi-
ness, but only for the transaction and
promotion of public affairs. Even if
the purchase of stock in a railroad
company should be a paying trans-
action as an investment (which unfor-
tunately for counties and mxinicipal
corporations it is not), still a govern-
mental organization would have no
right for that reason alone to engage
in it, for governmental organizations
are not created for purposes of specu-
lation, nor are they created for the
purpose of promoting the general wel-
fare of the individual members thereof
52 GENERAL POWER TO INCITE PECtlNIAEY 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
amd 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. Thepropo-
travel and transportation is the main sition was, when fairly construed, that
object in the creation of ndlroads, and the city should extend aid to the rail-
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 em-
lic, are simply incidental." Pages 528 ployed in building and equipping the
and 539. "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
Governmentshave 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 533. 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 lanp;uage: 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 majus eontinet in sc
were submitted to and approved by minos." 7 Am. & Eng. R. R. Cas. 319.
§§ 46, 47] ^ PUBLIC COEPOBATIONS. 53
statute, by necessary implication was to ratify and make valid the
subscription for the shares of stock of the railroad corporation.^
§ 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 authoi'ity 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.'
§ 47. Constitutional provisions conctrued. — 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
'Winn 9. City Council of Macon, construction of such improvements.
(1857) 21 Ga. 375. And it was said that for much stronger
'Walker «. 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 construct or
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 held 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 repeated 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 subscriptions, 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?"
64
GENERAL POWEE TO INCUR PECUNIARY LIABILITY. [§ 48
'the votes then east " 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.'
§ 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." ^
' Walton V. Riley, (1887) 85 Ky. 413;
s. c, 3 S. W. Rep. 605. See Slack v.
Maysville & Lexington R. R. Co.,
(1852) 13 B. Mon. 1. In People ex rel.
McCagg T. Mayoi-, Comptroller &
City Clerk of the City of Chicago,
(1869) 51 111. 17; s. c, 3 Am Rep.
278, it was held that the legislature
might be i-egarded as prohibited by the
clause of the State Constitution which
prohibited the state from creating a
debt exceeding ^50,000 without the
consent of the people, manifested by a
vote at a general election, from forc-
ing one of the municipalities of the
state to incur debts for an amount
larger than $50,000 without the con-
sent of the people of such municipal
division of the state. The court said:
" What is the real value of this pro-
vision of the Constitution if the legis-
lature, inhibited from incurring a debt
beyond fifty thousand dollars on be-
half of the state, may force a debt ten-
fold or one hundred-fold greater, for
there is no limit to the power upon all
the cities of the state? We can per-
ceive none. Where these municipali-
ties become so indebted by compulsion
of the legislature the whole state, in
its real and substantive, if not in its
corporate body, will in truth and fact,
be the debtor, for the same power of
coercion can be applied to counties
and towns, and as the state is made
up of cities, counties and towns, the
whole state may thus become in-
volved. This provision, then, would
be no restriction upon the power to
create a debt beyond a certain amount,
and would fail of its purpose of pro-
tecting the state and its citizens from
oppressive burdens."
^ Osborne b. County of Adams,
(1882) 106 U. S. 181; s. c, 1 Sup. Ct.
Rep. 168, affirming Osborne ». County
of Adams, (1881) 3 McCrary, 97. The
court distinguished Township of Bur-
lington «. Beasley, 94 U. S. 310, as
follows: "That case arose under a
statute of Kansas, which empowered
municipal townships in that state to
issue bonds for the purpose of build-
ing bridges, free or otherwise, or to
aid in the construction of railroads
or water power by donation thereto,
or the taking of stock therein, or for
other works of internal improve-
ment." The bonds there in suit were
issued to aid in the construction and
completion of, and to furnish the
motive power for, a steam custom
grist mill. It was held that the stat-
ute, reasonably interpreted, embraced
a grist mill operated by steam, as well
as one run by water power; that
since municipal aid was authorized
for "the construction of * * *
water power," the phrase "other
works of internal improvement," in the
§§ 49, 50] PUBLIC COEPOEATIONS. 55
§ 49. What is such a work. — The Nebraska Supreme Court
has 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 * * *." ^
§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- to pay interest on an issue of bonds of
strued as embracing worlds of the the county in aid of a steam grist mill
minor class, and consequently as em- on the ground that there was no stat-
bracing a steam grist mill. The court ute in that state authorizing the voting
was somewhat influenced, as plainly of aid to such mills, and that bonds
appears from its opinion, by decisions voted in aid of them were invalid, it
cff the Supreme Court of Kansas, par- was said that the decision in the case
ticularly that of Commissioners of of Traver v. Board, etc., Merrick
Leavenworth County «. Miller, 7 Kans. County, 14 Neb. 327, was based al-
479. The' present case is different, most entirely upon the statute author-
The only work of internal improve- izing the condemnation of private
ment specially in the Nebraska statute property for the purpose of erecting
is a railroad, and we are not justified dams and overflowing lands in order
by anything in Township of Burling- to obtain power to propel mills, and
toni). Beaslcy, or in the decisions of upon the decisions of the Nebraska
the courts of Nebraska in holding that Supreme Court in Nosser «. Seeley, 10
a steam or other kind of grist mill is Neb. 460, and Seeley «. Bridges, 13
of the class of internal improvements Neb. 547. In Traver v. Board, etc.,
which municipal townships in that Merrick County, supra, it was said on
state are empowered, by the statute page 334: " There is a clear distinction
in question, to aid by an issue of between aiding the development of the
bonds." For cases holding that the water power of the state — a power
right to erect public buildings, such which is continuing in its nature, and
as jails and court houses, derives no may be used without cost or expense
support from such a statute, see and must be used at -certain points on
Union Pacific Railroad v. Lincoln a stream where a dam can be erected
County, 3 Dill. 300; Dawson County and power obtained — -and a mill pro-
«. McNamar, 10 Neb. 376. pelled by steam that must be attended
'Traver v. Board, etc., of Merrick with a continuous cost for fuel, and
County, (1883) 14 Neb. 327. Citing as may at any time be removed to another
authority for this ruling: Guernsey v. locality." In County Commissioners
Burlington Township, 4 Dill. 373, 375; v. Chandler, (1877) 96 U. S. 305, the
Township of Burlington v. Beasley, 94 Supreme Court of the United States
U. S. 310, 313. In State ex rel. Bowen held that a bridge intended for and
«. Adams County, (1884) 15 Neb. 568, used as a thoroughfare to be a public
in which the Supreme Court denied a highway and, hence, a work of "in-
mandamus to compel a levy of a tax ternal improvement," within the mean-
56 GENERAL POWEE TO INCUE PECUNIAET LIALILITY. [§ 51
the power to guarantee it.' 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;' 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.'
§ 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;^ but they do not authorize a town to raise and expend
money to send lobbyists before the legislature.^ 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.^ 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." heuslve than that employed to em-
' Carter v. City of Dubuque, (1872) brace every form of securities in which
35 Iowa, 416. the faith and the credit of the city might
' Dickinson Hardware Co. s. Pulaski le 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. 463. transaction that the money is obtained
'City of Savannah «. Kelly, (1883) in the first instance by the railroad
108 U. S. 184; s. c, 3 Sup. Ct. Rep. company, upon the credit of the city,
473. Mr. Justice Matthews, speak- was directly ruled in Rogers ®. Bur-
ing for the court, said that the lington, 8 Wall. 654, and affirmed in
fact that the money "was not ad- Town of Venice d. Murdock, 93 U. S.
vanced directly to the city, but upon 494."
its assurance of repayment to the rail- ■* Inhabitants of Frankfort «. Inhab-
road company, is not a departure even itants of Winterport, (1865) 54 Me.
from the letter of the law, much less 350.
from its meaning; nor does the fact ' Ibid.
that the money was advanced partly ° Fisher t>, 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; s. c, 10 So. Rep. 494.
§ 52], PUBLIC OOEPOEATIONS. 57
village under a statute authorizing village trustees " to employ an
attorney or attorneys for the transaction of any matter requiring
legal skill." ^ 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 manda/mus
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.' 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.^ 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.*
§ 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
' Squire v. Preston, (1894) 83 Hun, was not clear. As to the employment
88; s. c, 31 N. Y. Supp. 174. of additional counsel to assist corpora-
^ Thacher d. Comrs. of Jefiferson tion counsel or to conduct profession-
County, (1874) 13 Kans. 182; People v. ally business in which the city is
Supervisors of N. Y., 83 N. Y. 478; interested, see Smith v. Mayor, etc.,
Brady «. Supervisors of N. Y., 3 of New York, (1875) 5 Hun, 387. As to
Sandf. 460; Gillespie ». Broas, 23 employment of attorneys by counties.
Barb. 370. see Brome ®. Cuming County, 31 Neb.
»Clougli «. Hart, (1871) 8 Kans. 487. 862; s. c, 47 N. W. Rep. 1050; Board
*Ibid. In Hugg ii. City Council of Comrs. Rush County ii. Cole, 3 Ind.
City of Camden, (1878) 29 N. J. Eq. 6, App. 475; s. c, 28 ist. E. Rep. 772;
where there was a city ordinance pro- Beebee.Board Suprs. Sullivan County,
viding that the solicitor of the city 64 Hun, 377; s. c, 19 N. Y. Supp. 629;
should prosecute and defend all suits. Waters «. Trovillo, 47 Kans. 197; s. c,
etc., brought by or against the city, 37 Pac. Rep. 832; Butler ». Sullivan
the chancellor refused a mandatory in- County, 108 Mo. 630; s. c, 18 S. W.
junction to restrain the city from em- Rep. 1143; Lassen County v. Shinn,
ploying other counsel, on the ground of 88 Cal. 510; s. c, 26 Pac. Rep. 365;
possible irreparable injury to the city, Fouke v. Jackson 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
8
68 GENBEAL POWEE TO INCUE PEOUNIAEY LIABILITY. [§ 52
to be paid not be so great, in view of the interests involved, as to
ipdicate bad faith.' The Supreme Court of Illinois has upheld
as implied, under the legislation of that state with reference to
towns, the power of the supervisor of a town to enter into a con-
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.^ 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.' 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.^
^ Town of Mt. Vernon «. Patton, in this case made with one who was
(1879) 94 111. 65. assistant city attorney, to collect all
' Town of Bruce v. Dickey, (1886) bills for taxes assessed on property as
116 111. 537; s. c, 6 N. E. Rep. 435; unknown, and all unsatisfied judg-
Cooper i>. Delavan, 61 111. 96. ments in favor of the city for taxes, on
' ilornblower D. Duden, (1868) 35 Gal. the ground that it neither violated the
664. In State ex rel. Bermudez i>. charter of the city nor conflicted with
Heath, Mayor of New Oi-leans, (1868) any of the rights of the assistant city
30 La. Ann. 173; 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 «. Layman, 145
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 fiz-ming 48 111. App. 168.
officers. The court upheld a contract ' Ibid.
§§ 53, 54] PUBLIC OOEPOEATIONS. 59
§ 53. Contracts for legal services — how made. — The
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.' 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.*
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.' 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.*
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.'
§ 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.^ If there is an appeal
' Justices. City of Logansport, (1892) Paul, 19 Minn. 389; State ». Bell, 34
6 Ind. App. 135; s. c, 32 N. E. Rep. Ohio St. 194; State d. Hauser, 63 Ind.
868; City of Logansport i>. Dykeman, 155; Birdsall v. Clark, 73 N. Y. 73;
116 Ind. 15. Brooklyn «. Breslin, 57 N. T. 591;
« City of East St. Louis v. Thomas, Ruggles i>. Collier, 43 Mo. 853-.
(1882), 11 Bradw. 283. * State, Hoxsey, ». Mayor & AJder-
» Cooley's Const. Lim. 204; City of men of the City of Paterson, (1878) 40
East St. Louis v. Wehrung, 50 111. 28; N. J. Law, 186.
Foss ®. City of Chicago, 56 111. 354; » Ibid. See reasoning of the court in
Jenks V. Chicago, 56 111. 397; L. S. & Eamaon v. Mayor, etc., of New York,
M. S. Ry. Co. «. Chicago, 56 111. 454; 24 Barb. 226.
Jackson Co. ■». Brush, 77 111. 59; Oak- ^ Town of Mt. Vernon «. Patton,
land V. Oarpentier, 13 Cal. 540; Why te (1879) 94 111. 65.
V. Mayor, 2 Swan, 364; Darling v. St.
60 GENERAL POWER TO INCUR PEOUNIART 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.' 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
«fiEect; and the rule is the same if the town agent, being an
attorney, renders professional services for the town.^ 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.* 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.*
§ 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.'
'Kinnie v. City of Waverly, (1876) of that state, Bradlet, 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) BO Vt. 385. then one of the usual and ordinary
s Ibid. expenses of a city to protect its oflS-
*Stilwell V. Mayor, etc., of N. Y., cers who, while exercising iu good
19 Abb. Pr. 376. faith the functions of their office,
" Roper V. Town of Laurinburg, have been found by the verdict of a
(1884) 90 N. C. 437; s. c, 7 Am. & jury to have exceeded the lawful
Bng. Corp. Cas. 130; Babbitt ». Savoy, powers of that office and to have tres-
8 Cush. 580. In Sherman ®. 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 COKPOEATIONS. 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 tbem is a valid con-
tract.* An action by selectmen to recover tbe amount of a judg-
ment for damages and costs recovered against them and paid, and
the reasonable expenses of defending the action, paid and incurred
by them, would be supported by a vote of the town to indemnify
the selectmen against anv claim for damages and costs of a cer-
tain description which may be legally substantiated against them
or either of them.^ 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.^ 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.* 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.' 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 offi- ' Nelson «. 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, 536.
be frequently exercised for the pro- * Ibid.
tection of society, before and not after ^ Fuller «. Inhabitants of Groton,
a thorough investigation of the case (1858) 11 Gray, 340.
in which he is called upon to act. ^ Bancroft v. Lynnfleld, (1886) 18
* * * We know of no case in Pick. 566.
62 GENEBAL POWER TO INCUK PECUNIAET LIABILITY. [§ 5T
taken in tlie 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 .^ 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." ^
§ 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
qua,itum meruit 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.^ 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
' 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 ®. Whipple,
Am. &Eng. Corp. Cas. 131. On the (1834) 6 Vt. 95. In CuUen c. Town of
right of a municipal corporation to re- Carthage, (1885) 103 lud. 196; s. c,
imburse its oflQicers in such cases, see 58 Am. Rep. 504; 14 Am. & Eng.
State, Lewis, ». Freeholders of Hud- Corp. Cas. 356, the court upheld the
son, 37 N. J. Law, 354; State, Brad- power, as an incidental one, of the
ley, «. Hammonton, 38 N. J. Law, 430, board of trustees of a town to employ
' Pike ®. Middleton, (1841) 13 N. H. counsel to defend the action brought
878. 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 ». Inhabitants of Windham, had arrested for violation of law.
(1836) 13 Me. 74. Towns may by a ^City of Detroit «. Whittemore,
vote bond themselves for expenses of (1873) 87 Mich. 881.
a suit when action is for or against
§ 58] PUBLIC COEPOEATIOKS. . 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.' 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.^ 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.'
§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 oflScial
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.* A
county is not bound by the expenses for attorney's services
incurred by a county collector for resisting objections to his
bond.' Negotiable drafts drawn by a municipal corporation for
' Baniel «. Mayor & Aldermen of ' Simmes «. Chicot County, (1888) 50
Memphis, (1851) 11 Humph. 583. In Ark. 566; s. c, 9 S. "W, Rep. 308;
"Wallace ■». Mayor & Common Council Fry 11. Chicot Co., 37 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 v. Taylor, (1889) 133 Ind. 148; s. c,
power, under the charter of this city, 23 N. E. Rep. 752; 30 Am. & Eng.
in the mayor and council to enter into Corp. Cas. 394.
a contract hy which the city became * Fry, Collector, «. 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, Q881) 73
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 v. fund, and shortly afterward there was
Johnson, 6 Cal. 499; Nougues v. elected a new board of school trustees,
Douglass, 7 Cal. 65, 69; People ex rel. whereupon the attorneys employed
McCuUough «. Pacheco, 27 Cal. 175. under the order of the former trustees
' Mansf . Dig. Ark. § 5859. proceeded in the proper court for a
64 GENEEAL POWER TO INCTTE PECUNIAKY 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.*
§ 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.^
§ 6o. 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 «, City of Laredo, 60 Tex. 533;
neys to bring a civil suit to try the Laredo i>. Macdonnell, 53 Tex. 530;
question as to who were the legal Laredo i>. Martin, 53 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) 133 Ind. 148; s. c, 33
such services. N. E. Eep. 753; 80 Am. & Eng. Corp.
'Halstead «. Mayor, etc., of New Cas. 394, a contract entered into be-
York, 8 N. Y. 430, affg. 5 Barb. 318. tween the board of commissioners and
" Waterbury «. City of Laredo, (1887) certain attorneys, by which the board
68 Tex. 565; s. c, 30 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 COEPOEATIONS. 65
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
the purpose of the act, but only in the amount of permanent
debt which they might create.* 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.^ The effect of
' Foote «. Oity of Salem, (1867) 14 far as it was in other respects lawful,
Allen, 87. Biselow, 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- Bee as to this last point: Tracy «.
able at a distant period of time, but Talmage, 14 ■ N. Y. 162; Curtis «.
not a limitation on their powers to Leavitt, 15 N. Y. 9; Oneida Bank «.
raise money by taxation or temporary Ontario Bank, 31 N. Y. 490; Argenti
loans in order to carry forward and ®. City of San Francisco, 16 Cal. 255;
execute the works which, by the pre- Maker v. Oity 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 Agrioul-
construct. * * * If construed as ture b. 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 execvite 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 im- 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 ». Galveston, (1877) 96 stantially to the same effect, Allegheny
IT. S. 341, holding further that the City v. McClurkan, 14 Penn. St. 81;
contract was not rendered wholly in- Silver Lake Bank «. 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 i). Brooklyn, 11 Paige,
be paid for in bonds of the corpora- 596; Allen v. City of Janesville, 35
tion, the issue of which bonds was un- Wis. 403; Argenti v. City of San
authorized by law. The contract, so Francisco, 16 Cal. 255.
66 GENEEAL POWEE TO INCUE PECUNIAET 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.' 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.^
§ 6i. 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
' Putnam ». City of Grand Rapids, Eep. 617; 43 N. W. Rep. 650. A con-
(1885) 58 Mich. 416; s.c, 35 N.W. Rep. tract entered into by a city with a
330; City of Springfield ». Edwards, 84 water works company to furnish water
111. 626; Law «. People, 87 111. 385; to the city for an annual sum has
Fuller V. City of Chicago, 89 111. 383; been held not to be In violation of a
Howell V. City of Peoria, 90 111. 104; law that the council of the city shall
New Orleans v. Clark, 95 U. S. 644, contract no debt on its part which
653; French v. City of Burlington, 43 shall not be payable within the fiscal
Iowa, 614; National State Bank ». year in which it was contracted, and
Independent Distiict, 39 Iowa, 490; which cannot be discharged from the
McPherson v. Foster, 43 Iowa, 48; income of such year, as the compenaa-
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 «. Independent tion was payable in that year and each
School District, 44 Iowa, 123; East St. year's indebtedness was only for the
Louis V. People, 6 Bradw. 76; Bu- water furnished in that year. Utica
chanan v. Litchfield, 102 U. S. 378. Water "Works Co. «. City of Utica,
' Coggeshall v. City of Des Moines, (1884) 31 Hun, 436.
(1889) 78 Iowa, 335; 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 coxild not be enforced.' The limitation
of the indebtedness which may be 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.^
' Kane v. Independent School Dist.
of Rock Rapids, (1891), 83 Iowa, 5;
8. c, 47 N. W. Rep. 1076.
2 Fenton «. Blair, (Utah, 1895) 39 Pac.
Rep. 485. In Butts v. Little, (1881) 68
Ga. 373, the Supreme Court of Georgia
held that for a county to contract for
the erection of a public building at a
specified price, which was to be com-
pleted by a certain date, and payment
for which was to be made as the work
progressed, on estimates to be made
by certain architects, less fifteen per
cent, was in effect a contract to pay the
price agreed on by the day of the date
of completion fixed; and the amount
being more than could constitutionally
be raised by taxation without author-
ity of the voters exhibited by an elec-
tion, was to incur a debt not authorized
by the Constitution. See Spann ».
Webster County, 64 Ga. 498, 500; Hud-
sou V. Marietta, 64 Ga. 386. As to the
effect of limitation upon the power to
create indebtedness, see Murphy «.
East Portland, 43 Fed. Rep. 308; Lott
V. Mayor, etc., of City of Waycross, 84
Ga. 681; s. c, 11 S. E. Rep. 558; Dehm
V. City of Havana, 38 111. App. 530;
Clark V. Columbus, 33 Wkly. Law Bull.
289; Coggeshallv. City of Des Moines,
78 Iowa, 335; s. c, 41 N. W. Rep. 617.
In Cabaniss v. Hill, (1885) 74 Ga. 845, a
contract for certain iron doors, cells,
pipes for sewers, etc., furnished a
county under a contract which pro-
vided that the contractors agreed " to
take and receipt the sum of $3,510 in
warrants on county treasurer, payable
on December 35, 1884, and bearing
eight per cent interest after that date
until paid in full, in payment for said
cells and wrought iron works," for
which, at the November term of the
Court of Ordinary orders were issued
to "pay out of any money now being
collected for new jail fund," was held
to create a new debt, and that it was
in violation of the Constitution of the
state. Rogers v. Board of Comrs.
Le Sueur County, (Minn.) 59 N. W.
Rep. 488; Hunt ». Fawcett, 8 Wash.
396; 8. c, 86 Pac. Rep. 318; Hocka-
day V. Comrs., 1 Colo. App. 363;
Barnard ». Knox County, 105 Mo. 883;
s. c, 16 S. W. Rep. 917, overruling
Potter ». Douglas Co., 87 Mo. 240;
Bonnell «. County of Nuckolls, 33 Neb.
189; 8. c, 49 N. W. Rep. 335, aflSrm-
ing Bonnell v. Nuckolls County, 38
Neb. 90; s. c, 43 N. W. Rep. 1145;
Baird v. Todd, 37 Neb. 783; Spilman
V. City of Parkersburg, 35 W. Va. 605;
s. c, 14 S. E. Rep. 279; Hockaday
V. Board of County Comrs., (Colo.
App.) 29 Pac. Rep. 387; Nolan County
V. State, 83 Tex. 183; s. c, 17 S. W.
Rep. 833; People v. Hamill, 134 111.
666; s. c, 39 N. E. Rep. 380; Rehmke
V. Goodwin, 3 Wash. St. 676; s. c, 37
68
GBNEEAL POWEE TO IHCUE PEOUNIAET 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 liabihties 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 hability
being in excess of the revenue which could be legally raised in
any one year, the contract was void.'
Pac. Rep. 473; Mayor, etc., of Rome
-B. McWilliams, (1881) 67 Ga. 106;
State ex rel. Vandiver «. Tolly, (S. C,
1892) 16 S. E. Rep. 195; Childs v. City
of Anaeortes, (1892) 5 Wash. St. 452;
s. c, 32 Pac. Rep. 217.
' Niles Water Works v. Mayor, etc., '
of the City of Niles, (1886) 59 Mich.
811; s. c, 26 N. W. Rep. 525; 11
Am. & Eng. Corp. Cas. 299. In
Davenport «. Kleinschmidt, (1887) 6
Mont. 503; s. c, 16 Am. & Eng.
Corp. Cas. 301, where the bonded
indebtedness of a city was 519,500
and the floating indebtedness over
$15,000, a contract bonding the city to
take water from a contractor at an
annual rent of $15,000 was held to be
In violation of a provision in the char-
ter of the city limiting the power of
the city council " to incur any indebt-
edness on behalf of said city for any
purpose whatever to exceed the sum
of $20,000, as such contract created an
Indebtedness within the meaning of
this hmitatiou. See on this subject
Burlington Water Co. ®. Woodward,
49 Iowa, 58, 61 ; Grant v. City of Daven-
port, 36 Iowa, 396, 401; Sackettc. City
New Albany, 88 Ind. 473; s. c, 45 Am.
Rep. 472; Prince ». City of Quincy, 105
m. 138, 142; State v. Mayor; 23 La.
Ann. 358; Smith «. Inhabitants of Ded-
ham. (1887) 144 Mass. 177; s. c, 10 N.
E. Rep. 783. That towns having power
to provide for the purchase and main-
tenance of fire engines for the extin^
guishment of fires have the incidental
power to make provision, by reservoirs
or other means, for a supply of water,
without which the engines would be
useless, see Hardy ». Waltham, 3 Met.
163. In Salem Water Co. «. City of
Salem, 5 Oreg. 30, it was held that an
agreement by the city to pay the
water company $1,800 per annum for
seventeen years in quarterly install-
ments for water to be furnished the
city without any provision for raising
and appropriating revenue to be ap-
plied in payment for such liabilities as
they became due, necessarily created
a liability within the meaning of the
act of incorporation of the city which
prohibited the city from creating
"any debt or liabilities in any man-
ner" against the city which should
exceed the sum of $1,000; and that
the contract was void. The court
reviewed the following cases perti-
nent to this ruling: State of Califor-
nia V. McCauley, 15 Cal. 489; People
ex rel. McCauley «. Brooks, 16 Cal.
11,34; Koppikus ». State Capitol Com-
missioners, 16 Cal. 249, 253; State v.
Medbery, 7 Ohio St. 536; People v.
Pacheoo, 37 Cal. 175; Coulson v. City
of Portland, 1 Deady, 481.
§ 63] PUBLIC COEPOEATIONS. 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
their pre-existing and co-existing power and right to " authorize
any incorporated company or association to construct such works "
for furnishing the city with wholesome water.^ 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.^ 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
tlierein, for the safety, benefit, convenience and advantage of said
city, as shall appear to them expedient " may make an assessment
'City of Vinceunes v. Callender, what constitutes a "debt" or "in-
(1883) 86 Ind. 484, sustaining a con- debtedness," under the constitutional
tract of the city with a water company provisions of various states, the Indiana
to supply water as not ultra vires. court refer to and comment upon the
'^ City of Valparaiso a. Gardner, following cases : Sackett v. City of
(1884) 97 Ind. 1. As to the contract New Albany, 88 Ind. 473 ; Lowber ».
in this case, it was generally said by Mayor, etc., 5 Abb. Pr. 335; Clarke
Elliott, Ch. J. : " We have no doubt v. City of Eochester, 34 Barb. 446;
that the corporation had authority to Weston v. City of Syracuse, 17 N. T.
contract for a supply of water for a 110 ; Garrison v. Howe, 17 N. Y. 458
period of twenty years, and that the Weutworth ». Whittemore, 1 Mass.
contract cannot be overthrown solely 471 ; People v. Arguello, 37 Cal. 534
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 ». 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 ®. City of Cedar Falls, 37
nature. The power to execute a con- Iowa, 337. Approved of in 1 Dill, on
tract for goods, for houses, for gas, Mun. Corp. (3d ed.) § 135 ; Grant e.
for water and the like, is neither a City of Davenport, 36 Iowa, 396;
judicial nor a legislative power, but French «. City of Burlington, 43 Iowa,
is a purely business power. The 614 ; Burlington Water Co. i>. Wood-
question is, however, so firmly settled ward, 49 Iowa, 58 ; Scott County «.
by authority that we deem it unneces- City of Davenport, 34 Iowa, 208 ;
sary to further discuss it. City of State p. McCauley, 15 Cal. 439 ; Peo-
Indianapolis v. Indianapolis, etc., Co., pie v. Pacheco, 27 Cal. 175; Coulson
66 Ind. 396; Dill, on Mun. Corp. v. City of Portland, Deady, 481;
§§ 478, 474, and authorities cited." Coy «. City Council, 17 Iowa, 1 ;
Upon the question of the restriction Coffin v. City Council, 36 Iowa, 515.
upon the city stated in the text and as to
10 GENEEAL POWEE TO INCUE PEOUNIAEY 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.^ 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. '^ Under the statute entitled
" An act to enable cities to supply the inhabitants thereof with
pure and wholesome water,'" a city is authorized to contract
for a supply of water for public and private use.^
§ 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.'
'Frederick v. City Council of 99 U. S. 86, and Ottawa «. National
Augusta, (1848)5 Ga. 561. This canal Bank of Portsmouth, 105 U. S. 343,
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
''Mayor & Council of Rome v. issue bonds for municipal purposes,
Cabot, (1859) 38 6a. 50. and it was recited in the bonds then
'Pub. Laws N. J. (1876), 366. sued on that they were issued for such
^Hackensack Water Co. v. City of purposes, the city was estopped from
Hoboken, 51 N. J. Law, 320; s. c, proving, as against bona fide holdeia,
n 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, 88 N. W. Rep. 749; which the bonds were issued, they had
Adrian Water Works®. 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
539 ; Culbertson v. City of Fulton, 137 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. ■». Waitb, Ch. J., referred to these cases:
Read, 50 N. J. Law, 665; s. 0., 15 Taylor®. Thompson, 43111. 9; Chicago,
Atl. Rep. 10. Danville & Vincennes R. R. Co. v.
s Ottawa V. Carey, (1883) 108 U. S. Smith, 63 111. 368; The People i>. Du-
110; s. c, 3 Sup. Ct. Rep. 361. The puyt, 71 111. 651; Burr v. City of Car-
court distinguished Hackett v. Ottawa, bondale, 76 111, 455; People ti. Trustees
§64]
PUBLIC COEPOEATIONS.
Yl
of Schools, 78 111. 136; Quincy, Mis-
souri & Pacific R. R. Co. «. Morris, 84
111. 410; Supervisor, etc., of Hensley
Township v. 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
(Ralls County Court «. The United
States, 105 U. S. 733), it follows that
the power contained in the charter to
borrow money did not authorize 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 are 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. Aspin-
wall, decided twenty-five years ago
and reported in 31 How. 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, 337; Marsh v. Ful-
ton County, 10 Wall. 676; St. Joseph
Township v. Rogers, 16 Wall. 644;
McClure v. Township of Oxford, 94
U. S. 439; Wells «. Supervisors, 103
U. S. 635; Allen v. Louisiana, 103 U.
S. 80."
CHAPTEE II.
GENERAL POWEB TO INCUR PECUNIARY LIABILITY — PRIVATE
CORPORATIONS.
65.
General rules as to incurring
§ 76
indebtedness.
77
66.
Purchase of property.
78
67.
Aiding other corporations.
79
68.
Contracts of suretyship.
80
69.
Guaranty of bonds of one rail-
81
way corporation by another.
82
70.
Guaranty of bonds of railroad
corporation by one of another
kind.
83
71.
Circumstances surrounding cor-
poration may authorize the
84
guaranty.
85
72.
Guaranty of dividend upon pre-
86
ferred stock of another cor-
87
poration.
73.
What contract of another cor-
88
poration may not be guaran-
S9
teed.
74.
Athletic club.
90
75.
Banking associations.
A savings bank's powers.
Corporations dealing in lands.
Insurance corporations'.
Manufacturing corporations.
Mining corporations.
Railroad corporations.
The same subject continued.
Raising money by borrowing
notes and indorsement of
them.
Evidences of indebtedness —
forms.
More rules on this subject.
Bonds of a banking association.
Power to secure their indebted-
ness.
Limitation of indebtedness.
Debt limited by par value of
capital stock.
When a statutory limitation of
indebtedness does not apply.
§ 65. General rules as to incurring indebtedness. — Within
tlie scope of its general and discretionary powers, tlie authority
of a corporation to dispose of its funds for any purpose whatever
may be admitted to be absolute and beyond all control.* 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." Such corporations,
if not restricted by their charters, have incidental authority to
borrow money for any of their lawful purposes.' But the power
to borrow money, being an incidental power, does not extend
' Binney's Case, (1829) 2 Bland's Ch. agent under employment to perform
99, 142. services consonant to the general de-
^ Kitchen ». 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] PEIVATE COEPOEATIONS. 73
beyond cases wliere it is essential to tlie transaction of its oj'di-
naiy affairs.' 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.' 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.* 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.'
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.' 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.'' In such a case, the
corporation may issue stock for a portion of the purchase money
of such works, and pay in cash or issue bonds for the balance.'
' Beers ». Phoenix Glass Co., 14 Barb. 299; Straus & Bro. v. Eagle Ins. Co.
358. of Cincinnati, 5 Ohio St. 59.
' Barry v. Merchants' Exchange Co., * State ex rel. v. Hannibal, etc.. Road
1 Sandf. Ch. 380. Co., (1889) 37 Mo. App. 496.
' Humphrey «. Patrons' Mercantile ' Oregonian Ry. Co. v. Oregon Ry.
Association, (1879) 50 Iowa, 607. The & Navigation Co., 33 Fed. Rep. 233.
New York Court of Appeals has sus- « Smith v. Law, 31 N. Y. 396.
tained the validity of a contract of a ■" Gamble ». Queens County Water
private corporation for proper and Co., (1890) 35 Abb. N. C. 410, revers-
necessary work preliminary to active ing 53 Hun, 166.
business operations, as within its inci- ^ 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., see Covington
which it was created. Legrand v. ■». 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 v. Bank, 3 Col. 348; Beers «. Phoenix
M. Water Works, 3 B. & A. 1; Bank Glass Co., 14 Barb. 858; Mead v.
of Columbia v. Patterson, 7 Cranch, Keeler, 34 Barb. 20. As to raising
74 GENEEAL POWER TO INOTJE PECtTNIAET LIABILITY. [§ 66
A corporation, with power to bwrow money, may legitimately
borrow promissory notes upon which to raise money for its
business.*
§ 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.* 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.' 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 sociation, (1875) 54 Ala. 73. Arguendo
tbe purposes of its creationjSeeWellers- it was said by Brickbll, Ch. J : "The
burg, etc., Co. v. Young, 13 Md. 476; general principle is that a corporation
Mayor, etc., of Baltimore b. Baltimore can make no contracts, and do no acts,
& Ohio R. R. Co., 21 Md. 91. As to except such as are authorized by its
the means employed to carry out such charter. From the charter it derives
purposes, coming within the implied all its powers, and the capacity of ex-
powers of corporations, see Willmarth ercising them. Any contract made by
V. Crawford, 10 Wend. 343; Madison, it not necessary and proper, directly
etc., Plank Road Co. v. Watertown, or indirectly, to enable it to answer
etc., Plank Road Co., 5 Wis. 173; the purpose of its creation, is void,
Clark ®. Farrington, 11 Wis. 306. and neither a court of law or of equity
As to these Implied powers being per- can enforce it. Grand Lodge v. Wad-
formed by their agents, see Smith v. dill, 36 Ala. 318; Smith v. Ala. Life
Eureka Flour Mills, 6 Cal. 1; Straus Ins. & Trust Co., 4 Ala. 558; City
&Bro. V. Eagle Ins. Co., 5 Ohio St. 59. Coimcil v. Montgomery & Wetumpka
As to making promissory notes under Plank Road, 31 Ala. 76. It must not
the implied power, see Moss v. Oakley, be understood, however, that the
3 Hill, 365; Munn i). Commission Co., charter, whether it is of special legis-
15 Johns. 44; Mott v. Hicks, 1 Cow. lative enactment, or derived from gen-
513; Auerbach i). Le Sueur Mill Co., eral statutory provisions, must ex-
(1881) 28 Minn. 391; s. c, 9 N. W. pressly confer the power of making
Rep. 799; Sullivan «. Murphy, 23 contracts. As we have said, the ca-
Minn. 6; Chaska Company ». Board pacity to contract is an incidental cor-
of Supervisors of Carver Co. , 6 Minn, porate power, and if the special act of
304. incorporation, or the general statutory
' Holbrook «. Basset, 5 Bosw. 147. law is silent as to the contracts into
' Blanchard's Gun-Stock Turning which a corporation may enter, it has
Factory «. Warner, (1848) 1 Blatchf. the power to make all such contracts
258. as are necessary and proper to enable
' Alabama Gold Life Ins. Co. ■». Cen- it to accomplish the purposes of its
tral Agricultural & Mechanical As- creation. Ang. & Ames on Corp.
10
§66]
PEIVATB COEPOEATIONS.
16
stock.' Upon evidence that it' was customary and necessary, in
the economical conduct of the 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
company. The power to conduct such a store being clearly inci-
§ 271. This is the theory on which
the general statutes for the organiza-
tion of private corporations proceed,
for though the powers of sucli 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.
§ 357. 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
aflBrmed 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 its
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 «. Noble, 12 Gush. 1; Davis i>.
Proprietors of Meeting House, 8 Met.
321; Union Bank v. Jacobs, 6 Humph.
515; Barry v. Merchants' Exchange
Co., 1 Sandf. Ch. 280; Burr v. Mc-
Donald, 3 Gratt. 215; Curtis ». Leav-
.itt, 15 N. Y. 9; Bradley ». Ballard,
(1870) 55 111. 413; Mead v. Keeler,
(1857) 24 Barb. 20; Partridge ®. Bad-
ger, (1857) 25 Barb. 146; Clark v. Tit-
comb, (1864) 42 Barb. 132; Life & Fire
Ins. Co. V. Mechanic Fire Ins. Co.,
(1831) 7 Wend. 31; Barnes v. Ontario
Bank, (1859) 19 N. Y. 153; Smith v.
Law, (1860) 31 N. Y. 296; Ridgway v.
Farmers' Bank of Bucks Co., (1825)12
Serg. &R. 256; Hamilton «. Newcastle
& Danville R. R. Co., (1857) 9 Ind.
359; Rockwell v. Elkhorn Bank, (1861)
13 Wis. 653.
' Iowa Lumber Co. v. Foster, (1878)
49 Iowa, 25. As supporting this doc-
trine, see Barton ii. P. J. & U. F.
T6 GENERAL POWEE TO INCUE PECUNIAET LIABILITY. [§ 67
dental to the business of making iron, was, therefore, within the
corporate powers of the company, though not mentioned in the
charter.'
§ 67. Aiding other corporations. — An act 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.^ 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.' 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.* The
Court of Appeals of Maryland has sustained the power of one
steamboat company to purchase shares of stock in another.^ A
Plank Eoad Co., 17 Barb. 397; Cooper is nothing in the charter of the steam
v. Frederick, 9 Ala. 738; Verplanck ». packet company or in the nature of
Mer. Ins. Co., 1 Edw. Ch. 84; Hart- its business that would, in the slight-
ridge «. Rockwell, R. M. Charlton, est manner, forbid the exercise of such
360; Gillet v. Moody, 3 Comst. 479; power, and liaving money toloan or in-
Taylor «. Miami Exporting Co., 6 vest, there would appear to be no good
Ohio, 176; State Bank b. Eox, 3 reason why it might not invest in the
Blatchf. 431; City Bank of Columbus stock of other corporations as well as ia
«. Bruce, 17 N. Y. 507. any other funds, provided it be done
' Searight v. Payne, 6 Lea, 383. bona fide and with no sinister or unlaw-
' White «. Syracuse & Utica R. R. ful purpose. The courts of England
Co., (1858) 14 Barb. 559. at one time strongly opposed the rights
' Sutro Tunnel Co. ®. Segregated of one corporation to deal or invest in
Belcher Mining Co., 19 Nev. 131; s. the stock of another corporation with-
c, 7 Pac. Rep. 371. out express authority for so doing, but
* Denny Hotel Co. of Seattle «. that opposition has been entirely over-
Schram, (Wash.) 33 Pac. Rep. 1003. come and it is now settled there that
5 Booth «. 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., 8 Ch. 105;
courts have so held, the great weight Re Asiatic Banking Co., L. R., 4 Ch.
of authority is the other way. There 352. In the latter of the cases first
§ 68] PEIVATE 00EP0EATI0N8. 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.* 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 oi money.' 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.'
§ 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 suretyshio ; neither was there any general authority
cited, Lord Justice Sblwtn, in speals- same case afiBrmed on appeal in 5 Md.
ing of this power of corporations, said: 153.
" As to tlie capacity of a trading cor- ' Mechanics & Workingmen's Mu-
poration to accept shares in another tual Savings Bank & Building Asso-
tradiug corporation, it is sufficient elation of New Haven v. Meriden
for me to say that I entirely agree Agency Co., (1855) 34 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 v, Orleans
taking or accepting shares in another Theatre Co., 3 Rob. (La.) 309. In New
triiding corporation. There may, of Orleans, Florida & Havana Steamship
course, be circumstances which pro- Co. b. Ocean Dry Dock Co., (187 G) 38
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 ITUra Vires, pp. 91, company. Salomons v, Laing, 13
93. And in this state the same prin- Beav. 339.
ciple has been fully sanctioned in the ' Thompson ®. Lambert, (1876) 44
case .of Elysville Manuf. Co. v. Iowa, 339.
OMsko Co., 1 Md. Ch. Dec. 393, and
T8 GENEEAL POWEE TO INOUE PECUITIAEY 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.' 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.^ A manufacturing corpora^
tion, organized under the general laws of New York, has no
power to indorse for the accommodation of another paper in
which it is not interested.' 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 iona fide holder, although it was
made for a purpose or at a place not authorized by the charter of
the corporation.'
§ 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.' It is
'Louisiana State Banli ». Orleans ^Mather ti. Union Loan & Trust Co.,
Navigation Co., (1848) 3 La. Ann. 394, (City Court of N. Y. 1889) 26 N. Y.
in which case the powers of corpora- St. Eepr. 58; s. c, 7N. Y. Supp. 31B;
tions at common law and under the citing McCuUough i>. Moss, 5 Denio,
Civil Code of Louisiana are fully dis- 567; Mechanics' Banking Association
cussed. 11. New York, etc.. White Lead Co.,
^ Hall -0. Auburn Turnpike Co., 35 N. Y. 505; Farmers & Mechanics'
(1865) 37 Cal. 255. Bank «. Butchers & Drovers' Bank, 16
'National Park Bank «. German- N. Y. 135. See, also. Usher «. Raymond
American Warehousing, etc., Co., Skate Co., (Mass. 1895) 39 N. B. Bep.
(1889) 116 N. Y. 381; s. c, 36 N. Y. 416; Savage Mfg. Co. ■». Worthington,
St. Repr. 675; Wahlig v. Standard 1 Gill. 284; Madison, etc., R. R. Co. «.
Pump Manufacturing Co., (1889) 35 N. Norwich Saving Society, 34 Ind. 457,
Y. St. Repr. 864; s. c, 5N. Y. Supp. modifying Smead «. R. R. Co., 11 Ind.
420; citing Central Bank v. Empire 104; LaFayette Savings Bank ®. St.
Stone Dressing Co., 36 Barb. 33; Louis, etc., Co., 3 Mo. App. 399.
Bank of Genesee ». Patohin Bank, 13 ' Low b. California Pacific R. R.
N. Y. 309. See, also, Bridgeport City Co., (1S77) 53 Cal. 53. It appeared in
Bank ». Empire Stone Dressing Co., this case that one railroad company,
30 Barb. 421; Farmers & Mechanics' under authority of law, leased the line
Bank v. Empire Stone Dressing Co., 5 of another for a term of years. The
Bosw. 375; Morford v. Farmers' Bank consideration of the lease was an
of Saratoga, 26 Barb. 568. annual rental, and that the lessee com-
* Wahlig «. Standard Pump Manu- pany should guarantee the principal
facturing Co. , (1889) 25 N. Y. St. Repr. and interest of bonds to be issued by
864; s. 0., 5 N. Y. Supp. 430. the lessee company. The contract of
§ TO] PRIVATE COKPOEATIONS. Y9
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 otherwise, to aid 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.^
§ 70. Guaranty of bonds of railroad corporations by one
of another kind. — In a very recent and elaborately considered
ease, 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.^
guaranty was challenged as xMra Supreme Court of New York held the
mre». 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 railway, and it likewise each, constituted a sufficient considera-
had power to lease tha line of the tion for a guaranty by one of the cor-
lessor company. The Supreme Court porations of the payment of the bonds
held that the consideration was suffi- 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 suffl- ment 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. r>.
conditional promise involved by a con- Howard, 7 Wall. 411.
tract of guaranty. ^ Tod ». Kentucky Union Land
'Zabriskie v. Cleveland, Columbus Co., (1893) 57 Fed. Rep. 47; affirmed
& Cincinnati R. R. Co., (1859) 23 How. by the United States Circuit Court of
381. In Connecticut Mutual Life Appeals for the sixth circuit in Mar-
Insurance Co. e. Cleveland, Columbus bury v. Kentucky Union Land Co.,
& Cincinnati E. R. Co., (1863) 41 (1894) 63 Fed. Rep. 335. Lukton,
Barb. 9; s. c, 36 How. Pr. 325, the Circuit Judge, said: "The power to
80 GENEEAL POWEE TO IHCUE PECUNIAET 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 inlierent 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 mres, 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 v. 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. (3) To do so and received by the railroad company
would be to exercise a power not con- in payment of subscriptions to its
f erred 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 hftd 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. 433; Davis v. Railroad Co., 131 own benefit and as a means of selling
Mass. 358; 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. 321; 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. T. 293; s. c, 22 N. E. Rep. benefit, the consideration moving to
567; .a^tna 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
§V1]
PRIVATE COEPOEATIONS.
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.^
absolute want of power in an ordinary
businesES corporation to bind itself as a
guarantor, we must next inquire as to
the circumstances which will make
such a contract lawful and obliga-
tory. The cases already cited estab-
lish tho proposition that if such a cor-
poration has the power to issue bonds
or other commercial securities, and
becomes the holder of such 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 ®. 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 or bring about such a union and
co-operation of interests between the
land company and a railway company
as shall be to the mutual interest of
each, and place both under the same
control and management. This could
be done by the plan suggested by Mr.
Morawetz in section 942 of his work
on Private Corporations, whereby the
shares of one C9mpany should be held
11
by the other or by the same persoui
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 the
general rule is that a corporation has
no implied power to acquire shares in
another for the purpose of controlling
it. Marble Co. ■». Harvey, 92 Tenn.
115; s. c, 30 S. W. Rep. 437. 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. (3) The
express power in the charter of the
land company removes all 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 be void as against
public policy in the absence of any
violation of a constitutional provision.
Under such circumstances it is not for
the courts to say that what the legis-
lature authorizes 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. Each
had express authority to borrow
GENERAL POWEE TO INCUR PEOUNIAET LIABILITY.
[§72
§ 72. Guaranty of
another corporation.
dividend upon preferred stock of
— The court also held that this land com-
money and issue bonds to carry out
the purposes of tbe organization.
Tlie completion of tliis railway was
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 r.iilway company, it was
a contract for its own benefit, and,
therefore, rested upon a sufH lent
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. E. Co. v. Union Pac. Ry. Co.,
47 Fed. Rep. ]6, where Mr. Justice
Bkbwer 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. 339; s. c, 3
C. C. A. 343. 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 coatva,ct 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. «. Chicago, R. I.
& P. Ry. Co., 51 Fed. Rep. 310; s. c,
3 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. Bach 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 oases: In Louis-
ville & N. R. Co. 11. Literary Society of
St, Rose, 91 Ky. 395; s. c. 15 S. W.
Rep. 1065, Ihe 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
PEIVATE COEPOEATIONS.
83
§Y2]
pany was authorized to guarantee a dividend upon the preferred
stock of the railroad company.*
on said institutions of learning and
not otherwise. Each of them owned
and operated a farm of about 1,000
acres of very considerable value.
This, in the language of the court,
• created a large industry in the way
of supplies furnished to them, and
they in turn furnishing to others.'
Each of these corporations signed an
obligation to a railroad company to
induce it to extend its line near their
property. In an action upon those
obligations, it was contended that
they were ultra vires. 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 oificers of a cor-
poration have exceeded their powers,
bat 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
been almost Inaccessible 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, incur opinion, a subscrip-
tion by them to aid the building of
this road was not, under all the cir-
cumstances, vXtra vires and, therefore,
void.' "
' Tod ». Kentucky Union Land Co. ,
(1893) 57 Fed, Eep. 47, affirmed by
United States Circuit Court of Appeals
for the sixth circuit in Marbury v.
Kentucky Union Land Co., (1894) 63
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 stock 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 large
part of these bonds had been sold by
the land company, and were in the
hands of various individuals who held
them as bona fide 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-
anteed 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 GENEEAL 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.* 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.^
§ 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 deuds, see Colman 1). Eastern Ry. Co.,
continuing the union of the two com- lOBeav. 1; Logan ». Earl of Courtown,
panics, or obligating itself by this 13 Beav. 32.
guaranty. The amendment should be ' Humboldt Min. Co, o. American
construed as prospective and not re- Manufacturing, Mining & Milling Co.,
Prospective. Any relation which had (1894) 63 Fed. Rep. 356.
. theretofore been entered into with this ' Ibid.
§ 75] PEIVATE COEPOEATIONS. 85
loan and giving its promissory note for its payment.^ 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.'
§ 75. Banking associations.— Tbe General Banking Law of
New York did not give banking associations power, in express
terms, to borrow money ; but, notwithstanding this fact, the
Supreme Court held that as such an association might become
indebted, in the exercise of its undoubted legitimate business, it
had, as a necessary incident, the power to borrow money for the
purpose of paying its debts.' The Court of Appeals of JSTew
York, in a case between the receiver of this same banking asso-
ciation and other parties, held to the same effect that these bank-
ing associations had capacity to borrow money as incidental to
the banking business and to Ihe powers expressly granted.^
'Bradbury v. Boston Canoe Club, disappointment, unexpected losses, or
(1891) 153 Mass. 77; s. c, 26 N. E. some unforeseen casualty, it has no
Rep. 133. available assets to meet its engage-
"Ibid. Citing Fay 41. Noble, 13 ments. This emergency may occur
Cush. 1. in the soundest and best-regulated as-
'Leavitt v. Blatchford, (1848) 5 sociation. The question then must
Barb. 9. Edwahds, J. , for the court, arise, whether a solvent institution is
said: " Without reference to the bank- to fail to meet its liabilities, and be
ing law, it is a general fundamental broken up and ruined, or whether it
principle, that when a right is given, shall be permitted to substitute a
all powers are given which are neces- credit for some convenient period of
sary to the exercise and enjoyment of time, in the place of a debt then due
the right. Now, it cannot be ques- and payable, or, in other words,
tioned that a banking association may whether it can substitute one creditor
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
ver bullion, foreign coins and bills of business."
exchange; and it may become indebted * Curtis «. Leavitt, (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 ». Merchants' Ex-
debt in the purchase of state stocks change Company, 1 Saudf. Ch. 380,
for that purpose. There may be 389, in the language of Assistant Vice-
other ways in which a banking asso- Chancellor Sandfobd: "A corpora-
ciation can become legally indebted, tion, in order to attain its legitimate
It may become Uabie for the payment objects, may deal precisely as an indi-
of its debts at a time when, owing to vidual may, who seeks to accomplish
86 GENERAL POWBE 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, lias, 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
debtedness, it may execute to the there are several modes of accomplish-
creditors a note, a bond, or a mortgage, iug 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 diffi-
lor Sandpokd. 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 doe-
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 will? 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 hberty 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
§ 7T] PEIVATE C0EP0EATI0N6. 8Y
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.'
§ 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 beneiit 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 v. First
be called in question, but the power National Bank, (1886) 48 N. J. Law,
to make it cannot be. I can, there- 513. Depue, 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 iters, 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 are
ferred to is not recognized by any likely to be depressed in the market
adjudged case." Bkown, J., dis- and unsalable except at ruinous sacii-
cusses these questions in his opinion, fices. If these institutions should not
pages 157-161; Shankland, J., in his have the power to borrow money and
opinion, pages 166-169; Paige, J., in to make negotiable paper, or make a
his opinion, pages 310-313. pledge of securities on which money
S8 GENBEAL POWEE TO INC0E PEOUNIAET LIABILITY. [§ 77
contract.* 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 carry-
ing out the prime object of the corporation was within its
powers.^ 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."^ 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.* 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 ®. Dock Co, 40 Cal. 84.
run upon the bank by depositors to 'Watts' Appeal, 78 Pa. St. 370.
withdraw their deposits. It is the ^ Whetstone «. University, 13 Kans.
existence of conditions and contin- 820.
gencies of this kind likely to arise in ■• McGeorge v. Big Stone Gap Imp.
the conduct of business that the law Co., (1893) 57 Fed. Rep. 363.
recognizes as the ground for raising
§ 78] PRIVATE COEPOEATIONS. 89
chase, to subdivide, to sell, and to make any contract essentialto
the transaction of its business are expressly granted, possesses as
fairly incidental the power to incur liability in respect of securing
better facilities for transit to and from the lots or lands which it
is its business to acquire and dispose of.*
§ 78. Insurance corporations. — A corporation created for the
purpose of carrying on the business of insurance, with power to
convert its bonds and stocks into cash, when needed, to pay risks,
may, through its president borrow money and pledge its stock as
collateral security.' A corporation organized under the law of
Indiana providing for the organization of life and accident insur-
ance companies, has power to borrow money and secure its pay-
ment by mortgaging its real estate.' The power to contract and
be contracted with, is one of the common-law incidents of a
corporation. Unless expressly restrained by its charter, every
corporation has the incidental power to make any contract, and
' Fort "Worth City Co. v. Smith directly promoted by the use of legiti-
Bridge Co., (1894) 151 U. S. 394; s. c, mate business methods to render the
14 Sup. Ct. Kep. 339, affirming a judg- lands accessible. This involved the
ment in favor of the bridge company expenditure of money or the assump-
upon a contract to build a bridge over tion of liability, but there is no
a river for which the corporation element in this case of any unreason-
agreed to pay a portion in its bonds, able excess in that regard, or of the
ruiLBB, Ch. J., quoted in his pursuit of any abnormal and extra-
opinion as follows : In Green Bay & ordinary method. The result sought
Minnesota Railroad v. TJnion Steam- was in accomplishment of the legiti-
boat Co., 107 U. S. 98, 100, it was mate objects of the corporation and
said: "The charter of a corporation, essential to the transaction of its au-
read in connection with the general thorized business, and the power to
laws applicable to it, is the measure make the contract was fairly incidental
of its powers, and a contract mani- if not expressly granted." See, also,
festly beycmd those powers will not North Side Ry. Co. v. Worthington,
sustain an action against the corpora- (Tex. Civ. App. 1894) 37 S. W. Rep.
tion. But whatever, under the charter 746, following the case above.
and other general laws, reasonably ^ Bezou, Commissioner, «. Pike,(1871)
construed, may fairly be regarded as 33 La Ann. 788. The court distin-
incidental to the objects for which the guished Levy ii. Mutual Benefit Life
corporation la created, is not to & Fire Ins. Co., 8 La Ann. 380, in that
be taken as prohibited. * * * " the directors in that case did an act
Further on, he said : "The object of in conffict or inconsistent with an
the creation of the corporation was the express provision of the charter,
acquisition and sale of lands on sub- ^ Wright v. Hughes, (1889), 119 Ind.
division, and it cannot successfully be 324; s. c, 31 N. E. Rep. 907.
denied that that object would be
12
90 ' GENERAL POWER TO INCUE PECUNIAET LIABILITY. [§ 78
evidence it by any instrument that may be necessary and proper
to accomplish the objects for which it is created. A note or bill,
therefore, made or received by such a corporation is prima fwaie
within its corporate powers, and, therefore, valid.* But when
such a transaction is drawn in question, it is always competent to
show that it was given or taken for a purpose not authorized,
and when shown, the contract is void, and the instrument a
nullity.^ A mutual life insurance company has been held in
Connecticut to have the power, as incident to its business of
insuring lives, to provide a guaranty fund by taking the notes of
responsible parties, payable only if required for the purpose of
meeting losses, and allowing a reasonable compensation to the
makers of the notes for the use of their credit.^ A corporation
clotlied by its charter with power to transact the business of life,
fire, and marine insurance, receive money on deposit, collect
' Straus & Bro. «. Eagle Insurance business, and was shown by experience
Co. of Cincinnati, (1855) 5 Ohio St. 59; to be such. We cannot, therefore, pro-
N. Y. Firemen Insurance Company v. nounce that arrangement to be an
Sturges, 2 Cow. 664; Barker «. Mc- illegitimate exercise of the powers
chanie Fire Ins. Co., 8 Wend. 94. conferred by their charter. Indeed, if
^ Straus «. Eagle Insurance Co. of we were to declare it invalid on this
Cincinnati, (1855) 5 Ohio St. 59; Brough- ground, we do not see why the broad
ton n. Manchester Water Works, 3 ground must not be taken that, in the
Barn. & Aid. 1; Munn «. Commission case of any corporation created for
Co., 15 Johns. 44; New York Fire- the purpose of carrying on a par-
men Ins. Co. «. Ely, 3 Cow. 678; N. Y. ticular kind of business requiring
Firemen Ins. Co. «. Bennett, 5 Conn, credit in its prosecution, it would be
574; Philadelphia Loan Co. v. Towner, an excess of its power to engage or
13 Conn. 249; Kora ®. Mut. Soc, 6 secure, in support or aid of its own
Cranch, 199; Bank of Chillicothe «. credit, that of other persons in regard
Swayne, 8 Ohio, 257; McCuUough «. to the fulfillment of its contracts, even
Moss, 5 Denio, 567; Slark «. Highgate when the exigencies of its business
Archway Company-, 5 Taunt. 792. required such aid for its prosecution;
^ Hope Mutual Life Ins. Co. v. Weed, apd the principle would even go so
(1859)28 Conn. 51. The court said: far as to prohibit the ordinary engage-
" It was an arrangement whicfi was ment of suretyship in behalf of such
made, not as an end, but only as a corporation. Nothing is more com-
means or instrument for the success- mon than the exercise of such a power
ful prosecution of their main and by our pecuniary corporations, and the
appropriate business. And the facts power is one from the exercise of
before us conclusively show that such, which not only no evil, but the great-
in the present instance, was the only est benefits to such corporations and
design or motive with which it was to the public, has arisen. And it was
entered into, and that it was resorted never before suggested that it was
to by the plaintiffs as a matter neces- beyond the scope of the powers
sary to the prosecution of their proper granted to such bodies."
§ 79] PEIVATE COEPOEATIONS. 91
promissory notes, and bills of exchange, lend money, and discount
or sell such notes or bills, and to " borrow money and issue its
bonds therefor," is not restricted by this latter provision to
making loans secured by bijnds, but has the incidental and
implied power, common to all such corporations, to borrow
money, and make negotiable, or non-negotiable paper, and give
such securities as may be deemed most advantageous.* Under
statutory authority to " invest their money in real or personal
property, stocks or choses in action " an insurance corporation
cannot subscribe for stock in a projected corporation.^
§ 79. Manufacturing corporations. — A corporation organ-
ized under the General Incorporation Act of Ohio, for the purpose
of manufacturing and supplying gas to the inhabitants of a city
or village, may borrow money to enable it to accomplish the
legitimate objects of its creation, and secure tlie payment of the
loan by note and a mortgage upon its property.' A corporation,
incorporated "for the purpose of manufacturing and selling
glass " may purchase glassware, for the purpose of keeping up
their stock and supplying customers, while the works which they
manufacture in are being put in repair.* A manufacturing cor-
poration may incur a liability for a stock of merchandise to be
sold by it in a retail store connected with their manufacturing
' Talladega Insurance Co. v. Pea- " Commercial Fire Insurance Co. ■».
cock, Admr., (1880) 67 Ala. 253; Allen Board of Revenue of Montgomery
■V. Montgomery R. R. Co., 11 Ala. 454; County, 99 Ala. 1; s. c, 14 So. Rep.
Mobile & Cedar Point Ry. Co. v. Tal- 490.
man, 15 Ala. 491; Lucas ». Pitney, 37 'Hays v. Galion Gas Light & Coal
N. J. Law, 231; Railroad Company v. Co., (1876) 39 Ohio St. 330.
Howard, 7 Wall. 411. In Trenton * Lyndeborough Glass Co. v. Massa-
Mutual Life & Fire Insurance Co. ». chusetts Glass Co., (1873) 111 Mass.
McKelway, (1858) 13 N. J. Eq. 133, 315. The court said :" They succeeded
136, 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
bona fide made for such loan would be their manufactory and machinery and
illegal [legal?], 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 their customers until they
and not have the available means could sxipply themselves from their
promptly to meet it, it would not be own manufactory. Such purchases
illegal for them to make a loan to are auxiliary and incidental to the
meet the exigency." main purposes of their incorporation
92 GENERAL POWER TO INCUR PECUNIAET LIABILITY. [§ 80
business, as a convenience or necessity thereto.'' 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.* A manufacturing and mercantile corpora-
tion may incur a liabiUty in the nature of a reward to one caus-
ing the apprehension of persons charged with crime and their
conviction.^
«
§ 80. Mining corporations. — The power to borrow money is
an incident to the corporate powers of a mining corporation.*
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.^ 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.*
A corporation organized for mining purposes has power to pur-
chase timber.' But it has no authority to issue accommodation
paper and deliver it to strangers.' The board of directors 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 v. Winnisimmet Co., 11 Allen, legally invest money in a bank for the
326." purpose of carrying on the banking
' Dauchy «. Brown, (1852) 24 Vt. business ; nor could it issue promis-
197. sory notes in payment of shares in a
' Gist v. Drakely, 2 Gill, (Md.) 330, banking company which would bind
345. the corporation or its members. As to
' Norwood & Butterfield Co. v. the incidental power of a private cor-
Andrews, (1894) 71 Miss. 641; s. c, poration to make any contract neoes-
16 So. Rep, 262. Citing Railroad Co. sary to advance the objects for which
«. Cheatham, 85 Ala. 292; s. c, 4 So. it was created, see Legrandc. Manhat-
Rep. 838; Ricord v. Railroad Co., 15 tanMercantile Association, (1880) 80 IT.
Nev. 167 ; Express Co. «. Patterson, Y. 638, afEg. 44 N. Y. Super. Ct. 562.
73 Ind. 430. In National Bank of *Eent «. Quicksilver Mining Co.,
Republic v. Edward C. Young, Re- (1879) 78 N. Y. 159.
celver, etc., (1886) 41 N. J. Eq. 581, ' "Wood Hydraulic Hose Mining Co.
it was held that a corporation created «. King, (1872) 45 Ga. 34.
for the purpose of carrying on a * Callaway M. & M. Co. ■». Clark,
manufacturing business had implied (1862) 32 Mo. 305.
power to make negotiable paper for ' Adams Mining Co. ii. Senter, (1873)
use within the scope of its business, 26 Mich. 73.
but no power to become a party to » Beecher «. Bacey, (1881) 45 Mitsh.
bills or notes for the accommodation 92.
of others. In Sumner v. Marcy, 3
§§ 81, 82] PEITATE COKPORATIONS. 93
mining corporation which is empowered to enter into any con-
tracts essential to its ordinary business may borrow money for the
purposes of the corporation and invest certain of its officers with
power to negotiate loans, etc.^ 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.'
§ 8i. Railroad corporations. — A corporation incorporated
for the construction of a railway has power to agree to pay for
its right of way in bonds.^ A railroad company, granted a right
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.* 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, thougli not expressly con-
ferred by the charter or act of incorporation.^ 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.^
§ 82. The same subject continued. — A railroad company
has no right, under an authority to borrow money, to raise money
' Mining Co. ®. Anglo-Californian the Implied power of a corporation to
Bank, 104 U. S. 193. borrow money needed for its legiti-
' Ibid. mate purposes, and give security
'Munson «. Syracuse, Geneva, etc., therefor to the lender, see In re Patent
E. R. Co., (1886) 103 N. Y. 58; s. c, 4 Pile Co., L. R. (6 Ch.) 83; Monument
Cent. Rep. 191. Nat. Bank ». Globe Works, 101 Mass.
^Branch v. .Tesup, 106 U. S. 468. 57; Hays v. Gallon Gas Light Co., 29
» Kelly V. Trustees of Ala. & Cinn. Ohio St. 330; Curtis v. Leavitt, 15 N.
R. R. Co., (1877) 58 Ala. 489; Rich- Y. 9.
ards v. Railroad, 44 N. H. 137; Com- ' Georg v. Nevada Central Railroad
monwealth v. Smith, 10 Allen, 448; Co., (Nev. 1894) 38 Pac. Rep.441; citing
Savannah & Memphis R. R. Co. v. Thomas v. Railroad Co., 101 U. S. 83;
Lancaster, (1878) 63 Ala. 555 As to Davis «. Railroad Co., 131 Mass. 359.
94 GENEEAL POWER TO INCUR PEOUNIAET 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.' 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 projDerty such number of steam-
boats OT 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.^ A cor-
' Taylor d. Philadelphia & Reading this question: " Every admissible defl-
R. E. 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 hy the sum to another on contract for its re-
defendant could not be regarded as turn, generally with interest, as com-
borrowed, because that implies reim- pensation for its detention and use.
buraement, 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 neutly 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 u 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 " Green Bay & "W. R. Co. v. Union
the defendant's earnings, to be meas- Steamboat Co., 107 U. S. 98; s. c , 2
ured by a certain rate per cent upon Sup. Ct. Rep. 321, 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." ■». Madison & Indianapolis R. R. Co.,
Butler, D. J., concurring, said upon (1858) 21 How. 441, the Supreme
§ 83] PEIVATE COEPOEATIONS. 95
poration formed for the purpose of constructing a railroad can-
not engage in the business of running a line of steamers.*
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 corporation to " obtain by piirchase or
grant * * * 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
line of steamers with a view not of employing but of withdraw-
ing them from the field of competition.' 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.*
§ 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 ®. Eastern Counties Railway Co., 11 C.
the purchase of a steamboat by the B. 803; Head v. Providence Insurance
railroad corporation, to be run in con- Co., 3 Cranch, 127; Bank of Augusta,
nection with its business, was not ®. Earle, 13 Pet. 519; Perrine*. Cheaa-
authorized by its charter or within its peake & Delaware Canal Co., 9 How.
power as necessary or incident to its 173.
business, and that there could be no ' McCarty i). Roots, 31 How. 482.
recovery upon the notes given for its ^ Waldo «. Chicago R. R. Co., 14
purchase. The court cited in support Wis. 575, 580.
of their ruling: MacGregor v. The 'Morgan & Raynor, Trustees, «.
Official Manager of the Deal & Dover Donovan, (1877) 58 Ala. 241.
Railway, 16Eng. Law&Eq. 180 ; Col- ^Pusey v. New Jersey West Line
man «. Eastern Counties Railway Co., R. R Co., (1878) 14 Abb. Pr. (N. 8.)
10 Beav. 1; East Anglian Railways Co. 434.
96 GENERAL FOWEE TO INCUE PECUNIAET 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.'
' Lucas ®. Pitney, (1858) 27 N. J. or for its necessary purposes. It is
Law, 221. Chief Justice Gbben in conceded that the corporation has
the opinion rendered said that this s\ich 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
poratiou.'' 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- plocied. In Munn v. The Commission
sistment the chief justice said: "The Co., 15 Johns. K. 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 «. Hicks, 1
§ 84] PEIVATE COEPOEATIONS. 97
§ 84. Evidences of indebtedness — form. — At common
law a corporation has power to issue a bond or note to pay a
debt.* 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 as settled, that
where general authority is given a corporation to engage in busi-
ness, and there are no special rectraints in its charter, it takes the
power as a natural person enjoys it, with all its incidents and
accessories ; it may borrow money to attain its legitimate objects,
precisely as an individual, and bind itself by any form of obliga-
tion not forbidden.^ Unless restrained by legislative enactment
Cowen, 513, it was held that a private no restraining act may make promis-
corporation might give a negotiable scry notes and draw bills of ex-
promissory note for a debt incurred in change, where these are the usual
its ordinary business. In Kollc}'' «. and proper means to accomplish the
Mayor of Brooklyn, 4 Hill, 363, it was purposes of their organization; that
held that a municipal corporation may such notes and bills are to be pre-
Issue 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 Cowen, 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 foreign to those for which the
paper for a debt contracted in the incorporation was created."
course of its proper business. This is ' McLane, Trustee, «. Placerville &
a power incident to all corporations, Sacramento Valley E. R. Co. , (1885)
and no provision in its charter, or else- 06 Cal. 606 ; citing Commonwealth ».
where, merely directing a certain Smith, 10 Allen, 448 ; Comrs. of
form in aflarmative words should be Craven ». Atlantic & N. C. R. R. Co.,
so construed as to take away the 77 N, C, 289 ; Miller v. New York &
power. The same general principle Erie R. R. Co., 18 How. Pr. 374;
will be found in Moss v. Oakley, 2 Dana «. Bank of United States, 5
Hill, 265; Barker ». The Mechanic Watts & S. 233.
Ins. Co. , 8 Wend. 96; Pumiss 0. Gil- ^Mitchbll, J., in Wright v.
Christ, 1 Sandf. Sup. Ct. R. 63; AugcU Hughes, (1889) 119 Ind. 334; s. c, 31
& Ames on Corp. § 357; Pierce on N, E. Rep. 907 ; New England, etc.,
Railroads, 373. The result of the Ins. Co. v. Robinson, 25 Ind. 536;
authorities, to adopt the language of Jones v. Guaranty, etc., Co., 101 TJ.
a recent writer, seems to be that cor- S. 623 ; Reichwald ®. Commercial
poiations carrying on business under Hotel Co., 106 111. 439; Booth v,
13
'98 GENERAL POWEE TO INCUE PECUNIAET 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.* A private
corporation, authorized to " borrow money and issue their
bonds therefor," may bind itself by simple as well as by sealed
contracts.^
§ 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
afEairs. 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.' Promissory notes may be given by trad-
Kobinson, 55 Md. 419 ; Hays v. Galion seal, see Arnold v. Mayor of Poole, 2
Gas Light Co., 39 Ohio St. 330; Dowl. (N. S.) 574; Bowen «. Morris,
Memphis, etc., E. R. Co. ». Dow, 19 3 Taunt. 374; Paine «. Guardians of
Fed. Rep. 388 ; Green's Brice's Ultra Strand Union, 8 Q. B. 336 ; Cox v.
Vires, 333; 1 Moraw. on Corp. §g 342, Midland Counties Railway Co., 3
343. Exch. 368 ; Lamprell v. Billericay, 3
'Trustees of University «. Moody, Exch. 306. How far they confine
(1878) 63 Ala. 389. Brickell, 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 «. Charlton,
tion could not manifest its intentions 6 Mees. & W. 815 ; Murray «. East
by any personal act or oral discourse, India Co. , 5 B. & Aid. 304 ; 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. 839 : Rew v. Pettet, 1 A.
» McCuUough ». Talladega Insurance & El. 196; Church «. Imp. Gas Light
Co., (1871) 46 Ala. 376; Bank of Co., 6 Ad. & E. 846.
Columbia 1). Patterson, 7 Cranch, 399; 'McKiernan e. Lenzen, (1880) 56
Talladega Ins, Co. v. Landers, 43 Ala. Cal. 61. As to what oflScers 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, 523; Carey
Indianapolis, etc., R. R. Co., 11 Ind, v. Giles, 10 Ga. 10; Phillips ®. Camp-
104 ; Talman v. Rochester City Bank, bell, 43 N. Y. 271. As to what a gen-
18 Barb. 128. As to the power of a eral manager cannot do, see Stow «.
corporation expressly or impliedly Wyse, 7 Conn. 319 ; Hawtayne «.
authorized to borrow money being Bourne, 7 Mees, & W. 695; Life &
exercised by issuance of negotiable Fire Ins. Co. v. Mechanic Fire Ins.
bonds, see Des Moines Gas Co. «. West, Co., 7 Wend. 31; Knight v. Lang, 4
<1878) 50 Iowa, 16. For rules in E D. Smith, 381; Benedict «. Lansing,
English cases as to liability of cor- 5 Denio, 383; Torrey v. Dustiu Monu-
pomtions upon contracts not under ment Association, 5 AllsQ, 327, 329:
§. 85] PRIVATE COEPOEATIONS. 99
ing corporations for any indebtedness contracted within the scope
of their powers, and it ma,j ^rima facie be presamed that any
notes given by them are for an indebtedness within the scope of
their powers.^ The power of a corporation to create debts and
to make 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." ^ 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.* 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
non-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.* A building asso-
ciation, the charter of which vests it with such power as to
enable it to borrow money and to make loans t,o 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.* It 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.* As
Despatch Line of Packets ®. Bellamy * Underbill ». Santa Barbara Land,
Manufacturing Co., 13 N. H. 205, 238; Building & Imp. Co., 93 Cal. 300;
Luse v. Isthmus Transit Ky. Co., 6 s. c, 28 Pac. Rep. 1049.
Oreg. 125. 'Davis v. West Saratoga Building
' Gebhard «. Eastman, 7 Minn. 56. Union, (1869) 33 Md. 285.
'Smith «, Eureka Flour Mills Co., "Sullivan ». Murphy, 23 Minn. 6.
<1856) 6 Cal. 1. In Bacon «. Mississippi Insurance Co.,
'Magee «. Mokelumne HiU Canal 3 George (Miss.), 116, the Supreme
4&. Mining Co., (1835) 6 Cal, 258. Court of Mississippi held that a corpoiap
100 GENEEAL POWEE TO INCrE PECUNIAEY 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.* 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,
hereditament-s, goods, wares and merchandise whatever, necescary
to enable [it] to carry on their manufacturing operations
* * * ," has power 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.^ A corporation authorized to construct a building for
its use and purposes may accept an order drawn upon it by a
materialman for material furnished and payable out of money
due such materialman.' There can be no recovery on a note
given by a corporation on a contract beyond the scope of its
power.* 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.' A corpora-
tion having power to loan money on and in tlie 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
». Firemen's Insurance Co., 8 Rob. (La.) acting within the scope of those
244; Louisiana State Bank ». Orleans implied incidental powers necessary
Navigation Co., 3 La. Ann. 394. to the full and advantageous devclop-
' Oxford Iron Co. v. Spradley, (1871) ment of those which are expressly
46 Ala. 98; New York Firemen Ins. given."
Co. v. Sturges, 3 Cowen, 664. 'Board of Trustees of Prairie Lodge
« Mead i>. Keeler, (1857) 34 Barb. 30. i). Smith, (1880) 58 Miss. 301. .
It was further said by the court- "It ''Pearce «. Madison B. R., 31 How.
is to be presumed that [corporations] 441.
■will conduct their operations in detail ' National Park Bank ». German-
substantially upon the same principles American "Warehousing, etc., Oo.,
§ 86] PRIVATE C0EP0EATI0N8. 101
tion may make a promissory note for a debt contracted in the
course of its legitimate business, although not specifically author-
ized by its charter to contract in that form.'
§ 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 thereon, even if regarded
as unsealed obligations, and, therefore, in legal effect, mere prom-
issory notes.^
(1886) 53 N. T. Super. Ct. 367; follow- » Curtis «. Leavltt, (1857) 15 N. T. 9.
ing EUswortli v. St. Louis, Alton & Speaking as to the power of corpora-
Terre Haute E. R. Co., 98 N. Y. 558. tions to issue such paper, Comstock,
' Moss V. Oakley, (1843) 3 Hill, 365; J., in his opinion, on page 66, said;
citing Mott i>. Hicks, 1 Cow. 513; "The right of corporations in gen-
Barker «. Mechanic Fire Ins. Co., 3 eral to give a note, bond or other en-
Wend. 94. Later, in a case in the gagement to pay a debt is so nearly
Chancery Court of New York, Attor- identical, or so inseparably connected
ney-General «. Life & Fire Insurance with the right to contract the debt
Co., (1843) 9 Paige, 470, the chancel- that no doubt upon the question ought
lor, "Walworth, held that a corpora- to be admitted. When a corporation
tion which was not prohibited by law can lawfully purchase property or
from doing so, and without any ex- procure money on loan in the course
press power in its charter for that pur- of its business, the seller or the lender
pose, might make a negotiable promis- may exact, and the purchaser or bor-
sory note, payable either at a future rower must have the power to give,
day or upon demand, where such note any known assurance, which does not
was in fact made or given for any of fall within the prohibition, express or
the legitimate purposes for which implied, of some statute. The par-
the company was incorporated. He ticular restriction must be sought for
further held that where such notes in the charter of the corporation, or in
have been issued and put in circula- some other statute binding upon it;
tion in violation of a restraining law, but if not found in that examination,
it seems the holder is bound to show we may safely afBrm that it has no exist-
that he received them in the ordinary ence. This doctrine would seem to be
course of business and paid s. valuable clear in principle, and it is well settled
consideration for them, without notice in this state, Mott v. Hicks, 1 Cow.
of the .illegal object for which they 513; Barker v. Mechanic Ins. Co., 3
were issued, to entitle him to recover Wend. 96; Jackson «. Brown, 5 Wend.
Qiexeoa 3,3 a, bona Jide holder. 590; Moss v. Oakley, 3 Hill, 265; At-
102 GENBEAL POWEE TO INOUE PECUNIAET 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.' 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.^ 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.*
The securities of a corporation may be lawfully pledged by the
directors of a solvent corporation to secure individual demands of
directors and others, due or to accrue, for money loaned to the
corporation.^
\
§ 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.^ In a case
torney-General ». Life & Fire Ins. Co., Law, 221; Hackettstown «. Swack-
9Paige,470;SafEcirds.Wyckofl, 4Hill, hamer, 37 N. J. Law, 191; Bidgway
443; Barry d. Merchants' Exchange 1). Farmers' Bank, 12 Serg. & R. 256;
Co., 1 Sandf. Ch. 280. It would be a" Oxford Iron Co. ■». 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 ».
authorized by a general law, do not Jacobs, 6 Humph. 515; Moss«.Harpeth
possess the same right in this respect, Academy, 7 Heisk. 288; Commercial
which they would have if the express Bank b. Newport Mfg. Co., 1 B. Mon.
powers of each were derived from a 14; Bank of Chillicothe ®. Chilli-
special charter." cothe, 7 Ohio, pt. 2, 31; Hamilton »>
'Booths. Robinson, (1880) 55 Md. Newcastle R. R. Co., 9Ind. 359; Roek-
419; Susquehanna Bridge Co. ■». In- well v. Elkhorn Bank, 13 Wis. 653j
surance Co., 3 Md. 805; Australian Thompson b. Lambert, 44 Iowa, 839;
Steamship Co. v. Mounsey, 4 K. & J. Bradley «. Ballard, 55 111. 418; Gause
733; Curtis v. Leavitt, 15 N. Y. 9; v. City of Clarksville, 7 Rep. 519;
Beers®. Phoenix Glass Co., 14 Barb. Union Mining Co. I). Rocky Mountain
358; Mead s. Keeler, 24 Barb. 30; Nat. Bank, 3 Colo. 348; Magee v.
Partridge v Badger, 35 Barb. 146; Mokelumne Hill Canal Co., 5 Cal. 358.
Clarke. Titcomb, 43 Barb. 132; Barry ^^ Combination Trust Co. v. Weed, 3
1). Merchants' Exchange Co., 1 Sandf. Fed. Rep. 24.
Ch. 380; Life Insurance Co. i>. Me- ^Leo d. Union Pac. Ry. Co., 17Fed.
chanic Ins. Co., 7 Wend. 31; Barnes Rep. 278.
1). Ontario Bank, 19 N. Y. 153; Smith * Stout v. Yaeger Milling Co., IS
V. Law, 31 N. Y. 396; Nelson b. Eaton, Fed. Rep. 803.
36 N. Y. 410; Holbrook v. Basset, 5 « Tallmadge «. Fishkill Iron Co., 4
Bosw. 147; Lucas v. Pitney, 37 N. J. Barb. 383.
§ 89] PRIVATE COBPOEATIONS. 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 hability 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.^ 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.* 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.^
§ 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-balf
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
' Bohtn V. V. Loewer's Gambrinus when it was brought to their notice.
Brewery Co., (1890)16 Daly, 80; s. c, * * * The trustees * * * as
9 N. Y. Supp. 514, following Eath- such, could not, pursuant to the pro-
burn V. Snow, 3 N. Y. Supp. 925. visions of the by-laws mentioned,
See, also, Westerfleld «. Eadde, 7 Daly, have originally created any liability
336. on behalf of the corporation exceeding
''Bohm «. V. Loewer's Gambrtnus five hundred dollars in amount; and
Brewery Co., (1890) 16 Daly, 80; s. c, it cannot be Said that they can by im-
9 N. Y.^ Supp. 514. BiscHOFF, J., plication do the acts prohibited in un-
said: "An attempt was made by the equivocal terms. Peterson ■». Mayor,
plaintiff, upon the trial, to show a etc., 17 N. Y. 449; Brady «. M&yor,
sul)sequent adoption or ratification of etc., SON. Y. 313-319."
the president's act by the trustees, ' Sherman Center Town Company
predicated upon the neglect of the ». Morris, 43 Kans. 283; s. c.,23Pac.
trustees to repudiate the transaction Kep. 569.
104 GENEEAL POWEE TO INCTJE PECUNIAET 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.^
' Commonwealth ». 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. Wn-iiiAMS, J., forthecourt, 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 exienso 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 tbe 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 i). 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., 53 Pa. St. 177;
amount paid by each subscriber Philadelphia ». Ridge Avenue Ry. Co.,
§90]
PRIVATE COBPOKATIONS.
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 stocldiolder. 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
be; 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 either 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 are
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
corporate 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. The cor-
poration is the party. It has one hun-
106 GENEEAL POWEE TO INCUE PBCUNIAEY 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.*
dred thousand dollars In its treasury Mechanics' Banking Assn. ». New
and no more; yet it asks us to hold York &Saugerties White l;ead Co., 35
that the par value of its stock is one N. Y. 505; Mclntire «. Preston, 10 111.
million dollars, and permit it to exer- 48; Monument Nat. Bank v. Globe
else an important power on that basis. Works, 101 Mass. 57; Bissell ». Mich.
This we decline to do. The par value Southern & Northern Ind. K. Co. , 22 N.
of its shares is measured by the Y. 358, 289; City of Lexington B.Butler,
money it has received upon them, and 14 Wall 282; Moran «. Miami County,
not by the broken promises of those 2 Black, 723; Angell & Ames on Corp.
who subscribed for them." § 268; Field on Corp. 303; Green's
'Auerbach v. Le Sueur Mill Co., Brice's Ultra Vires, 273, 374, 729. Al-
(1881) 28 Minn. 391; s. c, 9 N. W. Rep. though in such a case the corporation
799. Reasoning in support of their or its officers exceeded the corporate
judgment, the court said: "Where a authority, and its contract would be,
private corporation has authority to hence, in a sense, ultra vires, yet other
issue negotiable securities, such in- legal principles, besides those merely
struments, when issued, possess the relating to the powers of the corpora-
■ legal character ordinarily attaching to tion, come in to aSect the result. It
negotiate paper, and the holder in is true, a corporation is a being created
good faith before maturity, and for by the law, and has properly no
value, may recover, even though, in authority but such as is conferred
the particular case, the power of the upon it, expressly or by implication,
corporation was irregularly exercised by the law of its creation; yet it may
or was exceeded; or, to state the legal become legally bound to observe and
proposition in its application to this perform contracts which it had not
case, this defendant having power to authority to enter into. The ends of
incur debts to a limited extent and to justice may require, as In this case,
issue its negotiable notes therefor, the that the corporation which has ex-
plaintifE, as a iona fide holder of the ceeded its powers should be estopped
note in suit, may recover upon it, by its own acts from pleading, in
although, in this particular case, the defense of its assumed obligations,
indebtedness of the corporation at the that they were iiltra tiires. " To ap-
time of giving this note already ex- ply the principle of estoppel is not to
ceeded the limits prescribed by its enlarge the powers of the corpotation;
articles of association. Stoney «. Amer- nor does it give warrant to a corpora-
ican Life Ins. Co., 11 Paige, 635; tion to disregard or violate the re-
§90]
PEIVATE COEPOEATIONS.
lOT
strictions which have been expressly
imposed upon it, or which exist in the
absence of power conferred. It was
said by the court in Bradley ». Bal-
lard. 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.
«. 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 hona fides of him against
whom the doctrine of ultra vires 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 lona
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 coi'poration 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 vires
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, performed 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.
I 91. General rules.
93. 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.
§ 103. 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.
113. 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.* The contracts of such officers, entered into with its
knowledge, though not expressly authorized, will bind the corpo-
ration.* 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.' Parol contracts made by authorized agents of
a municipal corporation, within the scope of its purposes, are
express promises of the corporation.^ But contracts not within
'Ross V. City of Philadelphia, 115 ' Buncombe b. City of Fort Dodge,
Pa. St. 323; s. c, 8 Atl. Rep. 398. (1874) 38 Iowa, 281; City of Indianola
« Allegheny City v. McClurkan, 14 ®. Jones, 29 Iowa, 282.
Pa. St. 81. 0 San Antonio ». Lewis, 9 Ter>,69.
§ 91] PUBLIC COKPOEATIONS. 109
the scope of their authority are not enforceable against the corpo-
ration.* 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.^ 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
• Addis ». 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-
fuUy 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 in
words : " The fact that 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 the corpo-
public agent is otherwise. The city ration or of public law."
commissioner, upon whose determina-
110 POWEE OF AGENTS AND OEFIOEES. [§ 92
capacity as a public agent to, make the declaration or representa-
tion for the government.*
§ 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.' 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.^ So a municipal corporation, a city, may employ a third
person, not an oflBcer or regularly constituted agent, to negotiate
for it in procuring a right of way for a ditch, for instance.* 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
' Mayor & City Council of Baltimore fleers, done beyond the scope of their
V. Eeynolds, (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."
sume 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 1). of right do whatever is necessary to
Odom, 3 Bland Ch. (Md.) 417; Ang. <fc carry out and execute ., the trusts
Ames on Corp. 11. . Agents themselves, reposed in it."
not principals, answerable to their ' Hitchcock ». Galveston, (1877). 96
constituents, they are not to be pre- U. S. 341.
sumed to recognize and individually * Stewart v. City of Council Bluffs,
ratify and confirm the acts of their of- (1883) 58 loTKa, 643.
§ 92(3 PUBLIC 00EE0EATI0N8. Ill
seliifilinees ia quite apt to hold in frequent review the acts. of all
employeea-' It is well settled that the fact that the contract
made hy 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.^ 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.' 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 iody, as a city council, but where it has
been delegated to a comtnittee 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 all 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."*
'Parsel v. Barnes & Bro., (1868)25 StarinD. Genoa, 33 N. Y. 439, 453; Peo-
Ark. 361. pie a. Mead, 36 N. Y. 334; Dodge «.
"Ibid. Mayor, etc., of Baltimore County of Platte, 83 N. Y. 318;
V. Reynolds, (1862) 20 Md. 1; Dela- United States ®. City Bank of
field V. State of Illinois, (1841) 36 Columbus, (1858) 21 How. 356;
Wend. 192. DeVoss ®. Richmond, (1868) 18 Gratt.
'Mayor, etc., of Baltimore «. Mus- (Va.) 339; Lewis «. Barbour Co.
grave, (1877) 48 Md. 273; State ex rel. Comrs., 3 Fed. Rep. 191.
Mayor, etc., v. Kirkley, 29 Md. 85; * Brown ». District of Colijmbia,
Horn V. Mayor, etc., 30 Md. 318. See, (1888) 137 U. S. 579, 586. This rule is
also. The Floyd Acceptances, (1868) 7 supported by the following cases:
Wall. 666; Marsh ». Fulton Couixty, Day v. Green, (1849) 4 Cush. 433;
(187.0)10 Wall. 676,; Clark «. DesMqines, Fisher «. Attleljorough, (1849) 4 Cush.
(1865) 19 Iowa, 199, 310; Tre^diyell v. 494 ; Kingsbury t>. School District,
Commissioners, (1860) 11 Ohio St. 183; (1846) 12 Met. 99; Coffin t. Nantucket,
Gould «. Sterling; 33 N. Y. 464; (1850) 5 Cush. 369; Damon ®. Granby,
112 POWEE OF AGENTS AND OFFICEES. [§ 93
§ 93. Illustrations of the duty and powers of municipal
ofificers. — 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.' 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.^ A director of the poor appointed
by tbe 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.' 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.^ 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.'
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.' 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) 3 Pick. 345, 355; State ». Jersey ^ Barber ®. City of Saginaw, (1876)
City, 27 N. J. Law, 493; Charles v. 34 Mich. 52.
Hoboken, 37 N. J. Law, 303; Dey v. ■» McCormick ii. Bay City, (1871) 23
Jersey City, (1869) 19 N. J Eq. 413 ; Mich. 457.
Mayor, etc. , of Baltimore v. Poultney, ' Manley v. City of Atchison, (1873)
(1866) 25 Md. 18. 9 Kans. 358.
" Stevenson ®. Bay City, (1873) 36 ^West v. City of Utica, 71 Hun, 540;
Mich 44. s. c, 34 N. Y. Supp. 1075.
' Advertiser & Tribune Co.«. Detroit,
43 Mch. 116; s. c, 5 N. W. Rep. 73.
§ 94] PTJBLIO COEFOEATIONS. 113
the resolution of the common council directing the doing of the
work under his direction, and the proposals and estimates received
in pursuance of the advertisement of the same.* 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 cliarter, 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 tlie government of the city, which they could not
delegate.' Where an order was given by a single member of a
committee appointed by a city 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 meruit? 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.*
§ 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.^ 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.' But
where the forms and conditions prescribed are not intended as a
' Bonesteel s. City of New York, * City of Pindlay v. Pertz, (U. S. C.
(1860) 32 N. T. 163, afflrming Bone- C. A. 1895) 66 Fed. Rep. 437.
steel ». City of New York, 6 Boaw. " Gutta-Percha & Rubber Manuf .
550. Co. ». Village of Ogalalla, (Neb. 1894)
^ Kramrath t>. City of Albany, (1891) 59 N. W. Rep. 513; citing Town of
137 N. Y. 575; s. c, 38 N. E. Rep. Durango ®. Pennington, 8 Colo, ioi; s.
400. c, 7 Pac. Rep. 14; McCracken ». City
'Ibid. of San Francisco, 16 Cal. 633; San
^ Kelso %. Teale, (Cal. 1895) 89 Pac. Diego Water Co. ®. City of San Diego,
Rep. 948. 59 Cal. 533; Cory «. 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.* A cor-
poration retaining and using money borrowed for it by its officer
in excess of his authority ratifies the transaction and is liable.'
A public corporation cannot, by subsequent ratification, make
good an act of an agent which it could not have directly author-
ized.* 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.*
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 necessary schoolhouse furniture,
by occupying the building for school purposes and insuring the
Law, 445; Keeney ». Jersey City, 47
N. J. Law, 449; s. c, 1 Atl. Rep. 511;
Newman v. City of Emporia, 33 Kans.
456; s. c, 4 Pac. Rep. 815; McBrian
V. Grand Rapids, 56 Mich. 103; s. c, 23
N. W. Rep. 306; McDonald ». Mayor,
etc., 68 N. Y. 33; Smith ». City of
Newburgh, 77 N. Y. 130; Bank «.
South Hadley, 138 Mass. 503.
' Gutta-Percha & Rubber Manuf.
Co. ■B. Village of Ogalalla, (Neb 1894)
59 N. W. Rep. 513. An action to re-
cover the value of goods sold to the
village.
« "Willis i>. St. Paul Sanitation Co.,
(1893) 53 Minn, 370; s. c, 55 N. W.
Rep. 550. In White s. City of Rah-
way, 11 Fed. Rep. 853, it appearing
that the treasurer of a city, under the
board of finance, borrowed of a banlc
a sum of money and the city ratified
the loan made by its agent by a re-
newal of the note from time to time,
and by payments upon it at different
times, and when the note was executed
by the treasurer he pledged as security
for its payment bonds of the city, sub-
sequently substituting therefor other
ten-year bonds of the city, and there
remaining a sum due and unpaid upon
the note, it was held in the federal
court that under the laws of New Jer-
sey the treasurer was authorized, un-
der the board of finance, to make the
loan, and that there could be a recov-
ery upon the note without first dispos-
ing of the collaterals. As to what
would show a valid contract by ratifi-
cation on the part of the county, see
Leon County v. Vann, (Tex. 1894) 37
S. W. Rep. 258.
^ Hodges ». City of Buffalo, 2 Denio,
110; Halstead v. Mayor, etc., of New
York, 3 N. Y. 430; Boom ®. City of
Utica, 3 Barb. 104; Cowen ». Village
of West Troy, 43 Barb. 48. "When a rat-
ification will bind the corporation, see
Peterson v. Mayor, etc. , of New York,
17 N. Y. 449; People ». Flagg, 17 N.
Y. 584; 8. c., 16 How. Pr. 36. In
Scott's Exrs. ». Shreveport, 30 Fed.
Rep. 714, it was held that the agent of
the city, having no authority to bind
the city by giving a note, for lack of
power in the city to raise money to do-
nate to a railroad company, the obli-
gation could not be made binding on
the corporation by any subsequent act
of the municipal authorities.
* Ruggles ®. Collier, (1869) 43 Mo.
353. As to ratification of contract of
an agent by a municipal corporation, .
see McClo§key v. City of Albany, 7
Hun, 473. Where it cannot be
inferred, see Burns ». Mayor of New
York, 5 T. & C. 371.
§ 95] PUBLIC C0EP0EATI0N8. 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.* 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
held to have ratified the purchase and a recovery allowed upon
the contract against the district.^ 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.^
§ 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 : " 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 best
he is but a quasi agent. Properly speaking, he has no principal,
and so far as he has, this principal only appoints him and has no
further power over him. lie 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." ^ The governing boards of
coimties are known under different titles in the different states.
• School District No. 39 in Brown Dlst. of Calhoun, (1893) 48 Mo. App.
County ». Sullivan, (1892) 48 Kans. 624; 408.
s. c, 39 Pac. Eep. 1141. « Clapp v. County of Cedar, (1857) 5
' Union Sch'ool Furniture Co. v. Iowa, 15, 55, a case involving the au-
School District No. 60 of Elk County, thority of a county judge in the
(189'3) 50 Kans. 727; s. c. 32 Fac. Rep. issuance of county bonds in' payment
368. of a subscription to the stock of a rail-
' Thomas Kane & Co. ■». School road company.
116 POWEE OF AGENTS AND OFFIOEES. [§ 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.^ In affirming an order for a peremptory writ of
ma/ndamus 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
witb 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.^ 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.' 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
' Bush V. Wolf, (1891) 55 Ai'k. 134; what cases and under what drcum-
s. c, 17 S. W. Rep. 709. stances such funds shall be paid out,
' Beeney, County Treasurer, v. Ir- 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 f:ict 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
terniine, 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. ^ Morris v. Merrel, (Neb. 1895) 63 N.
They alone have the right to disburse W. Rep. 865.
the public moneys and to decide in
f 96] PUBLIO COEPOEATIONS. 117
to draw warrants against such funds.' 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.^ Under the
statute of New Jersey, a board of chosen freeholders can
improve any ordinary highway under their control only witli
money obtained from the sale of road bonds.' A county com-
missioners' court in Texas by electing, with knowledge of a eon-
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.* 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.^ 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.'
§ 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.'' And no order made by a board of supervisors is valid or
binding unless it is authorized by law ; thus, if they allow claims
' Oakley v. Valley County, (Neb. (1894) 86 Tex. 234; s. c, 24 S. W.
1894) 59 N. W. Rep. 368. Kep. 272.
« City of Paterson v. Board of ' Webb v. Spokane County,, (Wash.
Chosen Freeholders, (N. J. 1894) 29 1894) 37 Pac. Rep. 282.
Atl. Rep. 331. « Fenton «. Blair, (Utah, 1895) 39
' Ibid. Pac. Rep. 485.
* Boydston v. Rockwall County, ' Foster B.Coleman, (1858) 10 Cal. 278.
118 POWER OF AGENTS AND OFFICEES. [§ 96
not legally chargeable to a county, neither the allowance nor the
warrants drawn therefor create any legal liabilities.* 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 tlie 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.* So far as concerns the examination and settlement
of accounts and claims against a county, its board of supervisors
are a q^uasi 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.^ l!Tor 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.^ 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.^ It cannot set apart a portion of
the reveniie of the county as a fund for current expenses.' They
have no authority to allow an unaudited claim against a county,
except within one year after the claim accrues and becomes due.*
The board must first give public notice of a special meeting at
which it proposes to settle with the county treasurer, and specify
' Linden ». Case, (1873) 46 Cal. 171. ■■ Babcock v. Goodrich, (1874) 47 Cal.
"Babcock ». Goodricb, (1874) 47 Cal. 488.
488. ' Ibid.
»B1 Dorado Co. v. Elstner, 18 Cal. «Ibid.
144; Tilden v. Sacramento Co., 41 Cal. ' Laforge «. Magee, 6 Cal. 285.
68; Colusa County v. De Jarnett, 55 ' Carroll ®. Siebenthaler, 37 Cal.
Cal. 373. 193.
§ 9T] PUBLIC COEPOEATIONS. 119
in the notice that such business will be transacted ; otherwise
they cannot settle with the officer.' Unless specially authorized
by law, the board cannot allow the salary of a county treasurer
out of county funds.' 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, has 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.' 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.*
§ 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.' Only such powers can be exercised by
County Courts, when sitting for the disposition of county busi-
'ElDoradoCo. ■». Reed, 11 Cal. 131. ■'Smith v. Los Angeles County,
"County of San Joaquin v. Jones, (1894) 99 Cal. 638; s. c, 34 Eac. Rep.
18 Cal. 327. 439.
'Mills V. Bellmer, (1874) 48 Cal. ' County of Jackson ». Hall, (1870)
124. 53 111. 440.
120 POWER OF AGENTS AND OFFICEKS. [§ 9T
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 iip 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.' 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.^
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.'
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.* 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.'
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-
• County of Hardin «. McFarlan, 'People ex rel. Chase «. County
(1876) 83 111. 138. Court of Macoupin County, (1870) 54
' County of Jackson «. Rendleman, 111. 217.
(1881) 100 111. 379, holding such orders * Board of Supervisors of Cumber-
valid and the interest collectible. The land County «. Edwards, (1875) 76 111.
court distinguished County of Hardin 544.
u. McFarlan, 83 111. 138, 141, and Hall ' Gillett ». Board of Supervisors of
V. Jackson County, 95 111. 853. Logan County, (1873), 67 111. 356.
§ 98] PtIBLIO OOOJPOEATIONS. 121
tion, and in case, under this power, in the nse of their discretion,
a board has settled and compromised a claim about which there
was dispute, in the absence of anything sTiowing 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.'
§ 98. Power of county commisJsioners 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.^ 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
' Harms v. Fitzgerald, (1878) 1 the board in such a matter is final, see
Bradw. (HI.) 335. In support of this Supervisors of Orleans «. Bo wen, 4
rule, see Attorney-General v. Aspin- Lans. 24, 33; Shank v. Shoemaker, 18
all, a Mylne & 0. 618; Parr 11. At- N. Y. 489; Russell v. Cook, 3 Hill, 504;
torney-General, 8 Clark & F. 409; Stover v. Mitchell, 45 111. 318; County
Attorney-General ®. Poole, 4 Mylne & Comrs. of Lucas County v. Hunt, 5
C. 17; Attorney-General v Lichfield, Ohio St. 488.
13 Sim. 547; Attorney-General v. Nor- ^ Hight v. Board of Comrs. Monroe
wich, 16 Sim. 325; Mooers 11. Smed- County, (1879) 68 Ind. 575; citing
ley, 6 Johns. Ch. 28; Livingston v. Seibrecht «. City of New Orleans, 13
Hollenbeck, 4 Barb. 10, 14 ; Meserole La. Ann. 496; Bouglass v. Mayor &
«. Mayor & Common Council of Bd. of Aldermen of Virginia City, 5
Brooklyn, 8 Paige, 198; Gillespie v. Nev. 147; Hayward v. Davidson, 41
Broas, 23 Barb. 370; Audrews v. Ind. 213; McCabe v. Board fit Corn-
Board of Supervisors Knox County, missioners of Fountain County, 46
70 111. 65; City of Galena v. Corwith, Ind. 380; Burnett v. Abbott, 51 Ind.
48 111. 433; Brush v. City of Carbon- 354; Gordon v. Board of Comrs.
dale, 78 111. 74; Conrad ». Trustees of Dearborn County, 53 Ind. 332; Board
Ithaca, 16 N. Y. 168; Storrs v. City of of Comrs. Jackson County v. Apple-
Utica, 17 N. Y. 104. As to the power white, 63 Ind. 464; Board of Comrs.
of county board, see Prest. and Trus- Jennings County v. Verbarg, 63 Ind.
tees of Town of Petersburg v. Map- 107.
pin, 14 111. 193. That the decision of
16
122 POWEE OF AGENTS AND OFFICEES. [§ 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 ench a board to pay a reward
for the arrest of a criminal has been held to be beyond its powers
and not enforceable against the county.' A county board cannot
authorize the county treasurer to employ an attorney to assist
in the collection of delinquent taxes, at the county expense.*
County boards have no authority to make allowances for services
done or things furnished voluntarily for which they cannot law-
fully contract.^ Should such improper allowances be made,
relief may be had from it by an appeal.* County boards may
contract for an examination and adjustment of the accounts of a
' Board of Comrs. of Grant Co. v. that ' The boards of commissioners
Bradford, (1880) 73 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 «. Board of Com- rock «. 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 Ind. nation to the law, and not outside and
441, holding that the board had no in violation of it." English ». Smock,
power to employ an attorney to assist 34 Ind. 115; s. c, 7 Am. Rep. 315.
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 ®. Embree, (1882) 88 Ind. act which imder the law they may do
183. or not, as in the exercise of their
'Ibid. discretion seems best, and the time
* Board of Comrs., etc., v. Gregory, and mode of doing the act are not
43 Ind. 33; Grusenmeyer «. City of prescribed by law, no appeal lies from
Logansport, 76 Ind. 549; Rothrock «. their decision in such a case. But
Carr, 55 Ind. 334. See Waymire v. when they make an allowance which
Powell, (1885) 105 Ind. 338, 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 thecasesof Nichols ». Howe, 7 Ind. 506;
for services rendered in inspecting. Board of Comrs., etc., ». Boyle, 9 Ind.
examining and measuring the abut- 396; Sims «. Board of Comi's., etc., 39
ments of a bridge which had been Ind. 40; MofSt o. State ex rel., 40
built under a contract made with the Ind. 317; Board of Comrs., etc., «.
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.
§ 99] PUBLIC COEPOEATIONS. 123
county treasurer.* 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.' 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 otBcers. 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.*
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.^ 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.^
§ 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, tliey not being authorized to bind the county by a
' Duncan v. Board of Comrs. of * Halbert «. State ex rel. Board of
Lawrence County, (1884) 101 Ind. 403. Comrs. Martin County, (1864) 22 Ind.
It was said: "The board of commis- 125. j^s to contracts in relation to
sioners have very full powers in refer- bridges entered into by county boards
ence 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; s. c, 37 N. B. Rep. 16; Smith v.
ment of the finances of the county is Comrs., Bind. App. 158. As to county
the contract of the county, and valid board contracting with a physician for
as such." See Hoffman B. Board, etc., services in attending the poor, see
96 Ind. 84; Moon v. Board, etc., 97 Woodruff «. Comrs. of Noble County,
Ind. 176; Nixon ®. State ex rel., 96 (1894) 10 Ind. App. 179; s. c, 37 N,
Ind. 111. E. Rep. 733.
" Scobey ■». Decatur County, (1880) ' Board of Comrs. of Rush County,
73 Ind. 551. v. Cole, (1891) 3 Ind. App. 475; s. c,
»Coman ». State ex rel. Armstrong, 28 N. E. Rep. 773.
(1886) 4 Blackf. (Ind.) 341.
124 POWER 0¥ AGENTS AND OFFICBES. [§ 99
contract made by them individually.^ That a contract made
with a board of supervisors be entered on the supervisors' record
is not necessary to its validity, as the contract may be proved by
parol.^ There is no authority in the chairman of the board of
supervisors to contract with an attorney for services in a suit in
which the county is interested, but the board of supervisors may
confer such authority upon the chairman, and, in case this is done,
such a contract would bind the county.^ A county has been
held not to be bound by a contract for building materials for a
public building, made by the chairman of a building committee
who was also chairman of the board of supervisors of the county,
as there was shown no special authority from the board to him
to make such contract, and such authority could not be inferred
from the simple facts that he was chairman of the building com-
mittee and of the board of supervisors.* Further, that no obliga-
tion could be created against the county by an assurance of the
chairman of the board that they would pay the bill, as to bind
the county a majority of the members must assent to such an
assurance.' These boards have power, implied from their power
under statutes " to represent their respective counties, and to have
the care and the management of the property and business of the
county in all cases where no other provision is made," to employ
one to assist in the collection of taxes not collectible by the county
treasurer in the discharge of his duty.* It has been held that
they have the power to offer a reward for the recovery of money
stolen from the county, by necessary implication from the stat-
utes giving them full control of county property, and the care
and management thereof;'' but not for the arrest of persons
charged with the commission of crime. ^
•Jordan v. Osceola County, (1882) «Willielm v. Cedar County, (1878)
59 Iowa, 388; s. c, 13 N. W. Rep. 50 Iowa, 254.
344. ' Hawk v. Marion County, (1878) 48
'Ibid., following Tatlock v. Louisa Iowa, 473.
County, 46 Iowa, 138. The same rule 'Ibid. The court said: "It is the
recognized in Baker «. Johnson duty primarily of the state to cause
County, 83 Iowa, 151, 153; Eice «. Ply- the arrest and conviction of criminals,
mouth County, 48 Iowa, 136. in the performance of which the state
^ Tatlock 1). Louisa County, (1877) makes use of such ofiBcers and agencies
46 Iowa, 188. as it sees proper, and, if the general
*Rice ®. Plymouth County, (1876) assembly saw proper, there is no
43 Iowa, 186. doubt a duty in respect thereto could
' Ibid. be legitimately imposed on counties.
§ 100] PUBLIC COEPOEATIONS. 125
§ 100. Power of county commissioners in Kansas. — After
a vote of the people in favor of it, county commissioners have
power to borrow money to meet the current expenses of the
county in case of a deficit in the county revenue and to issue the
bonds of the county for the loan.' It is within the scope of the
authority of a board of county commissioners to determine
whether an election has been had authorizing them to subscribe
stock in a railroad company, and to subscribe such stock when
such election has been held, and to make all necessary orders with
reference to the matter.^ The county commissioners alone pos-
sess the power to contract for the county or to create an indebt-
edness against the county for articles, as mattings for the floor,
for instance, to be used about the court houses.' And the board
will not be bound for a debt created for such purposes by the
court or the sheriff of the county, without the consent of the
county commissioners.* They have no power to appropriate the
fund raised by taxation to defray county charges and expenses of
the current year to the erection of permanent county buildings."
And in ease a board has contracted for the erection of permanent
county buildings, when it was beyond their power as county ofii-
cers to make such contracts, and propose to carry out the terms
of the contract at the cost of the county, and to use the general
revenue fund to pay for the work done under such contract, they
may be restrained by injunction from erecting the buildings, or
from drawing any warrants on the county treasurer on account of
the contract.* Medical services to prisoners confined in county
But instead of doing so, the statute adopted in Borough of York «. Forscht,
expressly authorizes the governor, in 33 Pa. St. 391, on the ground that the
certain specified cases, to offer a re- burgesses of the borough were a part
ward for the apprehension of persons of the public police. Janvrin v. Town
charged with crimes of murder or ar- of Exeter, 48 N. H. 83, is not applicable
son. Code, § 58. The statutes in because the power in that state is con-
Maine, as to the power of towns, in ferred by statute, and such is true as
this respect, are much like ours as to to Crawshaw v. City of Eoxbury, 7
counties, and there also the governor Gray, 374."
is authorized to offer rewards in cer- ' Doty v. Ellsbree, 11 Kans. 209.
tain cases. It was held in Gale v. " State ex rel. v. Allen, 5 Kans. 313.
South Berwick, 51 Me. 174, that towns ' Neosho County v. Stoddart, 13
in that state had no power to offer re- Kans. 307.
wards for the arrest of criminals. ^Ibid.
Such seems also to be the rule in Illi- * State ex rel. v. Marion County, 31
nois. County of Crawford i>. Spenney, Kans. 419.
31 111. 388. But a contrary rule was ' Ibid.
126r POWEK OF AGENTS AND OFFIOEKS. [§ 101'
jails must be authorized by the county board, otherwise the
county will not be liable for them.* 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.^ 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.' Where a claim against a county has been disallowed in
whole or in part by the county commissioners, it is the right of
the claimant to appeal to the District Court or to commence an
original action for it.* 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. '
Under the statute of Kansas empowering t^e county commission-
ers of a county " to purchase at their true value any and aU
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.'
§ loi. 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 to«submit the question of taxation to popular
vote without some special legislative enactment authorizing it.''
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.' And in a suit by the attorney for the recovery
> Roberts ». Pottawatomie County, 10 v. "Webb, (1891) 47 Kans. 104; s. c, 27
Kans. 29. Pac. Rep. 825.
' Board of Comrs. of Clay County v. * State of Kansas ®. Pierce, (1893)
Renner, 27 Kans. 225. 53 Kans, 521; s. c, 35 Pac. Rep. 19.
'Leavenworth County «. Keller, 6 'B. G. & M. R. R. Co. o. Warren
Kans. 510. County Court, 10 Bush, 718.
* Leavenworth County v. Brewer, 'Garrard County Court ®. McKee,
S Kans. 307. 11 Bush, 336.
'JSoard of Comrs. of Hamilton Co.
§ 102] PUBLIC COKPOEATIONS. 127
of hisifee, tlie judgment of the County Court as to wliat was
beneficial for the county, and the employment of counsel to effect
the object cannot be questioned.' So hare they power to employ
counsel to resist the application of a railroad company for a
mcmda/m/us 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.^ 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.^ The power given to employ phy-
sicians to inoculate the poor does not empower them to employ
a physician for the general treatment of the smallpox.* 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.' 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.'
§ 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.' 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.* They cannot
delegate to a committee or third parties such powers as the law
requires to be submitted to their own discretion and judgment.'
They cannot delegate to the county treasurer the auditing of
' Ibid. ^ Jones i>. Pendleton County Court,
» Washington County Court «. (Ky. 1893) 19 S. W. Rep. 740.
Thompson, 13 Bush, 241. ' Stamp v. Cass County, 47 Mich.
"Orphan Society of Lexington v. 330; s. c, 11 N. W. Rep. 188.
Fayette County, 6 Bush, 415. 'Davis «. Board of Supervisors of
^'Pnsey ®. Meade County Court, 1 Ontonagon County, 64 Mich. 404; s.
Bush, 318. c, 31 N. W. Rep. 405.
'Rodman v. Justices of Larue ' 'Maxwell ®. Bay City Bridge Co., 41
County, 8 Bush, 145. Mich. 458; s. c, 3 N. W. Rfip, 639;
128 POWEK OF AGENTS AND OFFICEES. [§ 103
accounts against the county.' 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.^ 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.' In allowing pay for services as to which the law
is silent, a board of supervisors lias considerable discretion, which
it must exercise if a proper case, in its judgment, arises.* 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.^ Neither will m,mh-
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.*
§ 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.''
Their acts within the course prescribed by the statutes are bind-
ing upon the county ; if beyond, they are not binding.' They-
may make verbal contracts,' but cannot bind the counties to all
the contracts they may choose to make.'" 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 ». St. Clair County Officers, 15 ' People v. Wayne Auditors, 10
Mich 85. Mich. 307. .
' Vincent v. Mecosta County Super- ' State v. Shortridge, (1874) 56 Mo.
visors, 53 Mich. 340; s. c, 17 N. W. 126.
Bep. 938. 8 Saline County «. Wilson, (1875) 61
* Attorney-General «. Bay Super- Mo. 287; Sturgeon ». Hampton, (188D)
visors, 84 Mich. 46, 88 Mo. 308. County Courts as agents.
"Stockle i>. Silsbee, 41 Mich. 615; s. State ex rel. Quincy, Mo. & Pac. By.
c, 2 N. W. Bep. 900. Co. ■». Harris, (1888) 96 Mo. 29; s. c.,
* Lee «. Board of Supervisors of 8 S. W. Bep. 794.
Ionia County, 68 Mich. 330; s. c, 86 »Hase v. Warren County, (1817) 3
N. W. Bep. 83. Mo. App. 567.
' Mixer «. Manistee County Super- '» Alderson 0. St. Charles County,
visors, 36 Mich. 432. (1879) 6 Mo. App. 430.
§ 103] PUBLIC COBPOEATIONS. 129
made in the first instance.* 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.' 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.* They cannot alter the assessment of taxes to build
school houses on the mere ground that a school house was unneces-
sary,' but may compromise disputed claims for taxes.' They
may contract for insurance upon the county buildings against iire
or liglitning.' 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 tliat of either party ; ' 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.' They have no power to issue county certificates of indebted-
ness ;'" 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.*' In case a county treasurer pays a warrant when there
is no money in the fund on which it is drawn, he cannot recover
' Walker «. Linn County, (1880) 72 ' Walker v. Linn County, (1880) 72
Mo. 650. Mo. 650.
» County of Johnson v. Wood, (1884) « Henley v. Clover, (1878) 6 Mo.
84 Mo. 489. App. 181.
' Riley «. Pettis County, (1888) 96 » Thrasher v. Greene County, (1885)
Mo. 318; s. c, 9 S. W. Rep. 906. 87 Mo. 419.
^ State ex rel. Clinton County v. '" Smallwood v. Lafayette County,
Hannibal & St. Joseph R. R. Co., (1885) (1882) 75 Mo. 450.
87 Mo. 2B6. "Bauer v. Franklin County, (1873)
5 In, re Petition of Powers, (1873) 53 51 Mo. 205.
Mo. 218. " Hooper v. Ely, (1870) 46 Mo.
0 St. Louis, Iron Mt. & So. Ry. Co. 505.
V. Anthony, (1881) 73 Mo. 431.
17
130 . POWER OF AGENTS AND OFFICEBS, [§ 104
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.*
§ 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.^ A county may be bound by a majority of the
board of supervisors, lawfully convened, unless it be otherwise
expressly provided by law.' Such boards having no inherent
power to borrow money or to issue negotiable paper, must liave
statutory authority, express or implied, to do so.^ 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.' Under a power
given a board of supervisors to provide for a permament location
of an armory, by erecting it, they may hire a building for that
purpose for a term of years.' 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.'' 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.* 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.' And
' Cook V. Putnam County, (1879) 70 ' People s. Supervisors of Rens-
Mo. 668. selaer, 52 Hun, 446; s. c, 5 N. Y.
'Chemung Canal Bank v. Super- Supp. 600.
visors of Chemung, 5 Denio, 517. * Ibid.
'People 11. BrinkerhoH, 68 N. Y. 259. » People ». Supervisors of Cortland,
■•Parker ». 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 v.
308. Supervisors of New York, 31 How.
»Pis6ple®. Baker, 29 Barb. 81. Pr. 288; People «. Supervisors of
« People ex rel. Stockwell v. Earle, New York, 23 How. Pr. 71.
(1874) 47 How. Pr. 370.
§ 104] PUBLIC COEPOEATIONS. ,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.^
They have no power to control the disbursements of the poor
fund in the hands of the county treasurer.^ The general povs^er
of supervisors of a county to maintain actions includes the power
to compromise a doubtful claim on which an action has been
brought.' 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 wort.* 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.^ A board of supervisors,
where no definite 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.^ In the statutory power of a
board 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.'' 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.' 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.' They cannot allow a claim against
a county on their own notions as to its being an equitable one.*"
' Supervisors of Richmond County Supervisors of Warren County, 1
V. Ellis, (1875) 59 N. Y. 620. How. Pr. 116.
'People V. Demarest, 16 Hun, 123. * People ex rel. v. Supervisors of
* Supervisors of Orleans County ». Broome County, 65 N. Y. 222.
Bo wen, 4 Lans. 24. ' Gere v. Supervisors of Cayuga
"People ». Meach, 14 Abb. Pr. (N. County, 7 How. Pr. 255; People v.
S.) 439. Supervisors of Delaware County, 13
' Cogan V. Mayor, etc., of New How. Pr. 50.
York, 5 Hun, 291. i» Chemung Canal Bank v. Super-
' People ex rel. ■». Supervisors of visors of Chemung County, 5 Denio,
St. Lawrence County, 30 How. Pr. 517. As to the duty of supervisors in
173. auditing claims against a county, see
' People v. Supervisors of Dutchess People ex rel. v. Supervisors of St.
County, 9 Wend. 608; People v. Lawrence County, 30 How. Pr. 173.
132' POWER OF AGENTS AND OFFIOEES. [§§ 106-107
They have no power to indemnify a justice of the peace against
the expenses of hi^ defense in impeachment.*
§ 105. Power of county commissioners in Pennsylvania.
— A county is not bound by a contract made by one county com-
missioner.' But two of the commissioners may bind the county
by a contract made in their official capacity, though not at their
office.^ County commissioners in Pennsylvania have power to
purchase everything necessary for the accommodation of persons
employed in conducting a general election.* But they cannot
bind a county by a prior agreement to pay costs on a nolle
prosequi with leave of court.^ 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.*
They may also bind a county by a contract for the removal of an
insane prisoner to a hospital and his maintenance therein.'
County commissioners can only contract with counsel to repre-
sent the county in litigation for a reasonable compensation.^
§ 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.'" And the county
wUl 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."
§ 107. Power of township trustees in Indiana. — Township
trustees may levy a tax to build school houses.'* And a contract
' People «. Lawrence, 6 Hill, 344. ' Allegheny County 11. Western
' Treichler ». Berks County, 3 Grant's Pennsylvania Hospital, 48 Pa. St.
Cas. (Pa.) 445. 133.
' JefEerson County ». Slagle, 66 * County v. Barber, 97 Pa. St.
Pa. Bt. 203. 455.
* Commonwealth «. Commissioners 'Beal 11. St. Croix County, 13 Wis.
of Philadelphia, 3 Serg. & R. 193. 500.
« Berks County «. Pile, 18 Pa. St. '° French ». Dunn County, 58 Wis.
498. 402.
"Township ®. County, 3 Wood- "Ibid,
ward's Dec. (Pa.) 194. " Adamson ». Auditor, 9 Ind. 175.
§ 107] PUBLIC COEPOEATIONS. 133
of township trustees for building such houses is binding on the
township.^ 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.' 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.
The 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.^ On the petition for a rehearing of this ease 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.'
' Crist V. Brownsville Township, 10 biis authority * * *." The court
Ind. 461. said in Axt -o. Jackson School Town-
"Heal «. Jefferson Township of ship, 90 Ind. 101: "In dealing with
Grant County, (1860) 15 Ind. 431. such trustee the appellant was bound
' Union School Township v. First to take notice of his fiduciary charac-
National Bank of Crawfordsville, ter, and to know that he could only
(1885) 103 Ind. 464; Bicknell v. Widner bind his township by his words and
School Township, 73 Ind. 501; Wallis deeds which were authorized bylaw."
V. Johnson School Township, 75 Ind. It was not in [this trustee's] power, by
368; First National Bank v. Union checks, notes or other instruments, to
School Township, 75 Ind. 361; Pine bind the school corporation unless the
Civil Township v. Huber Manufactur- claim for which they were given ex-
ing Co., 83 Ind. 121; Beeve School isted against the township, and in this
Township ■». Dodson, 98 Ind. 497. case no claim did exist. Even if the
* Union School Township v. First trustee had been guilty of fraud the
Nat. Bank of Crawfordsville, (1885) school corporation would not have
103 Ind. 464. It was said: "The been bound. Lowell Five Cents Sav-
trustee, in the management of the ings Bank v. Inhabitants of Winches-
flnancial affairs of the school township, ter, 8 Allen, 109; Benoit ». Inhabitants
is a special agent with limited statu- of Conway, 10 Allen, 538; Dickinson v.
tory powers. He has no general au- Inhabitants of Conway, 13 Allen, 487;
thority to bind the corporation. His Kelley v. Lindsey, 7 Gray, 387; Rail-
acts create a binding obligation against road Nat. Bank®. City of Lowell, 109
the school township only when he does Mass. 214.
the acts which the law authorizes, and ' Union School Township v. First
does them in the manner which it pre- National Bank of Crawfordsville,
scribes. All who deal with him are (1885) 103 Ind. 464, 473. Elliott, J.,
bound to take notice of the scope of speaking for the court, said: "That
134: POWER OF AGENTS AND OFFIOEKS. [§ 108, 109
§ io8. 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.' "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.^ 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.*
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.^
§ 109. Power of selectmen of towns in New Hampshire. —
Selectmen of towns have no general authority to bind the town
by contract.' They cannot borrow money upon the credit of the
town.^ 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 ou their part, should be paid.' 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 naust, 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 tor 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 «. Inhabitants of Conway,
poration to obtain or to expend money (1865), 10 Allen, 528.
derived from any other source than ' Goff 11. Eehoboth, (1846) 12 Met. 26.
the school revenues. Wallis v. John- * Day ■». Otis, 8 Allen, 477.
son School Township, 75 Ind. 368. <> Andover d. Grafton, 7 N. H. 298.
Thus is the power of the corporation *Rich«. Errol, 51 N. H. 350.
itself circumscribed, and its agent, the ' Sanborn ®. Deerfield, 2 N. H. 251
trustee, can by no possibility possess
§ 110] PUBLIC COEPOEATIONS. 135
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.' They may institute a suit
in the name of a town to recover back usurious interest.* Nego-
tiable notes, the property of a town, maybe sold and transferred
by selectmen.' 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.* 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.'
§ no. Power of supervisors of townships in Pennsyl-
vania.— A township cannot be bound by one of its supervisors
in a matter requiring dpKberation, consultation and judgment.
Such a matter must be determined by a majority of the board at
a regular meeting.* 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 iixed sum.' 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.' 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.*"
' Andover v. Grafton, 7 N. H. 398. « Dull ». Rldgway, 9 Pa. St. 373;
" Albany v. Abbott, 61 N. H. 157. McNeal ®. Allegheny Township, 1
= West V. Errol, 58 N. H. 233. Am. Law Reg. 124.
* TJnderhlU ». Gibson, 3 N. H. 353. *Pottsville«. Norwegian Township,
' Wilkinson v. Albany, 38 N. H. 9; 14 Pa. St. 543. As to contracts that
Farmington «. Jones, 36 N. H. 871; Mc- cannot be made by a single supervisor
Intire v. Pembroke, 53 N. H. 463. which will bind the township, see
'Township «. Gibboney, 94 Pa. St. Cooper ■». Lampeter 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. 134; Bat-
within the apparent scope of their au- ten v. Brandywine, 3 Clark, (Pa.)
thority, see Cook v. Deerfield, 64 Pa. 463.
St. 445. '"Bearce v. Township, 27 W. N. C.
'Bohan v. Township, 4 Kulp, (Pa.) (Pa.) 213.
234.
136 POWEE OF AGENTS AND OPFIOEES. [§ 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.* Supervisors of
townships have power to contract for making new roads ordered
to be opened and building the necessary bridges.' 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.' They may bind the township by a promise to
repay voluntary subscriptions to a bounty fund.* 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.' 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.^
§ III. 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.'' 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.' 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.' Selectmen have no authority to draw town
' Maneval ®. 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. 333. one of the supervisors for the use of
" Oakland Township v. Martin, 104 the township, and the other super-
Pa. Si. 303. visors had not dissented from the
■•Juniata Township v. Reamer, 3 W. purchase.
N. C. (Pa.) 91. « Snyder Township v. Bovaird, 123
B Commonwealth v. Supervisors of Pa. St. 443; s. c, 15 Atl. Rep. 910.
CoUey, 29 Pa. St. 131; Hopewell ». ' Hunkins «. Johnson, 45 Vt. 131.
Putt, 8 "W. N. C. (Pa.) 46. In Shep- » Guvette «. Bolton, 46 Vt. 238.
pard K Township, 4 Del. Co. Rep. ' Middlebury v. Rood, 7 Vt. 125.
§ 111] PUBLIC COEPOEATIONS. 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.^ 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 perfoitned for the
town." ^ So they may submit to arbitration claims against their
towns for damages sustained upon the higliways of the towns.^
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.*
And the general authority of tlie 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."' ^ 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.' 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.'' 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
' Davenport v. Johnson, 49 Vt. 403. which it called. The Supreme Court
In Burnham v. Strafford, 53 Vt. 610, held that, although he could not re-
an action of assumpsit brought by a cover for the amount paid to take up
selectman against the town, the evi- the order as for money paid at the
dence tended to prove that he borrowed town's request, the town having re-
fer the town a sum of money and gave pudiated the order, nor upon the order
a town order for the same, to which itself, it not being negotiable, yet, if in
he attached his own name and the fact he paid into the treasury the sum
names of the other two selectmen, and originally borrowed and he had him-
paid the money into the town treasury; self repaid the loan, he could recover
that the town denied his authority to in this action,
give the order and refused to pay it, = Dix v. Bummerston, 19 Vt. 363.
and denied that he had paid the money ' Hollister v. Pawlet, 43 Vt. 435.
into the treasury, or that the town ever * Town of Cabot ». Britt, (1868) 36
received any part of it; and upon this Vt. 349.
refusal and denial on the part of the ' Ibid.
town, the selectmen took up the order " SchofE v. Bloomfield, 8 Vt. 472.
by paying the holder the amount for ' Clay v. Wright, 44 Vt. 588,
18
138 POWER OF AGENTS AND OFFICEKS. [§§ 112, 113
suits on behalf of the town.' In road cases, where the town
agent 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.^ And the assent of the town agent to
such employilient of counsel by the selectmen may be presumed
where he neglects to employ counsel and no dissent on his part is
shown.'
§ 112. Power of town officers in Wisconsin. — The officers
of a town when transcending their lawful authority cannot bind
the town.* A town may be bound by a contract which it is
authorized to make by the joint act of two supervisors.' 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.* A town board may,
without special authority from the electors, defend a suit against
the town, or take an appeal therein.' 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.^
§ 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.' They
cannot, by contract, divest themselves of powers conferred for a
public purpose.'" School directors have an absolute discretion as
to the necessity of erecting new school houses and of borrowing
money to pay for them." 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-
' Langdon v. Castleton, 30 Vt. 285. » Hewitt v. Town of Grand Chute, 7
« Burton «. Norwich, 34 Vt. 345. Wis. 383.
^Ibid. 'Wachob v. Bingham School Dis-
" Hubbard v. Lyndon, 38 Wis. 674. trict, 8 Phil. 568.
'Beaver Dam v. Frings, 17 Wis. '"Conley ». Directors of West Deer,
398. 33 Pa. St. 194.
6Buttemut V. O'Malley, 50Wis. 339. "In re School Directors, 3 Kulp,
'Haner v. Town of Polk, 6 Wis. (Pa.), 104; In re School Directors, 3
350. Pa. Co. Ct. Eep. 497.
§ 113] PUBLIC COEPOEATIONS. 139
tions.* 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.^ As incidents to
their power to sell, directors of school districts have power to
mortgage the real estate held by them.* Where school officers
are authorized to make contracts only with the assent of a
majority of the electors, a contract made by them without siich
assent would be void.* The officers of a school district may
make a valid- contract with a qualified teacher extending beyond
their own term.' 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.^ A school district may avoid a contract
between a school board and one of tlie members of the board for
the erection of a school house by the latter.' Directors of a
school district voting for a misapplication of the public funds are
personally liable therefor to the township.' 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.' A de facto trustee of a school dis-
trict may bind the district by his contract with a teacher for the
schools."* 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
• McKeesport District s. Miller, 1 ' Pickett e. School District, 25 "Wis.
Pennypacker (Pa.), 510. 551.
5 School District t. Padden, 89 Pa. ' Dickinson Township v. Linn, 36
St. 395. Pa. St. 431.
' Morrisville School District, 3 Phil. « Scott v. Independent District of
181. Hardin County, ffowa, 1894) 59 N. W.
*Peck a. School District, 31 Wis. Rep. 15.
516. "O'Neil «. Battle, (1892) 62 Hun,
"Webster*. School District, 16 Wis. 618; s. c, 18 N. Y. Supp. 355. See,
316. also, O'Neil v. Battie, 61 Hun, 632;
«Cady «. Watertown, 18 Wis. 333. a c, 15 N. Y. Supp. 818.
140 POWBK 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.' 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.^ 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.' 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.* 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.®
> Hotchkiss V. Plunkett . (1891) 60 ■> Cleveland v. Amy, (1891) 88 Mich.
Conn. 230; s. c, 33 Atl. Kep. 535. 374; s. c, 50 N. W. Rep. 293. '
« Wheeler ®. Alton, (N. H. 1892) 23 ' Dolan v. Joint School District No.
Atl. Rep. 89. 13, Towns of Utlca & Freeman,
' Austin D District Township of (1891) 80 Wis. 155; 8, c, 49 N. W.
Colony, (1879) 51 Iowa, 103; s. c, 49 Rep. 960,
N. W. Rep. 1051.
CHAPTEE ly.
POWER OF AGENTS AND OFFICERS — PRIVATE CORPORATIONS.
I 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 be implied.
130. Power of officers generally.
121. The same subject continued.
122. Power of directors — general
rules.
123. Directors for the first year.
124. Directors de 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.
130. Power of trustees of a corpora-
tion.
131. Power of officers of a corpora-
tion to employ attorneys.
183. When officers may use bonds
as collateral.
133. When the execution of a note
is not authorized.
134. Execution of promissory notes
and transfer of choses in
action.
135. Notes signed by officers of cor-
poration.
136. Power of bank officers.
§ 137. Power of a bank cashier.
138. When the authority of its
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.
148. 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.
153. 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-
jointly.
142
POWEE OF AGENTS AND OFFICBES.
[§114:
§157.
158.
159.
160.
161.
162.
163.
164.
165.
166.
167.
168.
169.
170.
An illustration on this subject.
One holding several offices.
Note executed hy a secretary.
Power of superintendents, etc.
A manager's power.
Manager of a foreign corpora-
tion.
Authority of a manager.
What is not within the duties
of a cashier of a corporation.
Auditing board of a corporation.
Power of a treasurer generally.
Power of a treasurer as to trans-
fer of a note.
Power of a treasurer as to exe-
cution of a note.
Authority of a treasurer to bor-
row money by means of ster-
ling contracts.
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 tie
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.' 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.^ 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.* 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.'' An agent of a corporation acting within
the scope of his authority may bind his principal in the same way
' Merchants' Union Barb Wire Co. i>.
Rice, (1886) 70 Iowa, 14; s. c, 28 N.
W. Rep. 494.
2 Elwell ®. Dodge, 33 Barb. 336.
sJlverett v. United States, (1837) 6
Port. (Ala.) 166; citing Bank of Colum-
bia c. Patterson, 7 Cranch, 299; Me-
chanics' Bank of Alexandria ®. Bank
of Columbia, 5 Wheat. 326; Fleckner
V. United States Bank, 8 Wheat. 839,
358.
*01c6tt «. -noga R. R. Co., 27 N.
Y. 546.
' Butts V. Cuthbertson, 6 Ga. 166.
§ 114] PEIVATE COEPOEATIONS. 143
as if he were the agent of a natural person unless the charter
expressly provides otherwise.^ 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.^ 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.' 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
habit to make similar contracts and their acquiescence in the
same and the fact of the money being applied to the use of the
corporation.* Whatever the purpose of the agency, an agent of
a corporation may be appointed without the use of a seal.^ The
appointment of an agent by a corporation may be inferred from
the permission, or acceptance, of his services.* 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.' 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
' City of Covington v. Covington & vote entered upon their record book,
Cincinnati Bridge Co., (1873) 10 Bush they appointed an agent to execute a
(Ky.), 69. mortgage deed of real estate to secure
^ Johnston v. Crawley, 25 Ota,. 316. a creditor. The appointment of the
' Eureka Company v. Bailey Com- agent, though not otherv^ise evidenced
pany, (1870) 11 Wall. 488. or authenticated by the corporate seal,
* Allen V. Citizens' Steam Naviga- was held valid for the purpose in^
tion Co , 32 Cal. 28. In Savings tended. See, also, Beokwith v. Wind-
Bank of New Haven v. Davis, 8 sor Manufacturing Co., 14 Conn. 603.
Conn. 201, it appeared that the 'Fitch v. Lewiston Steam Mill Co.,
directors of a corporation, by the 80 Me. 34; s. c. , 12 Atl. Rep. 733.
charter, had the power of disposing of ' Burgess v. Pue, 2 Gill (Md.), 254.
its property and of appointing such 'Walker v. Detroit Transit R. Co.,
agents as should be requisite for per- 47 Mich. 338; s. c, 11 N. W. Rep.
forming its business, and that, by a 187.
Hi POWER OF AGENTS AND OFFIOEKS. [§ 11 4r
property.' 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.^ 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.' 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.^ 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.^ The appointment as well as the authority of an agent
of a corporation may be implied from the adoption or recognition
' Fitch 1). Lewiston Steam Mill Co., mouth v. 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 «. Kal.
of officers being or not being neces- Mut. Ins. Co., 2 Douglass (Mich.),
sary, see Calvert ». Idaho Stage Co., 124; Druse v. Wheeler, 22 Mich. 489.
(1894) 25 Or. 412; s. c, 36 Pac. Rep. * Hamilton «. New Castle & Dan-
24; Brown «. Grand Rapids Parlor ville R. R. Co., (1857) 9 Ind.359; Rich-
Furniture Co., 58 Fed. Rep. 286; s. c, ardson ®. St. Joseph Iron Co., 5Blackf.
7C. C. A. 225; Burch «. Paper Co., (lud.) 146; Madison ». Ross, 3 Ind. 236
141 111. 519; s. c, 31 N. E. Rep. 420. Cincinnati, etc., Co. v. Clarkson, 7Ind.
° Allen V. Citizens' Steam Naviga- 595; Jones v. Milton, etc., Co., 7 Ind.
tion Company, (1863) 22Cal. 28. 547.
'Bank of Middlebury v. Rutland & 'Burgess v. Pue, 2 Gill (Md.), 254;
Washington R. R. Co., 80 Vt. 159; Warren «. Ocean Insurance Co., 16 Me.
Stark Bank e. U. S. Pottery Co., 34 439; Jones, Admr., etc., «. Trustees
Vt. 144; State ex rel. Page ». 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 773.
Jhons 11. People, 25 Mich. 499; Tay-
§ 115] PEIVATE COEPOEATIOlSrS. 145
of his acts by the corporation.* So, also, from the course of deal-
ing and from contemporaneous and subsequent acts on the part
of the corporation.* An agent of a corporation will not be per-
sonally liable upon a contract in his own name under seal with
anotiier person where, in the body of the contract, it is stated that
the agent contracted in behalf of the body corporate.*
§ 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.* And he can
only make such contracts as the corporation can lawfully make.^
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.* 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.' Though not reduced to writing, their contracts bind a
corporation.^ 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.' The acts of agents of
corporations, within the ordinary line of their duty, bind corpora-
tions without any formal vote.'" The name of the corporation as
' Kiley ii. Forsee, (1875) 57 Mo. 390; « Bangor Boom Corporation «. "WMt-
Southgate v. Atlantic & Pacific R. B. ing, (1848) 39 Me. 133.
Co., (1875) 61 Mo. 89. As to imply- ' Buncombe Turnpike Co. v. McCar-
ing an agency for a corporation son, 1 Dev. & Bat. (N. C.) 306.
from facts and circumstances, see ^Citj Bank of Baltimore «. Bate-
Northern Central Ry. Co. v. Bastian, man, 7 H. &J. (Md.)104; Union Bank
15 Md. 494. «. Bidgely, 1 H. & G. (Md.) 336.
" Washington Mut. Fire Ins. Co. ■». ' Bank of Columbia ». Patterson,
St. Mary's Seminary, (1873) 53 Mo. 7 Cranch, 399, 306; Eastman ». Coos
480. Bank, 1 N. H. 33; Smith v. Nashua &
^McDonough ®. Templeman, 1 H. Lowell Railroad, 37 N. H. 86; Glid-
& J. (Md.) 156. den ». Unity, 33 K H. 571; Great
^Pennsylvania, Del. & Maryland Falls Bank v. Farmington, 41 N. H.
Steam Navigation Co. ■». Dandridge, 8 33; Andover «. Kendrick, 43 N. H.
G. & J. (Md.)348. 334.
"Downing «. Mount Washington "Foot ■». Rutland & Whitehall R.
Road Co., 40 N. H. 330. B. Co., 33 Vt. 633. As to acts of
19
146 POWEE OF AGENTS AND OFFICEES. [§ 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.* 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.^
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 tlie attorney's
acts.^ Authority to give a negotiable promissory note for the
amount advanced is not included in an authority to advance
money for a corporation.* 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.^
§ ii6. 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 Gruttschlick, 14 Pet. 19; Bank of U. S.
the line of such agency in order to v. Dandridge, 12 Wheat. 67; Bank of
bind the corporations, see Qneen «. Sec- Columbia v. Patterson, 7 Cranch, 299;
ond Ave. E. R. Co., (1872) 35 N. Y. Fleckner ». U. S. Bank, 8 "Wheat. 339.
Super. Ct. 154. There can arise no pre- ' Hamilton v. New Castle & Dan-
sumption that an agent has authority to ville R. R. Co., (1857) 9 Ind. 359;
transact business, which the corpora- Hankins ». Shoup, 3 Ind. 342.
tiou is not authorized by its charter to ' Merchants' Union Barb Wire Co.
engage in. Alexander v. Cauldwell, v. Rice, (1886) 70 Iowa, 14; s. c, 28
(1881)83 N.Y. 480. As to corporations N. W. Rep. 494.
bein^ bound by the acts of their agents ' Wetherbee s. Fitch, (1886) 117 Ill-
made in the ordinary discharge of 67; B. c. , 7 N. E. Rep. 513.
their duty, though not authorized, or ■* Webber ». Williams College, (1839)
executed, under corporate seal, see 23 Pick. 302.
Mechanics' Bank v. Bank of Columbia, ' Piatt v. Birmingham Axle Co.,
5 Wheat. 326; Panning v. Gregoire, (1874) 41 Conn. 255.
16 How. 524; Bank of Metropolis v.
§ 116 J PRIVATE COEPOEATIOlfrS. 14:7
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
such 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
60, to make, execute and deliver obligations, bills of exchange,
contracts and agreements of the corporation.* 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.^ 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.^ 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.* 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
' Hatch ®. Coddington, (1877) 95 U. ' Emerson ®. Providence Hat Manu-
8. 48. facturing Co., (1815) 12 Masa. 237,
= Tripp«.Swanzey Paper Co., (1833) « Bates v. Keith Iron Co., (1843)7
13 Pick. 291. Met. 224.
148 POWER OF AGENTS AND OFFICEE8. [§ IIT
the company, upon their indorsement, of the amount legally
due.*
§ 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, M^as, 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 persoiis 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.^
•Whitney ». South Paris Manufac- dorse them for the defendant. The
turing Co., (1855) 39 Me. 316. lettef [above quoted] gave the [bank]
' Marine Bank of Buffalo «. Butler notice of [his] authority as agent of
Colliery Co., (1889) 52 Hun, 612; the defendant to sell its coal at Buffalo,
s. c, 5 N. Y. Supp. 291. Arguendo, to take notes for coal sold, to indorse
it was said: "The notes were evl- 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] PBIVATE COEPOEAjTIONS. 14:9
§ 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 the existence of some extrinsic fact
undisputed evidence of the manner in necessarily and peculiarly within the
■which the business of the corporation knowledge of the agent, and of the
was conducted. During all the years existence of which the act of execut-
covered by the transactions in question ing the power is itself a representation,
the president of the corporation was a third person, dealing with such
permitted to be, and to hold himself agent in entire good faith, pursuant to
out to the world as being, the general the apparent power, may rely upon
manager and director of its business, the representation, and the principal
The act in question was within the is estopped from denying its truth to
scope of the authority thus practically his prejudice.' In this case the extrin-
accorded to him, and the defendant sic fact that the notes were given for
cannot set up its by-laws, never pub- coal, upon which the authority of the
lished to the world and habitually dis- agent depended, and which were solely
regarded by itself, as countervailing within his knowledge, was represented
the authority thus publicly conferred, not only by the presentation of the
Martin v. Niagara Falls Paper Mauu- notes for discount, but by the repeated
facturing Co., (1887) 44 Hun, 130, 138; assurances of the agent that he never
Martin ». Webb, 110 U. S. 7; s. c, 3 did and never should present notes of
Sup. Ct. Rep. 428. That the notes any other character. The fact that the
were within the terms of the letter indorsements were made in the name
has been found by the referee on un- of E. S. Hubbell, agent of the Butler
disputed evidence. They were given Colliery Company, and not in the
for coal sold by the agent for the de- name of the corporation by E. S. Hub-
fendant. That some of them were bell, agent, though not strictly con-
taken in renewal of notes given when fined to the language of the authority,
the coal was sold, does not change the was within its spirit and intent, and
character of the indebtedness, nor of wasratifiedby a long coui-se of dealing
the evidence of it. Moreover, the on the part of the [corporation], with
[bank] had a right to rely on the rep- full knowledge of the mannerin which
resentations of the agent, not of the the business was done, and with full
existence of his authority to procure enjoyment of the fruits of the transac-
discounts, but that the notes offered tion." A counterclaim on the part of
by him for discount were within the the corporation for moneys received by
scope of that authority, and the [cor- the bank from the corporation's agent
poration] is estopped to deny that and afterwards drawn out and, as was
those representations were true. Bank alleged, misappropriated by him, was
of Batavia v. New York, L. E. & "W. also disallowed by the referee below.
Railroad Co., 106 N. Y. 195; s. c. The court said: " The same principles
12 N. E. Rep. 433. In that case the [applied to support this disallowance],
court says: 'It is a settled doctrine of The authority of the agent to open
the law of agency in this state that and maintain the account with the
where the principal has clothed his [bank] and to draw against it for the
agent with power to do an act upon purposes of his agency, being estab-
150 POWBE OF AGENTS AHD OFFIOEES. [§ 118
its credit.' 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.^ 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 corporar
tion for the security of a loan.' 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.* Corporations may be bound by contracts of their general
agents clearly within the scope of their employment, but no fur-
ther.' 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.^ 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.' 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.^ The general agent of a corporation organized for
lished by the letter of authority and ^ Holmes 11. Board of Trade, (1883)81
the course of dealing between the Mo. 137.
parties, the [bank], in the absence of ' Odiorne i>. Maxey, (1816) 13 Mass.
notice to the contrary, or of facts to 178.
put it upon inquiry, had the right to * White v. Westport Cotton Manu-
assume that the acts of the agent in facturingCo., (1833) 1 Pick. 315.
this connection were what they pur- ' Whitwell «. Warner, 30 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, «. Wyse, 7Conn. 314, 319; Hawtayne».
therefore, entitled to credit for all Bourne, 7 Mees. &W. 595; Life & Fire
naoneys drawn by the agent in the Ins. Co. «. 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, 383; Torrey v. Dustin Monu-
' Stokes ». New Jersey Pottery Co., ment Assn., 5 Al'len, 339; Despatch
(1884) 46 N. J. Law, 337. Line of Packets «. Bellamy, 13 N. H.
'Stows. Wyse, 7Conn. 314; C. &K 305, 328;Luse». Isthmus Transit By.
R. R. Co. i>. James, 34 Wis. 388. Co., 6 Greg. 133.
' Despatch Line of Packets v. Bel- * Southgate v. Atlantic & Pacific R.
lamy Manufacturing Co., 13 N. H. 305. R. Co., (1875) 61 Mo. 89.
§ 119] PRIVATE COEPOEATIONS. 151
purchasing timber land, converting the timber 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 in getting out
such lumber.*
§ 119. When the authority of a general agent will not be
implied. — A corporation engaged in a mining business in Michi-
gan had its financial ofiice 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 m 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
' Tappan «. Bailey, (1842) 4 Met. 539. Jury, 44 La. Ann. 863; s. c, 11 80.
As to power of officers and agents to Rep. 236; Smith v. Car Heater Co., 64
make contracts, see Blanding «. Da- Hun, 639; Glover «. Lee, (1891)140111.
venport,!. & D. R. Co., (1894) Iowa, 102; s. c, 29 N. E. Rep. 680; Matson
55 N. W. Rep. 81; Ouman i>. Delaware v. Alley, (1893) 141 111. 284; s. c, 31 N.
& O. R. Co., 138 N. Y. 480; s. c, 84 E. Rep. 419, affirming 41 111. App. 72;
N. E. Rep. 201; National Cordage Co. Hamm v. Drew, 83 Tex. 77; Johnson
V. Pearson Cordage Co., 55 Fed. Rep. v. Switch Co., 59 N. Y. Super. Ct.
812; Huntsville Belt Line & M. B. Ry. 169; Koch «. Association, 137 111. 497;
Co. V. Corpening, (1893)97 Ala. 681; s. s. c, 27 N. E. Rep. 530; Bank of At-
c, 13 So. Rep. 295; Moore ». H. tica». Manufg. Co., 49Hun, 606; Bank
Gaus & Sons' Manufg. Co., (1892) 113 of Yolo v. Weaver, (Cal. 1893) 31 Pac.
Mo. 98; s. c, 20 S. W. Rep. 975; Nich- Rep. 160; Tradesmen's Nat. Bank ».
ols V. Soranton Steel Co., 137 N. Y. Lumber Co., 64 Hun, 635. That offi-
471; 33N. E. Rep. 561; Teltig ». Boes- cars of a corporation are special and
man, 12 Mont. 404; s. c, 31 Pac. Rep. not general agents of the corporation,
371; Thompson v. Stanley, (N. Y. and their powers being limited by the
Super. Ct. Spl T. 1893) 30 N. Y. charter and by-laws, see Adriance v.
Supp. 317; Chemical Nat. Bank v. Roome, 53 Barb. 399.' As to their
Wagner, (Ky. 1894) 20 S. W. Rep. 535; power to bind it within the scope of
Levey v. New York Central & Hudson their authority,see Alexander D.Brown,
River R. Co., 24 N. Y. Supp. 134; 9 Hun, 641. As to power of an agent
Humes v. Decatur Land Improvement of a joint-stock corporation formed
&FurnaceCo.,(1893) 98Ala. 461; s. c, under the laws of Connecticut, see
13 So. Rep. 368; TuUer «. Arnold, Wood v. Wiley Construction Co.,
(Col. 1894) 33 Pac. Rep. 445; Reynolds (1887) 56 Conn. 87; s. c, 13 Atl. Rep.
& Henry Construction Co. v. Police 137.
162
POWEE OF AGENTS AND 0FFICEE8.
[|120
was accustomed to do in the business could not implj authoritj
in him to make such notes.*
§ 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.^ 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.' Powers may be conferred upon
Mountain Nat. Bank, 1 Colo. 531; 3
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. V. McCall, 3 Head, 619; Silliman
V. Fredericksburg, O. & C. R. R., 27
Gratt. 130; Emerson ». Providence Hat
Co., 13 Mass. 337; Hammond v. Mich-
igan State Bank, Walk. Ch. (Mich.)
314; Grover & Baker Sewing Ma-
chine Co. ». Polhemus, 34 Mich.
347, 249; Reynolds v. Continental Ins.
Co., 36 Mich. 181; LyeU v. Sanbourn,
3 Mich. 109; Marquette & Ontonagon
R. R. Co. V. Taft, 38 Mich. 389; Kal.
Nov. Mfg. Co. 11. McAlister, 36 Mich.
827. As to corporations authorizing
agents to make or indorse notes, see
Olcottv. Tioga R. R., 40 Barb. 179;
Melledge ». Boston Iron Co., 5 Cush.
1S8; White®. Westport Cotton Mfg.
Co.,1 Pick. 315, 219; Odiorne®. Maxey,
13 Mass. 178; Kelly ». Pall Brook Coal
Co., 4 Hun, 261; Sedgwick «. Lewis,
70 Pa. St. 317; Pahlman i>. Taylor, 75
111. 639; Bird «. Daggett, 97 Mass.
494; Bridgeport City Bank v. Empire
Stone Dressing Co., 80 Barb. 431;
Central Bank «. Empire Stone Dressing
Co., 36 Barb. 23.
* Landers o. Frank St. Meth. Epis.
Ch. of Rochester, 97 N. Y. 119.
^ Leekins i>. Nordyke &Marmon Co.,
(1885) 66 Iowa, 471; s. c. 3* N. W.
Rep. 1.
' New York Iron Mine ®. First
National Bank of Negaunee, (1878) 39
Mich. 644. Coolkt, 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 plaintifE that
the mere appointment of general agent
confers any such power. * * * In
McCuUough 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 «. East India Co., 5 B.
& 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 v. Swanzey Paper Co., 13 Pick.
393; Union Gold Mining Co. i). Rocky
§ 120] PRIVATE COEPOKATIONS. i 153
the officers of a corporatioii 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.^ 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.^ 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.' 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.* 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.^ 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.* 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.' Officers of a corporation have no power
to bind the corporation as surety for their private debts.^ A
corporation will not be bound by the release of a debt given to a
' Winsorj). La Fayette County Bank, v. Billups, 35 Miss. 618; Parish «.
(1885) 18 Mo. App. 665. "Wheeler, 22 N. Y. 494; Noyes v. K &
» Beers v. Phoenix Glass Co., 14 B. R. R. Co., 27 Vt. Ill; Bissell «. M.
Barb. 358. S. & N. I. R. R. Co., 23 N. Y. 358;
' Philips «. Wickham, 1 Paige, 590. Perkins «. Portland, Saco & Ports-
* Hopkins v. Roseclare Lead Co., mouth R. R., 47 Me. 590; Barry v.
(1874) 73 111. 373. Merchants' Exchange Co., 1 Sandf.
' Singer Manufacturing Co. v. Hold- Ch. 380, 389; Goodwin ®. Union Screw
fodt, (1877) 86 111. 455. Co., 34 N. H. 378.
' Chicago Building Society ». Crow- ' Wilson Sewing Machine Co. v.
ell, (1872) 65 HI. 453. citing Bradley®. Boyington, (1874) 73 111. 534.
Ballard, 55 HI. 413, 417; Buffit®. Troy & « Culver «. Real Estate Co., 91 Pa.
Boston R. R. Co., 86 Baib. 430; Abby St. 367.
20
154: POWEE OF AGENTS AND OFFICEKS. [§ 121
debtor by one of its officers without authority.* 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.^ 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.' 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.* A corporation will not be bound by the declarations of
its secretary as to the amount due on a mortgage held by it unless
it be shown that the secretary had authority to bind it.'
§ 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.'
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.'' A manufacturing corporation cannot be
' Land Co. v. Sloan, 109 Pa. St. can sanction or ratify. Forbes u San
532. Kaf ael T. Co. , 50 Cal. 340. As to a note
' Winchester i>. Baltimore & Sua- signed by president and secretary, see
quehanna R. R. Co., 4 Md. 231. Duggan n. Pacific Boom Co., (Wash.
' Brookman v. Metcalf, 5 Bosw. 1893) 84 Pac. Rep. 157. As to a presi-
429. dent's authority, see Crowley «. Gene-
■■Lohman i). New Yorlt & Erie R. see Mining Co., 55 Cal. 373; Union
R. Co., 2 Sandf. 39. Mut. Life Ins. Co. v. White, 106 Bl. 67.
' Johnston «. Building Associa- ' Patterson ®. Robinson, (1889) 116
tion, 104 Pa. St. 394. N. Y. 193; s. c, 23 N. E. Rep. 372;
" Castle V. Belfast Foundry Co. , 72 citing Bank of Vergennes v. Warren,
Me. 167. What is within the scope of 7 Hill, 91; Gillett v. Campbell, 1 Den.
the business intrusted to a president of 530; Elwell ®. Dodge, 33 Barb. 336;
a corporation. Seeley v. San Jose In- Chemical National Bank «. Kohner, 85
dependent Mill & Lumber Co., (1881) N. Y. 189, 193; Smith ®. Hull Glass
59 Cal. 22. What kind of a transaction Co., 11 C. B. 897, 929; Lee a Pittsburgh
a board of directors or stockholders Coal & Mining Co., 56 How. Pr. 373;
§ 121] PEIVATE COEPOEATIONS.
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.* 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.^ A vote of a newly-
afflrmed in 75 N. Y. 601. See, also, and secretary and having the corporate
Patteson v. Ongley Electric Co., (1895) seal attached, must be presumed to
87 Hun, 463; s. c, 34 N. Y. Supp. 209; have been executed in pursuance of a
citing Jourdan v. Railroad Co., 115 N. due authorization to such officers, and
Y. 381; 8. c, 23 N. E. Eep. 153; Oakes the burden of proof was on the cor-
V. Water Co., 143 N. Y. 430; s. c, 38 poration to show the contrary. Also,
N. E. Rep. 461. that where the circumstances sur-
• New Haven & Northampton Co. v. rounding the execution of the mort-
Hayden, (1871) 107 Mass. 535. As to gage showed the existence of proper
authority of officers to make contracts, resolutions of authorization and sup-
see Baker v. Harpster, 42 Kans. 511; s. ported the presumption of its authori-
c, 23 Pac. Rep. 415; Western Union tative execution as shown by affixing
Tel. Co. V. Yopst, 118 Ind. 248; s. c, the corporate seal, and the signatures
20 N. B. Rep. 223; Read v. BufEum, of the proper officers, the mere fact
79 Cal. 77; s. c, 31 Pac. Rep. 555; that such resolutions did not appear
Eureka Iron Works «. Bresnahan, 60 in the proper book of the corporation
Mich. 333; s. c, 27 N. W. Rep. 524; was not sufficient to disprove their
Merrill v. Consumers' Coal Co., 114 N. existence and invalidate the mortgage.
Y. 210; s. c, 21 N. E. Rep. 155. See, also. Southern California Colony
' Holden v.- Upton, (1883) 134 Mass. Association v. Bustamente, 53 Cal.
177. As to what authority, ex officio, 198-196. Where acts of officers and
an officer has, see Farmers' Bank v. agents in making contracts have been
McKee, 3 Barr, (Pa.) 318; Hallowell & held to bind the company. Powder
Augusta Bank v. Hamlin, 14 Mass. 178, River Live Stock Co. v. Lamb, (Neb.
180; Crump v. United States Mining 1894) 56 N. W. Rep. 1019; Greig «.
Co., 7 Gratt. 353. Where it would not Riordan, 99 Cal. 316; s. c, 33 Pac.
be assumed that the treasurer of a Rep. 913; Carrigan ». Port Crescent
board of trustees of a corporation had Imp. Co., 6 Wash. 590; s. c, 34 Pac.
no authority to make an indorsement Rep. 148; Oro Mining & Milling Co.
upon a note. Sayers ». First National «. Kaiser, (1894) 4 Colo. App. 319;
Bank, (1883) 89 Ind. 230. In Blake «. s. c, 35 Pac. Rep. 677. Agreement
Holley, 14 Ind. 383, it was held that a of officers that will bind a corpora-
corporation might authorize its proper tion. Outterson v. Fonda Lake Paper
officer to assign a note by delivery, Co., 66 Hun, 629; s. c, 20 N. Y.
and perhaps it would be within the Supp. 980. When a note signed by
general powers of officers of a railway the president, secretary and two direct-
corporation to assign, in such manner ors will be held to be the note of the
as they might deem expedient, its corporation. In re Pendleton Hard-
choses in action. In Schallard «. Bel ware & Imp. Co., (1893) 34 Ore. 330;
River Steam Navigation Co., (1886) 70 s. c, 33 Pac. Rep. 544. See, also,'
Cal. 144; s. c, 11 Pac. Rep. 590, it was Reeve v. Bank, 54 N. J. Law. 208;
held that a mortgage executed in the Davis i>. Lee Camp No. 1, C. V. (Va.
name of a corporation by its president 1894) 18 S. E. Rep. 839; Cross v.
156 POWEE OF AGENTS AND OFFICEES. [§ 121
formed manufacturing corporation contemplated the payment of
royalties to and the purchase from an existing corporation ia
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.^ 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, 434; s. c, 39 N. Y. Supp. 750; s c, 18 Pac. Rep. 941; Griffith
960; Merchants & Farmers' Bank ®. ■». Chicago, B. & P. R. Co., 74 Iowa,
Hervey Plow Co., 45 La. Ann. 1314; 85; s. c, 36 N. W. Rep. 901; Mer-
s. c, 14 So. Rep. 139; Prindle v. chants' Nat. Bk. of Chicago «. Detroit
Washington Life Ins. Co., 73 Hun, Knitting & Corset Works, 68 Mich.
448; 8. c, 36 N. T. Supp. 474; Pren- 630; s. c, 36 N. W. Rep. 696; New
tice V. United States & Central Ameri- York, P. & N. Ry. Co. ®. Bates, 68
can Steamship Co., 58 Fed. Rep. 703. 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 381; 8. c, 19 Pac. Rep. 617; East
«. Sheffield, L. I. & C. Co., 83 Ala. Rome Town Co. ■». Brewer, 80 Ga.
260; s. c, 4 So. Rep. 34; Whitaker «. 358; s. c, 7 S. E. Rep. 373; Bank of
Kilroy, 70 Mich. 635; s. c, 38 N. W. Attica ». Pettier & Stymus Mfg. Co.,
Rep. 606; Little ». Kerr, (N. J.) 14 49 Hun, 606; 8. c, 1 N. Y. Supp.
Atl. Rep. 618; Templin v. Chicago, B. 488.
& P. R. Co., 73 Iowa, 548; s. c, 35 N. ' Bi-spool Sewing Machine Co. «>.
W. Rep. 634; St. Louis, i'ort Scott Acme Manufacturing Co., (1891) 153
& W. R. Co. «. Grove, 39 Kans. 731; Mass. 404.
s. c, 18 Pac. Rep. 958; Topeka Pri-
§ 122] PEIVATE OOEPOEATIONS. 15T
zation the corporation may ratify it and be estopped from deny-
ing its liability upon smch a contract.'
§ 122. Power of directors — general rules. — The directors
have control of the ordinary management of a corporation.* But
a corporation cannot be bound by the acts of individual directors.^
A board of directors may, under their power to make by-laws,
delegate their authority to a quorum composed of less than a
majority of their number, notwithstanding a declaration in the
charter of the corporation that its powers shaU be exercised by a
board of directors, consisting of a specified number.* A director
•jvho 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.' The acts
' Joy V. Manion, 38 Mo. App. 55. tracted by the corporators before in-
See Fa wceftB. New Haven Organ Co., corporation, see Hutchinson «. Surrey
47 Conn. 226, as to the circumstances Consumers' Gas Light & Coke Associ-
under which a contract made by a sec- ation, 73 Eng. C. L. 689; White v.
retary and treasurer was held not to Westport Cotton Co., 1 Picli. 315; In
bind the corporation. When contracts re The Independent Assur. Co., 30 L.
made by officers are not binding on J. Rep. (Eq.) 233.
corporation. Banks v. New York 'Genesee County Savings Bank «.
Club, 68 Hun, 93; s. c, 32 N. Y. Michigan Barge Co., 53 Mich. 438;
Supp. 727; Bank of New York v. s. C, 17 N. W. Rep. 790; 18 N. W.
American Dock & Trust Co., (1898) Rep. 206.
70 Hun, 153; s. c, 34 N. Y. Supp. ^Lockwood v. Thunder Bay River
406. For a full discussion on this sub- Boom Co., 42 Mich. 587; 4 N. W. Rep.
ject, see Edwards o. Carson Water Co., 293.
(Nev. 1898) 34 Pac. Rep. 381. When *Hoyt v. Thompsog, 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., (1893) 4
Bank of Battle Creek b. Mallan, (1887) Misc. Rep. 570; 25 N. Y. Sup-p. 794.
37 Minn. 404; s. c, 34 N. W. Rep. See, also, Despatch Line of Packets ».
901; First National Bank of Rock Bellamy Manufg. Co., 13 N. H. 205;
Island, Illinois, v. Loyhed, (1881) 28 In re Mohawk & H. R. Co., 19 Wend.
Minn. 396; s. c, 10 N. W. Rep. 421; 135.
Farmers' Nat. Bank of Valparaiso, 'Workhouse v. Moore, 95 Pa. St.
Ind., V. Sutton Manvifacturing Co., 408.
(1893) 52 Fed. Rep. 191; s. c, 6 U. 8. 'Foot «. Rutland & Whitehall B.
App. 312; 3 C. C. A. 1. As" to corpo- R. Co., 33 Vt. 633.
rations not being liable for debts con-
158 POWEE OF AGENTS AND OFFICEES. [§ 122
of a board of directors of a corporation, evi'denced 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.^ 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 aU 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.' 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.^ 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.* The power
placed by a charter in the directors cannot be limited by a by-law
of a corporation.^ 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.^ 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.' 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 small, may act as a board.^ There is no power in the
directors of a corporation to bind it by an agreement for extra
'Campbell v.Vope, (1888) 96 Mo. •'Nashua & Lowell Railroad Co. v.
468; s. c, 10 S. W. Rep. 187. Boston & Lowell R. R. Co., 37 Fed.
' Cram v. Bangor House Proprietary, Rep. 821.
(1835) 12 Me, 354 LiTrotta Warren, 'Union Insurance Co. v. Keyser, 33
(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 G. &
corporation, was not valid. J. (Md.) 448.
« Despatch Line of Packets v. Bel- 'Price v. G. R. & I. R. Co., (185^
lamy Manufacturing Co., 12 N. H. 13 Ind. 58.
205. 'Exparte Willcocks, 7 Cow. 402,
§ 123] PEIVATE COEPOEATIONS. 159
compensation, not made at a meeting of the board.* Directors
of a bank, in case a deficit in the funds appears by the accounts
of its cashier, have authority to make a settlement with such
oflBcer.^ 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.' 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.*
§ 123. Directors for the first year. — The Nevr 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 aiithorizing 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 Ritgee, 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
the company, and who shall, except the first year, be annually
' Stoystown & Qreensburg Turn- its by-laws to the directors to manage
pike Road Co. i;. Craver, 45 Pa. St. all its prudential concerns.
386. ■» Pneumatic Gas Co. v. Berry, (1884)
= Frankfort Bank «. Johnson, (1844) 113 U. S. 332; s. c, 5 Sup. Ct. Rep. 535.
24 Me. 490. The court said: "A court of equity
* Topping o. Bickford, (1862) 4 does not listen with much satisfaction
Allen, 130. In Sampson v. 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
ors 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 POWEE OF AGENTS AND OFFIOEES. [§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 fxirnished 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 plaintiflE 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
so 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 ol any other interpretation." ^
§ 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 its recovery.
It appeared that certain directors of the corporation who had, in
proceedings quo warrcmto, been adjudged not to be the legal
" Davidson v. Westchester Gas Light Co., (1885) 99 N. T. 558, 565, 566.
§ 125] PRIVATE COEPOEATIONS. 161
officers, had offered these premiums, and the corporation defended
on the ground that the acts of this board were not binding upon
them, they not being directors dejure. The findings of the trial
judge were that this board of directors " 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 these
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.'
§ 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 i-aise money for his own use by
■ Zearfoss v. Farmers & Mechanics' officer de facto as fully and effectually
Institute of Northampton County, as regards the public and third per-
(1893) 154 Pa. St. 449; s. c, 36 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 tha
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. 3 Morawetz on Corp: |§ 750, porations and &/ac*o officers of private
752. The act of an o?&cex de facto \a corporations it was said: "While such
good whenever it concerns a third per- a distinction appears to be recognized
son who had a previous right or had in some of the cases cited and relied
paid a valuable consideration for it. on by [counsel], we are not convinced
Angell & Ames on Corp. (11th ed.) that it is sound. The weight of au-
§§ 287, 286, 299. An officer de facto thority, in this country especially, is
is one whose acts, though not those of decidedly against it. In the case of
a lawful officer, the law, upon prin- public corporations, the reasons for
ciples of policy and justice, will hold holding the acts of de facto officers
valid, so far as they involve the inter- binding on the corporations they rep-
eats of the public and third persons, resent are doubtless stronger than in
State ®. Carroll, 38 Conn. 449. Our the case of private corporations; but,
own cases are to the same effect, to some extent at least, they are the
Riddle «. County of Bedford. 7 S. same in both, differing only in degree."
& R. 386, 392; McGargell «. Hazle- As to a corporation being bound by the
ton OoU Co., 4 W. & S. 424-435. acts of its officers (fo/acfo, see Cahill ®.
In the latter it was held that 'a Kal. Mut. Ins. Co., 3.Douglass, (Mich.)
corporation may act by means of an 134.
21
162 POWER OF AGENTS AND OFFICEES. [§ 125
giving therefor a " company note," where this is intended as an
advance or payment of the agent's wages.' Where full power to
conduct the affairs of a corporation are by its charter vested in
its president and directors, they have the right to authorize the
president to indorse its notes.^ The power to modify the terms
of a guaranty of one corporation to another of a certain annual divi-
dend on its capital stock, under an agreement between the two
corporations, is in the directors and not in the stockholders of
the corporation, and a court will not interfere in case the board
exercise the power fairly and in good faith.' The custody of the
assets of a corporation may properly be placed with a managing
director, and if he is allowed by the corporation to hold himself
out to the public as competent to dispose of its assets, the public
are entitled to presume that he has authority to dispose of them.*
There being power in corporate authorities, and generally the
directors, to compromise corporate debts, they can release a part
of a subscriber's liability in case there is doubt about it, for the
purpose of securing the rest ; and a compromise of that kind
will bind the stockholders of any new corporation to which the
property and rights of the existing corporation may be trans-
ferred, notwithstanding the fact that it cannot extinguish rights
that have already been acquired by creditors.^ In case there is
no restraint by law or Contract upon the power of the directors
of a corporation, they may make any disposition of the profits of
its business deemed by themselves to be judicious.* A completed
contract between a corporation and an individual for the sale of
stock by the individual to the corporation could not be proven by
statements of individual directors out of a session of the board,
and not accompanying any official act, and statements made by
them in debate while in session.' The by-laws of a business cor-
poration giving the directors authority to appoint a treasurer, they
may do so without any formal meeting ; and, there being no pro-
hibition in the charter or by-laws, may agree with the treasurer
as to his compensation.' All business of a corporation relating to
1 Tripp V. Swanzey Paper Co., (1833) '-wiiitaker d. Grummond, 68 Mieli.
13 Pick. 391. 349; s. c, 36 N. W. Rep. 63.
' Merrick v. Trustees of the Bank of * Park r. Grant Locomotive Wovks,
Metropolis, 8 Gill. (Md.) 64. 13 Stew. (N. J. Eq.) 114.
^Flagg V. Manhattan Ry. Co., 10 ' Peek ». Detroit Novelty Works, 39
Fed. Rep. 413. Mich. 313.
* Walkers). Detroit Transit R. Co., «Waite v. Mining Co., 37 Vt. 608;
47 Mich, 338; s. c, 11 N. W. Rep. 187. Waite v. Mining Co., 36 Vt. 18. As to
§ 126] ' PRIVATE COEPOEATIONS. 163
the legitimate objects of its creation may be transacted by the
directors without the sanction of the stockholders. Where it has
under its charter the power to borrow money and secure the same
by deed or lien on its real or personal property, or both, or bor-
rowing money for the purpose of forwarding the objects of the
corporation is among the ordinary duties of the board of direct-
ors, it follows that the board may secure the loan by deed or
other lien. This is a part of the business transactions of a corpo-
ration which has always been regarded as within the province of
the directors to perform.' The stockholders of a corporation
would be estopped to deny the authority of its directors to bor-
row money and make a mortgage of the corporation's property to
secure the loan, even if they were not authorized to do so, if
they ratify the action of the directors in effecting the loan and
mortgaging the property by approving the minutes of their pro-
ceedings before the loan is effected, and afterward receive the
benefit of the loan and pay interest on it.^ A railroad corpora-
tion may be bound by its directors under the powers usually con-
ferred upon them to pay interest on stock subscribed until the
completion of a portion of its road.'
§ 126. More illustrations on the same subject. — The
Supreme Court of Colorado has held that a proposition by the
officers of a private corporation to pay a party $5,000 in the
stock of the company for his services, if he would procure a loan
of $15,000 for' the use of such corporation, or a proportionate
amount of stock for a smaller loan, duly accepted and acted on,
warranted the finding in this case of an agreement to pay such
party, in the capital stock of the corporation, thirty-three and
one-third per cent of any sum he could procure to be loaned it ;
also, that the officers acted in behalf of the corporation, although
. the president testified that the stock was to be furnished by the
officers individually.^ Directors authorized to receive subserip-
contracts made by directors, see Fisher » Arapahoe Cattle & Land Co. v.
V. Gas Company, 1 Pears. (Pa.) 118; Stevens, (1889) 13 Colo. 534; s. c, 22
Martin*. Hallway Co., 37 Leg. Int. 133. Pac. Eep. 833. The court, in the
' Wood V. "VVhelen, (1879) 93 111. 153. opinion, discussed the question
"Aurora Agi-. & Hort. Society of whether the contract was within the
Aurora ®. Paddock, (1875) 80 111. 263. scope and authority of the officers
' Milwaukee & Northern Illinois R. making it and binding upon the cor-
R. Co. V. Field, 13 Wis. 340. poration as follows: "As we have
164
POWER OF AGENTS AUD OFFICEES.
[§12&
tions for stock, payable " in such manner as the board of direct-
ors should direct," may receive pajment in promissory notes.^
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 selhng 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 Gebhai-dt 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*. Pierce,
99 Mass. 68-70; Royal Bank of India's
Case, L. R. (4 Ch.) S53; 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 mana^g 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. Good faith and the exer-
cise of an honest judgment meet the
requirements of the law. Moraw. Priv.
Corp. §§436, 439; Schenck ». Andrews,.
57 N. Y. 188; Douglass*). Ireland, 73 N.
Y. 100; Iron Co. v. Drexel, 90 N. Y.
87; Lorillard «. 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,
stipra : ' 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-
" Magee v. Badger, 34 N. Y. 347.
§ 127] PEIVATE COEPOEATIONS. 165
-order requiring payment of an installment on the stock.^ A cor-
poration cannot be held to have contracted unless by such agents
or officers as have express or implied authority. Individual
directors have no power whatever to bind a corporation.* A
board of directors, when no express restraint appears to have
been imposed upon it, may, in a case where a contract has been
TQade between two corporations and circumstances indicate an
inability on the part of one party to the contract to fulfill the
terms of the agreement, compromise or adjust the matter between
the two corporations on a basis dispensing with full and complete
performance.'
§ 127. Illustrations of a lack of power in directors. —
Directors of a corporation cannot delegate their authority or any
portion of it requiring the exercise of judgment and discretion,
unless, as conferred upon them, the authority includes the power
of substitution in express terms, or by necessary implication.*
Directors of a corporation have no authority to sell the stock of
the corporation at a less sum than the price fixed in the charter.'
regard to the interests of those repre- appropriate his property, and he,
sented by them) in determining what nevertheless, be held liable to a con-
should be bought, and the price to be tribution in favor of creditors, to the
paid therefor. It cannot be properly extent of the stock issued for such
claimed, in giving a construction to property, if a jury should subse-
the power conferred on them by the quently, and at an indefinite and un-
amendatory act, that the property limited period thereafter, find that the
purchased, and every part thereof, trustees had, under a mistake, but in
should be indispensable for the prose- an honest exercise of their judgment,
cutionof the business of the company, concluded erroneously either that the
or that the sum allowed therefor property was in fact, as disclosed by
should be its precise, actual, intrinsic subsequent events, not absolutely in-
value (and that to be determined by a dispensable, or actually worth the
Jury), for the exemption of a stock- full sum allowed for it.'"
holder from the liability which the ' Union Turnpike Co. v. Jenkins, 1
original act imposed, incase the whole Caines, 381.
capital was not actually paid in cash. ^Lockwood v. Thunder Bay River
Such a construction would defeat the Boom Co., (1880) 43 Mich. 536, 539;
evident object of the law, which adhered to in Hartford Iron Mining
clearly was to encourage the forma- Co. v. Cambria Mining Co., (1890) 80
tion of companies by the appropriation Mich. 491.
of manufactories, mines and other s people ex rel. Content v. Metropol-
property, proper for their business, itan Elevated Ry. Co., 26 Hun, 83.
and at a fair valuation, instead of * Gillis v. Bailey, 21 N. H. 150.
money as a capital therefor. No per- ' Oliphant v. Woodburn Coal & Min-
son could be expected tc become a ing Co.. (1884) 68 Iowa, 332; b. c, 19
stockholder and pay his money or N. W. Rep. 313. On this point, see
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.' 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.' Direfetors
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.' The subscriber to the stock ol a railroad corpora-
tion cannot be released from his liability for his subscription by
its directors.* It is not within the power -of officers of a corpo-
ration to ratify an unauthorized act of their own.' 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.'' 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.^ The act of a president of a corporation, which the
directors themselves have no autliority to perform, cannot be
ratified by the directors.^ 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.'" There is no power in a
Sturges V. Stetson, 1 Biss. 346; Fos- ^Railwaj' Co. v. Allerton, (1873) 18
dick V. Sturges. 1 Biss. 355; Mann r. "Wall. 233.
Cooke, 20 Conn. 188; Fisk «. C, R. I. ^Bedford Railroad Co. v. Bowser, 48
& P. R. Co., 53 Barb. 473, 513; O'Brien Pa. St. 39.
1). C, R. I. & P. R. Co., 53 Barb. 568; "iHotchin i). Kent, 8 Micli. 536.
Neuse River Navigation Co. v. Com- " Workliouse ». Moore, 95 Pa. St.
missioners, 7 Jones Law (N. C), 275. 408.
' Osgood i\ King, 43 Iowa, 478. '' Hughes v. Bank of Somerset, (1824)
''Jackson v. Traer, (1884) 64 Iowa, 5 Litt. (Ky.) 45.
469; s. c, 30 N. W. Rep. 764. See "Marine Bank v. Biays, 4 H. & J.
Bailey v. Pittsburg & Connellsville (Md.) 338.
Gas, Coal & Coke Co., 69 Pa. St. 334; "Crum's Appeal, 66 Pa. St. 474.
Boyuton «. Hatch, 47 N, Y. 335; Tall- •» Marlborough Manufacturing Co. ft
madge v. Fishkill Iron Co., 4 Barb. 383. Smith, 3 Conn. 584.
§ 128] PRIVATE C0IiP0EATI0N8, 167
simple director or vice-president of a railroad company, by virtue
of his office, to appoint agents to sell the lands or the timber on
them.' Without special authority, a director, as such, cannot
make notes binding the corporation.^ The directors of a rail
way corporation cannot give away its stock.' A committee oi
its directors, authorized by 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.^ Directors, though they may compromise an existing
claim, have no implied power to make new agreements radically
modifying previous agreements which they did not make and
had no power to make.^ The directors of a corporation have no
power to make a donation from, or misappropriate the funds of
the corporation in violation of the laws and rules regulating its
inode of action."
§ 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.
FosTEE, 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 be 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."''
' Chicago & Northwestern R. Co. v. ' Metropolitan Elevated Ry. Co. v.
James, 33 Wis. 194. Manhattan Ry. Co., (Spl. Term Sup.
« Lawrence v. Gehhard, 41 Barb. Ct. 1884)14 Abb. N. C. 108; s. c, 11
575. Daly, 373.
'Thornton v. St. Paul, etc., R. R. = Frankfort Bank «i. Johnson, (1844)
Co., 6 N. Y. Wkly. Dig. 309. 24 Me. 490.
* Western R. R. Co. v. Bayne, 11 ^ Stewart*. St. Louis, Ft. S. & W. R.
Hun, 166. Co., (1887) 41 Fed. Rep. 786. In Wile
168
POWEE OF AGENTS AND OFFICEES. [§§ 129, 130
§ 129. 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 lail to repudiate a. contract made by. the
superintendent and treasurer of the corporation, their failure so
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. i\ Eochester & K. F.
Land Co., (1893) 4 Misc. Rep. 570; s.
c, 25 N. Y. Supp. 794, where notes
were given by tlie 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 vahdin 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 v. St.
Anthony's Roman Catholic Church,
109 N. Y. 513; s. c, 17 N. B. 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
there was no corporate act as a basis
of their authority so to do.
' Indianapolis Rolling Mill Co. 1).
St. Louis, F. S. & W. R. Co., 26 Fed
Rep. 140. Affirmed in Indianapolis
Rolling Mill v. St. Louis, Fort Scott
& Wichita Railroad, (1887) 120 IT. S
256; S. 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 disafiirm their action at that
time, but that the act or resolution of
disaffirmance was passed aboftt twc
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 OU Co. v. 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 bo reasonably done
after the party, with whom that right
is option.' J, is aware of the facts which
gave him that option are numerous.
* * * The more important arc as
follows : Badger e. Badger, 3 Wall.
87 ; Harwood ■». Railroad Co., 17 Wall.
78 ; Marsh !;. Whltmore, 21 WaH. 178 -,
Vigers a. Pike, 8 CI. & Fin. 65C :
Wentworth v. Lloyd. 32 Beav. 467;
FoUansbe v. Kilbreth, 17 HI 522 : S.
§ 131] PRIVATE COEPOEATIONS. 169
the business of the corporation.^ A corporation may he bound
by the contract of a Doard of trustees holding their oiBee under a
judicial decisioa declaring their title to the office. And the coi* ■
poration will not be relieved from its liability by a subsequent
reversal of this decision on appeal.^ 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
business, assessments upon the capital stock of the corporation
not to exceed iive per cent of such capital stock, provided no
previous assessment then remained unpaid or uncollected,' such
trustees, where the expenses incurred in the management have
largely exceeded ten thousand dollars, may levy and collect such
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.* 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.^
§ 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.^
c, 65 Am. Dec. 691.' See, also, Gold corporation may make a contract, and
Mining Co. ». National Banfe, 96 U. S. their power to draw the money on
640 ; Law ®. Cross, 1 Black, 533." checks issued in payment under such
' Clark e. Farmers' "Woolen Manu- contract, see Sheridan Electric Light
facturing Co., 15 "Wend. 256. Co. v. Chatham National Bank, (1891)
^Ebaugh V. German -Reformed 137 N. Y. 517; s. c, 28 N. E. Eep. 467.
Church, 3 E. D. Smith, 60. « "Western Bank of Missouri «. Gils-
3 Pub. Laws Cal. 1864, 403. trap, (1870) 45 Mo. 419. The Appel-
* Sullivan n. Triunfo Gold & Silver late Court of Missouri, in a case where
Mining Company, (1866) 39 Cal. 585. one of the contentions was that no legal
= Phillip «. Aurora Lodge, No. 104, authority to prosecute the suit on be-
I. O. G. T., (1883) 87Ind. 505. See half of the corporation was shown,
Miller i\ Chance, 3 Edw. 399, where said: " The law in this state is settled
it was held that a mortgage executed toy a course of imiform adjudications
by five of nine chosen trustees might that no formal resolution of the board
be presumed to have been executed of directors is prerequisite for the em-
with the concurrence of a majority of ployment of counsel for a corpora-
the board. Under what circumstances tion. "Western Bank v. Gilstrap, 45
an executive committee appointed by Mo. 419; Southgate v. Railroad, 61
a board of trustees of a manufacturing Mo. 89; Thompson ?'. School District
22
170 POWEE 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 South 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 v. 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 apijroval of the board of directors,
tacit or implied contract of the board and that plaintiff rendered the services
of directors,' and in Thompson %\ called for by his contract with the
School District, supra, Judge Shee- 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 11
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 v. New York Infant Asylum,
poration as a party defendant by at- 44 Hun, 367; Insurance Co. v. Oakley,
torney was duly authorized." Prcsi- 9 Paige, 496; Bank i\ Bank, 10 Wall,
dent Mining & Milling Co. i\ Coquard, 604; Root v. Olcott, 43 Hun, 536;
(1890) 40 Mo. App. 40, 43. Merrill 0. Rider Life Raft Co. d. Roach, 97 N. Y.
Consumers' Coal Company, (1889) 114 378; Bridenbeoker «. Lowell, 82 Barb.
N. Y. 216, was an action of an attor- 9; Chemical Bank «, Kohner, 8 Daly,
ney against a corporation to recover 530; Bank?). Butchers', etc.. Bank, 26
shares of its stock to which he alleged How. Pr. 5; Hooker v. Eagle Bank, 30
he was entitled for services for one N. Y. 86; Peterson c. Mayor, etc., 17
year under a contract made with its N. Y. '449; Mumford v. Hawkins, 5
president. It appeared that the corpo- Dcnio, 335.
ration had from its organization em-
§ 133] PRIVATE COEPOEATIONS. 171
the 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 of
directors, and the money used to carry on the mill, and all this
was done before the bonds were taken by * * * the 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 corhpany and all creditors." ' 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 bj' 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 itfevada 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 of
such act was not communicated to the trustees as a board, the
trustees could not be held to have ratified the act by reason of
the knowledge of a majority thereof acquired while acting as
> Hubbard v. Camperdown Mills, ' Citing Ketohum «. Duncan, 96 U.
(1887) 26 S. C. 581, 584; s. c, 3 S. E. S. 659; Claflin ». South Carolina R. K.
Eep. 576. Co., 8 Fed. Rep. 118.
1Y2
POWBE 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
suflBcient 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.*
§ 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.^ 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.' 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.*
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
' Edwards v. Carson Water Co.,
(Nev. 1893) 34 Pac. Rep. 381. See,
also, Hotchin i). Kent, 8 Mich. 537;
Dabney v. Stevens, 40 How. Pr. 344;
Story Ag. § 243; Howell v. McCrie,
36 Kans. 653; s. c, 14 Pac. Rep. 257;
Combs i>. Scott, 12 Allen, 496; Mallory
V. Mallory Wheeler Co., 61 Conn. 141;
s. c, 33 Atl. Rep. 708; Despatch Line
ot Packets v. Bellamy Mfg. Co., 12 N.
H. 205, 232; Lyndon Mill Co.ii. Lyndon
Literary & Biblical Inst., 63 Vt. 581;
s. c, 32 Atl. Rep. 577; O wings ».
Hull, 9 Pet. 629; Bohm ». Brewery
Co., (1890) 16 Daly, 80; s, c, 9 N. Y.
Supp. 515; Murray 1). Lumber Co.,
143 Mass. 350; s. c, ,9 N. E. Rep.
634; Fitzhugh ». Land Co., 81 Tex.
310; 8. c, 16 S. W. Rep. 1078; Dedham
Institution for Savings «. Slack, 6
Cush. 408, 411. The Nevada court
in Edwards v. Carson Water Co.,
supra, give this as their understand-
ing of the law \ipon this subject:
"That before an individual or cor-
poration can be held to have ratified
the unauthorized acts of his or its
agents, every detail of the transac-
tion must have been made known to
the principal. If, after obtaining such
knowledge, the principal fails to act,
long and continued silence will he
deemed an approval of the act, and
such ratification relates back and is
equivalent to a prior authority to
make the contract." Citing 1 Dan.
Neg. Inst. §§ 316-319; Stark Bank v.
United States Pottery Co., 34 Vt. 144,
146; Story on Agency, § 339; Bank v.
Jones, 18 Tex. 816; Smith 11. Tracy,
36 N. Y. 79, 83; French «. O'Brien, 52
How. Pr. 894, 398; Combs v. Scott, 13
Allen, 493, 497. See, also. Yellow
Jacket Silver Mining Co. v. Stevenson,
5 Nev. '324, 328; Hillyer 1). Overman
Silver Mining Co., 6 Nev. 51, 55.
^ First National Bank of Hannibal
v. North Missouri Coal Co., (1885) 86
Mo. 135.
= ibid.
* Benedict v. Lansing, 5 Denio, 383;
Lawrence v, Qebhard, 41 Barb. 575.
§ 135] PEIVATE COEPOEATIONS. , 1T3
no relation to the corporate business, and in which the corpora-
tion has no interest.^ Such a transaction is not within the scope
of its business, and a party receiving such note with notice of the
circumstances under whicn it is given cannot recover on it.^ 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.* An agent of a corporation may have
authority to transfer a note by indorsement but has no authority to
bind the corporation as indorser.' 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 afEairs
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.* Officers "of a corporation, within
their general powers, may assign its choses in action in such man-
ner as they may deem expedient.' 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.^
§ 135. Notes signed by officers of a corporation. — Gil-
beet, 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-
' Hall V. Auburn Turnpike Com- * McKiernan «. Lenzen, (1880). 59
pany, (1865) 37 Cal. 355. Cal. 61; Gillett ®. Campbell, 1 Denio,
'Ibid.; Bank of Genesee «. PatcUn 533; Carey d. Giles, 10 Ga. 10; Phil-
Bank, 13 N. T. 309. lips V. Campbell, 48 N. Y. 371.
3 Blake «. Holley, (1860) 14 Ind. 383. ' Blake v. Holley, (1860) 14 Ind.
* Brown v. Donnell, (1860) 49 Me. 383.
431. 8 ^tna Insurance Co. ■». Wires, 38
' Ibid. Vt. 93.
174: POWER OF AGENTS AND OFFICEES. [§ 136
tain whether the officers have authority to make the note. A
corporation formed under the General Incorporation Laws for
the purpose of conducting business has, so far as the law is con-
cerned, the same power that an individual has to contract debts
whenever necessary, or convenient in furtherance of its legitimate
objects. It may borrow money to pay its debts. It may execute
notes, bonds and bills of exchange. The power to sign such
paper may be conferred upon any officer. If the president and
secretary sign, their authority is inferred from their official rela-
tion. All persons dealing with them have the right to assume
that there is no restriction of that authority. They also have
the right to assume, unless they have actual notice to the contrary,
that a note so signed is made in the regular course of the business
of the corporation. To hold otherwise would destroy the nego-
tiability of all notes made by corporations."^
§ 136. Poorer of bank officers. — It is not sufficient to estab-
lish the official character of a person to designate him as an offi-
cer. There must be competent and official proof of his authority
to act in an official capacity. Therefore, the assignment and
acknowledgment of a judgment, purporting to have been made
by a bank, in the absence of proof of the authority of the persons
executing the assignment in the name of the bank, were held not
sufficient to establish the fact of the assignment.^ An assignment
of the assets of a banking corporation under a resolution of its
directory, for a purpose within the scope of their powers, is prima
facie valid.^ 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.* The president of the
directory of a banking corporation cannot use its cash or credits,
i American Exchange National Bank ' Gibson «. Goldthwaite, (1845) 1 Ala.
V. Oregon Pottery Co., (1892) 55 Fed. 281.
Rep. 365; citing Merchants' Bank v. ^Bank of Healdsburg v. Bailhaohe,
State Bank, 10 Wall. 644; Crowley a. (1884) 65 Cal. 337; Gashwiler«. "Willis,
Mining Co., 55 Cal. 373; 1 Dan. Neg. 88 Cal. 11; Blen ». Bear River Co., 20
Inst. § 381. Cal. 602.
' Klemme «. McLay, (1885) 68 Iowa,
158; s. c, 36 N. W. Rep. 53.
§ 137] PRIVATE OOEPOEATIONS. 175
etc., for the purpose of settling the demands of its creditors, in
the absence of authority conferred by its charter, by-laws or reso-
lution of the directory within their power to adopt.* And the
affixing of the seal of the corporation to an unauthorized transfer
by its president of its assets cannot impart validity to the transfer.^
The officers of a national bank, without express authority from its
shareholders, after the bank goes into liquidation, can only bind
them by acts implied by the duty of liquidation.' General
authority, unrestricted by rules or by-laws, given to the president
and cashier of a bank to manage and control all of its iinancial
affairs, does not authorize them to use the property of the bank
for private purposes of theii' own, or for the benefit of them-
selves ; therefore, they cannot bind the bank by a contract to
which they, or either of them, are parties.''
§ 137. Power of a bank cashier. — A cashier of a bank 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.^ The cashier of a bank is held out to the world as its
' Gibson -0. Goldthwaite, (1845) 7 of a president of a national banking
Ala. 281, See Hallowell & Augusta association to bind the association by
Banic 1:. Hamlin, 14 Mass. 180, an agreement to hold, without collect-
^ Gibson «. Goldthwaite, (1845) 7 ing, a note which had been indorsed to
Ala. 281. In Cross «). Anglo-American it at the president's request, for the pur-
Banking Co., (1894)79 Hun, 424; s. c, pose of increasing the bank's assets
39 N. Y. Supp. 960; 61 N. Y. St. Repr. and enabling it to pass an expected ex-
370, the president and chief executive aminatlon of the inspector.
of a foreign banking corporation hav- ^ Richmond v. Irons, (1887) 121 U.
ing its principal place of business in S. 37; s. c, 7 Sup, Ct. Rep. 788. In
the city of New York, being author- Schrader v. Manufacturers' National
ized by its articles of incorporation Bank of Chicago, (1890) 133 V. S. 67;
and by the action of its directors to s. c. 10 Sup. Ct. Rep. 338, it was held
open its oflSce 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 «. Webb, 34 Minn. 392.
tlon or resolution of the directors lim- « Reed n. Powell, (1845) 11 Rob.
itlng Itis power, or requiring that no (La.) 98. The court said: "The di-
expenditures 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 «. Tisdale, (1881) 84 N. Y. appoint such officers and sub-agents
655, it was held to be beyond the power as may be necessary for the transac-
176 POWER OF AGENTS AND OFFICERS. [§ 137
executive officer intrusted witli 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 facjif to pass the title of the bank thereto.^ 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.'
tion of its business. The powers and maquoddy, 3 Mason, 505, 507; Mer-
duties of these oflScers are defined by chants' Insurance Co. «. Chauvin, 8
the charter and by-laws of the bank. Rob. (La.) 49.
"Within the sphere of their respective ' Everett v. United States, (1837) 6
duties they represent the corporation, Port. (Ala.) 166. The court quoted
and bind it by their acts; but in all the language of Mr. Justice Stokt in
matters and things not properly be- Fleokner v. United States Bank, 8
longing to their oflSoe they cannot rep- Wheat. 358, as clearly recognizing the
resent or act for the corporation right of the cashier as stated in the
unless specially or generally author- text. That language was as follows:
ized so to do by a, resolution of the " The cashier is usually intrusted with
board. Thus, the cashier, who is all the funds of the bank, in cash,
intrusted with the transaction of the notes, bills, etc., to be used from time
banking business of the corporation, to time, for the ordinary and extra-
needs no special authority to do and ordinary exigencies of the bank. He
perform any act required for the receives directly or through the sub-
proper management and dispatch of ordinate officers, all moneys and notes,
the same; but when it becomes neces- He delivers up all discounted notes
sary for the corporation to appoint an and other property, when payments
agent for any particular purpose, or have been duly made. He draws
to do any other thing not properly be- checks from time to time, for moneys,
longing to the duties of his office, he whenever the bank has deposits. In
has no better right to act than any short, he is considered the executive
other person. To say that he can officer, through whom, and by whom,
make such an appointment, or do any the whole moneyed operations of the
other act on behalf of the corporation, bank, in paying or receiving debts, or
because it is a mere act of administra- discharging or transferring securities,
tion, would be to make ths cashier its are to bo conducted. It does not
general agent and administrator, in- seem too much, then, to infer, in the
stead of the board of directors. " See, absence of all positive restrictions,
also. Union Bank v. Bagley, 10 Rob. that it is his duty as well to apply the
(La.) 43; Clinton Company v. Kernan, negotiable funds, as the moneyed
10 Rob. (La.) 176; Union Bank ». capital of the bank, to discharge its
Jones, 4 La. Ann. 236. debts and obligations." The cashier
1 Haynes, Liquidator, ii. Succession of a bank has no authority to pay a de-
of Beokman, (1851) 6 La. Ann. 324; positor in notes belonging to the bank
Fleckner «. United States Bank, 8 by transferring them to him. Schneit-
Wheat. 360; Wild v. Bank of Passa- man », Noble, (1888) 75 Iowa, 130.
§ 138] PRIVATE COEPOEATIONS. 17T
§ 138. When the authority of its cashier cannot be ques-
tioned by a bank. — Under the facts disclosed in a case before
the United States Supreme Court, it was held by the court that
the binding force of an agreement made by the cashier of the
bank, in reference to the indebtedness of one of the debtors of
the bank, 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.'
' Martin v. Webb, (1884) 110 U. S. thority to do so being in writing or
7. The ruling was based upon tlie 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 bank 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 has 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 «. City Bank of without objection and in his official
Columbus, 31 How. 356 ; Merchants' capacity, to pursue axparticular course
Bank v. State Bank, 10 Wall. 604. of conduct, it may be jDresumed, 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 con-
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 have some-
these propositions are recognized in thing more to do than, from time to
ihe 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,
Ms ordinary duties, without his au- they may be presumed to have known
23
178 POWEE OF AGENTS AND OFFIOEES. [§ 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 oifice 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
bronght 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.^
in any contest between the corpora- tion to that effect, by subsequent ratl-
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
'Kational Bank of Commerce of that banks are liable for the acts of
Kansas City v. Atkinson, (1893) 55 their officers, especially executive offi-
Fed. Eep. 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-
place 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 Iq
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- withiu 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 uniform. 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. TSTeithev 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 COEPOEATIONS. 179
§ 140. Power of a treasurer of a savings bank. — The treas-
urer of a savings bank is not virtute officii clothed with power to
borrow money for the institution and to pledge its securities as
collateral.^ The treasurer of a savings bank has no authority, ex
officio, to release a debt due the bank, upon payment of a divi-
dend by the debtor.' 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 di'aw
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.* 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 «. National
whatever, by way of discount or other- Bank, 101 U. 8. 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
received any benefit from discounts or benefit of the transaction, and the offi-
otherwise 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 "Ward Savings Bank «. First
dishonor. The notes were all indorsed National Bank, 19 Vr. (N. J.) 513.
in the office of the [plaintiff bank] by « Dedham Savings Institution •».
* * * the president [of the bank of Slack, (1850) 6 Cush. 408.
which defendant is receiver], and away 'Bradlee «. Warren Savings Bank,
from the place of business of [this (1879) 127 Mass. 107.
bank], and no mention of them was *Ibid.
made upon its books. The directors
180 POWER OF AGENTS AND OFFICBES. [§ 141
mortgage in the name of a savings bank, executed by its treasr
urer who has authority to execute it, and his indorsement of the
note to a ionafide holder, though he may in his action perpetrate
a fraud upon the bank and convert the purchase money to his
§ 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.^ The purchase of timber for a
mining corporation is within the power of its general agent.'
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.^ 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.' 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.^ There is,
' Whiting V. Wellington, 10 Fed. Hallowell & Augusta Bank v. Hamlin,
Rep. 810. 14 Mass. 180; Hoyt «. Thompson, 1
» Adams Mining Co. ®. Senter, (1873) Seld. 330; Whitwell 9. Warner, 30 Vt.
36 Mich. 73. 435.
3 Ibid. « Carpenter 11. Biggs, (1873) 46 Oal.
* New York Iron Mine v. Negaunee 91. In New York Iron Mine «. Citi-
Bank, 39 Mich. 644. zeus' Bank, 44 Mich. 344; s. c, 6N".
6 Blood «. Marcuse, (1869) 38 Cal. W. Rep. 833, it was held that there
590. For the same principles upon was no presumption of authority of
which this assignment was held to he 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 «. Clements, 3 Bosw. 600; John- before without objection, there being
son V. Bush, 3 Barb. Ch. 807; Brown v. nothing to show that the party relying
Weymouth, 36 Me. 415; Barcus v. Han- on his authority knew the fact, and a
nibal, Ralls County & P. P. R. Co., 36 long interval having passed since it
Mo. 103; Mt, Sterling & Jeffersonville occurred, and the corporation having
T. R. Co. V. Looney, 1 Meto. (Ky.) 550; meanwhile become prosperous and be-
Walworth County Bank v. Farmers' ing better supplied with ready money;.
Loan & Trust Co., 14 Wis, 335; and it also appearing that the post-
§ 142] PKIVATE COEPOEATIONS, 181
presumably, power in such an agent and manager of a mining
corporation power to sell its personal property.^
§ 142. General rules as to the power of a president. —
The powers of a president of a corporation over its business and
property are strictly the powers of an agent."'' A corporation
will not be boiind by the contract of its president, without proof
of his agency.^ The same evidence from which authority to bind
would be 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.'' 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.' 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.' 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.'' 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.* Acts of the corporation, or
dated bills he had formerly drawn * Bright v. Metairie Cemetery Asso-
were drawn on time and post-dated elation, 33 La. Ann. 58.
only long enough to give the drawer ' Mount Sterling & JefEersonville
the benefit of the full period of dis- Turnpike Road Co. ». Looney, (1858)
count after receiving them, while in 1 Mete. (Ky.) 550.
this case they were made payable at * Jackson v. Campbell, 5 Wend. 573.
sight and post-dated several weeks for In Williams s.Uncompahgre Canal Co.,
the agent's private advantage. (1889) 13 Colo. 469; s. c, 33 Pac. Rep.
' Scudder v. Anderson, 54 Mich. 133; 806, it was held that where a contract
s. c, 19 N. W. Rep. 775. under seal had been executed by the
' State Bank ®. Holcomb, 3 Hals. (N. officers of a corporation in their indi-
J.) 196. vidual names it was competent to aver
'Fisher v. Gas Co., 1 Pears. (Pa.) and prove by parol that the corpora-
118; Jackson ». Market Co., 13 W. N. tion, as the real party in interest,
C. (Pa.) 190. adopted, ratified and undertook to
■* Lee «. 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
' Farmers' Bank v. McKee, 3 Pa. St. president's power, unless it be speci-
318. ally conferred by the managing board:
182 POWEE 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.^ 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.'' 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.^ 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.'' 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 autliorize or ratify .° 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. Bat his authority to
do so may be presumed from his uniform practice in such mat-
Holbrook v. Fauquier, etc., Turn- Brooklyn Gravel Koad Co. s. Slaugh-
pike Company, 3 Cranch C. Ct., ter, 33 Ind. 185; First National Bank
435; Wait ii. Nashua Armory Assn., v. Kimberlands, 16 W. Va. 555. That
(N. H.) 33 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. ferred on him by the corporation, see
Dec. 491; Bacon v. Mississippi Insur- Bacon i). Mississippi Ins. Co., 31 Miss.
ance Co., 31 Miss. 116; Walworth 116.
County Bank e. Farmers' Loan & ' Mount Sterling & JefEersonville
Trust Co., 14 Wis. 335; Titus ». Cairo, Turnpilie Road Co. i>. 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. o. Me-
7 Cowen, 463; Mahone v. Manchester, chanics' Fire Ins. Co., 7 Wend. 31.
etc., R. R. Corp., Ill Mass. 73; s. c, ^ ji^rket Co. v. Jackson, 102 Pa. St.
15 Am. Rep. 9; Marine Bank v. 369.
Clements, 3 Bosw. 600; Lyndon Mil- « Wright's Appeal, (1883) 99 Pa. St.
Co. V. Lyndon Literary & Biblical 435; citing Angell & Ames on Corp.
Inst., 63 Vt. 581; s. c, 33 Atl. Rep. §§ 330-397; Martin ®. Great Falls
575; 35 Am. St. Rep. 783; Westerfield Manufacturing Co., 9 N. H. 51.
«. Radde, 7 Daly, 336; Western R. R. ^ Cakes i!. Cattaraugus Water Co.,
Co. ». Bayne, 11 Hun, 166; Hodge v. (1894) 143 N. Y. 430; s. c, 38 N. E.
First National Bank, 33 Gratt. 51; Rep. 461; 63 N. Y. St. Repr. 445;
142]
PEIVATE COEPOEATIONS.
183
ters.i Under authority given him by the directors of a banking
corporation to sell certain stock belonging to it, the president of
the bank, where uninstructed to the contrary, would have author-
ity to employ a broker to sell it.^ The acts of clerks of a corpo-
ration in maldng unauthorized purchases for the corporation on
credit may be ratified by its president.^ By virtue of his office,
a president of a corporation may collect subscriptions to the
capital stocks In a Missouri case a corporation, a transfer com-
pany, was held liable "upon promissory notes, given for the pur-
chase of mules for its use, and signed in its name by its presi-
dent.'
Hastings ®. Brooklyn Life Ins. Co., 138
N. Y. 473; s. c, 34 N. E. Rep. 289;
Conover ». Insiirance Co. , 1 N. Y. 290;
Bootli B. F. & M. N. Bank, 50 N. Y.
396; Leslie «. Lorillard, 110 N. Y. 519;
s. c, 18 N. E. Rep. 863; Holmes,
Bootli & Hay dens «."Wlllard, 125 N. Y.
75; 8. c, 25 N. E. Rep. 1083; Patter-
son «. Robinson, 116 N. Y. 198; s. c,
22 N. E. Rep. 372'; Rathbun v. Snow,
133 N. Y. 343; s. c, 25 N. E. Rep.
379; New York P. & B. R, R. Co.
B. Dixon, 114 N. Y. 80; s. c, 21 N. E.
Rep. 110.
' Marine Bank v. Clements, 6 Bosw.
166.
'' Sistare «. Best, 16 Hun, 611.
' Silva 11. Metropolitan Drug Co. , 42
N. Y. Super. Ct. 307. In Brouwer v.
Harbeck, 1 Duer, 114, an insurance
company was authorized by its charter
to receive premium notes in advance
and negotiate them to raise money for
the payment of losses or otherwise in
tlie course of its business. The presi-
dent of the corporation was empowered
by its by-laws to sign policies and trans-
act the ordinary business of the corpo-
ration. It was held that the borrowing
of money and hypothecation of these
premium notes for the purpose of pay-
ing losses, and afterwards having these
notes discounted by the lender in pay-
ment of the loss, was in the transac-
tion of the ordinary business of the
corporation, and did not require a pre-
vious resolution of the board of
directors.
■•East New York, etc., R. R. Co. ®.
Lighthall, 5 Abb. Pr. (N. S.) 458; s. c,
36 How. Pr. 481; 6 Robt. 407. In
Georgia Company v. Castleberry, (1871)
43 Ga. 187, where the corporation was
of the same name with a partnership
doing business by the same agent be-
fore the date of the charter, it was
held that the assumption of a debt due
by the old partnership with no new
consideration was outside of the scope
of the charter, and, therefore, outside
of the scope of the president's duties,
as they were derived from the nature
of his office, and even a written con-
tract promising to pay this debt would
be of doubtful validity unless there
was special authority from the com-
pany.
' Sparks v. Dispatch Transfer Co. ,
(1891) 104 Mo. 531; s. c, 15 S. W. Rep.
417; 24 Am. St. Rep. 851; 12 Law Rep.
Anno. 714; 83 Am. & Eng. Corp. Cas.
873. " The power of [the president]
to bind [the corporation]," said the
Supremo Court of that state, "is gov-
erned by the law of agency. The
principle underlying is the same,
whether the pi'incipal be a corporation
or an individual. It is now well set-
tled that when, in the usual course of
the business of a corporation, an officer
184
POWER OF AGENTS AND OFFIOEES.
[§M3
§ 143. Rule as to evidence in such cases. — In the Missouri
case just referred to, some of the promissory notes, with which it
was sought to charge the corporation, were signed by its presi-
dent as an individual. The Supreme Court of Missouri held that
where such negotiable notes are signed by the president of a cor-
poration in his own name, and nothing appears in the instrument
to indicate he was acting as agent of the corporation, extrinsic
evidence was inadmissible to show such agency.* In a late New
has been allowed to manage its affairs,
his authority to represent the corpora-
tion may he Implied fi-om the manner
in which he has heen permitted by the
directors to transact its business. This
is only the application of the principle
that usual employment is evidence of
the powers of an agent, and the prin-
cipal is held responsible for the acts of
his agent within the apparent au-
thority conferred on the agent. First
ISTational Bank ». North Missouri, etc.,
Co., 86 Mo. 135; Washington Mut.
Fire Ins. Co. v. Seminary, 53 Mo. 480;
Kiley «. Forsee, 57 Mo. 390; Martin r.
Webb, 110 U. S. 7; Mining Co. «'.
Anglo-Californian Bank, 104 U. S. 193.
The president of a business corporation
is its chief executive officer. He may,
without any special authority from the
board of directors, perform all acts of
an ordinary nature which, by usage
or necessity, are incident to his office,
and may bind the corporation by con-
tracts in matters arising in the usual
course of business. Boone on Corp.
§ 144; Stokes v. Pottery Co. , 46 N. J.
Law, 237." Applying the principles to
the case at bar, it was said: "[The
president of the company] purchased
every mule that [the corporation]
owned from its organization until
after the execution of the notes sued
on in this case. He had repeatedly
signed notes in the name of the corpo-
ration, and the corporation had honored
his orders and paid his notes so drawn.
PlaintifEs had thirteen different trans-
actions with him as the president and
purchasing agent of the [corporation]
prior to the giving of the notes herein,
and his acts had always been ratified.
The [corporation] was engaged in a
transfer business, in which the motive
power was mules, and it was its writ-
ten charter privilege to buy mules and
execute its notes therefor. [The presi-
dent] had pui'chased mules for the
[corporation] of the plaintiffs, and on
this occasion he informed them he was
purchasing the mules for which these
two notes were given for the [corpora-
tion]. His transaction, under the evi-
dence, was within both his actual and
apparent authority to bind the
[corporation]."
' Sparks ». Dispatch Transfer Co.,
(1891) 104 Mo. 551 ; s. c, 15 8. W.
Rep. 417. The court reviewed a
number of cases from other states sus-
taining this view, and then, as it was
claimed that this doctrine had been
repudiated by the courts of Missouri
in certain cases, these latter were
reviewed and distinguished as follows :
" The leading case relied upon by
respondents is Washington, etc., Ins.
Co. ». Seminary, 53 Mo. 480. The
note which was the basis of the action
in that case was as follows :
' 1750.
' For value received in policy num-
ber 2,969, dated the fourteenth day of
March, 1866, issued by the Washing-
ton Mutual Fire Insurance Company
of St. Louis, I promise to pay said
company (or their secretary for the
time being) the sum of $750, in such
R 143] PRIVATE COKPOEATIONS. 1°^
York case there was a contention that although the corporation
might be legally liable for the debt, still the notes in the first
instance having been made and discounted for the accommoda-
tion of Woodruff (its president), the debt was not contracted in
the business for which the corporation was created, and the mort-
portions and at such time or times as quotes from the decision in Mechanics'
the directors of said company may, Bank of Alexandria «. Bank, 5
agreeably to their acts of incorpora- Wheaton. 337, in which the Supreme
tion, require. Court of the United States says : It
' [Signed] DANIEL McCABTHY, is by no means true, as was contended
' President, in argument, that the acts of agents
'Per Thomas Bukke.' derive their validity from professing
"This court held that it was com- on the face of them to have been done
petent to explain the ambiguity on in the exercise of their agency.' If
the face of the note itself. Speaking this were all, it must be conceded that
for the court, Judge Shbbwood said respondents are justified in claiming
in that case : ' In the present case, that this decision is hroad enough to
the note sued on is signed ' Daniel permit parol evidence in any case to
McCarthy, President.' But president explain who was the principal, not-
of what ? Just here, under the rules withstanding there is no Intimation on
laid down in the above cases, parol the face of the paper that any one
evidence steps in and affords a ready hut the agent is a party to it. But the
and satisfactory explanation. The Supreme Court of the United States
word ' president,' attached to the name did not put their decision on that
of Daniel McCarthy, is an earmark of ground ; but, on the contrary, Justice
the official capacity in which the note Johnson, who delivered the opinion,
was signed — not evidence, it is true, expressly says : ' But the fact that
that the note was signed in that this appeared on its face to he a
capacity, but a sufficient basis for the private check is by no means to be
introduction of testimony tending to conceded ; on the contrary, the
establish that fact.' The court re- appearanceof the corporate zia-me of the
sumed : 'Moreover, in that case the institution on the face of the paper at
note on its face referred to policy once leads to the belief that it is a cor-
number 3,969, which insured the porate, and not an individual, trans-
seminary building and church build- action ; to which must be added that
ing belonging to St. Mary's Seminary, the cashier is the drawer, and the teller
It will be observed, first, that the the payee, and the form of ordinary
above note is not negotiable, and, checks deviated from by the substitu-
seeondly, that the ambiguity appears tion of ' to order ' for ' to bearer.' The
on its face, growing out of the word evidence, therefore, on the face of the
' president,' affixed to McCarthy's bill predominates in favor of its being
name. In the case at bar the notes a bank transaction. But it is enough
are, by their terms, negotiable, and for the purposes of a defendant to
contain nothing but Jackson's name establish that there existed on the face
as maker ; so that this case is not of the paper circumstances from which
authority, because the facts are it might reasonably be inferred that it
entirely difEerent.' It is true, however, was either one or the other, and in
that, in this case. Judge Shbkwood such a case to resort to extrinsic evi-
24
186
POWEE OF AGENTS AND OFFIOEES.
[§143
gage could not, therefore, be enforced for its payment. The court
heli 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.^
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]. Palk v. Moebs, 137
U. S. 597. In 31 Mo. 193 (Smith i>.
Alexander), the action was on the fol-
lowing note :
' 1500. St. Louis, Mo., July 33, 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. B. B. Co.'
' ' In that case Alexandei',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
EwiNG 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 shpw 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
companj'."
'Martin v. Niagara Palls Paper
Manufg. Co., (1890) 132 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-
issoiy 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 v. Iron Co., 103 U. S. 412;
§ 144] PBIVATB COEPOEATIONS. 187
§ 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 moiiey for the corporation and to
assign the assets of the corporation as a security for the loan,^ but
in accordance with the uniform practice of a corporation, its
president may transfer the title to a promissory note by an
indorsement signed by him as president.^ The presumption that
the president of a corporation had power to execute it, is carried
with an .assignment of a claim owned by the corporation exe-
Patterson «. Robinson, 116 N. Y. 193 ; taiy to sign all obligations of the com-
F. & M. Bank v. B. & D. Bank, 16 N. pany had never had any force and
Y. 125 ; N. R. Bank «. Aymar, 3 Hill, were unknown to the bank. What
262. It was said in Farmers' Bank «. the bank did know was that Wood-
Butohers & Drovers' Bank that the ruff [who made the notes] was presi-
sound rule is that 'when a party dent, general manager and financial
dealing with an agent has ascertained agent of the company. He was such
that the act of the agent corresponds by the general acquiescence of the
in every particular, in regard to which stockholders. He and * * * daugh-
such party has or is presumed to have ter owned the stock of the company,
any knowledge, with the terms of the For twenty -five years there had been
power, he may take the representa- no meeting of the stockholders for the
tions of the agent as to any extrinsic election of officers and very few meet-
fact which rests particularly within ings of the trustees, and Woodruff
the knowledge of the agent, • and had managed the business as if it was
which cannot be ascertained by a his own. He bought its supplies, sold
comparison of the power with the act its products and paid its debts. No
done.' The court then said : ' The other person was shown to have had a
case is analogous to the giving of a voice in the management of its affairs,
firm note by one partner for his own Under such circumstances, the giving
benefit. When such a note is given of a promissory note in the name of
in a transaction unconnected with the the company for money boiTowed was
partnership business and known to be not only within the appai'ent scope of
so by the person taking it, the other Woodruff's authority, but the long
partners are not bound without their period during which, without inter-
consent, but, ^nma/acie, the firm note ference, he was permitted to manage
binds all the partners, and the burden the company's affairs, justified the
of proving a want of authority lies inference that it was within his actual
upon the firm. Doty «. Bates, 11 authority. Martin «. Webb, 110 U.
Johns. 544 ; Gansevoort D. Williams, S. 7. The bank was, therefore, justi-
14 Wend. 133-188.' The nature of the fied in relying upon the presumption
business of the paper company justi- that the notes, being made in the name
fled the giving of negotiable paper, of the company, were given in its
and the making of such instruments business and for its benefit."
was an incident to the business it ' Hyde v. Larkin, (1889) 35 Mo. App.
carried on. It was a frequent occur- 865.
rence in the management of its affairs. ' Scott v. Johnson, 5 Bosw. 218;
The by-laws which required the secre- Merchants' Bank «. McCoU, 6 Bosw. 473.
188 POWEE OF OFFICEES AND AGENTS. [§ 145
cuted by its president under its corporate seal, reciting an authority
from the board of directors to execute it.* 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.^ 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.' 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 affairs.*
§ 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
' Corbit V. Nieoll, 13 N. Y. Civ. Pro. the Metropolis, 8 Gill. (Md.) 64. As
235. to president's power to draw, accept,
^ Clark V. Titcomb, 43 Barb. 133 and indorse bills of exchange, see
3 Elwell e. Dodge, 33 Barb. 336. Jones «. Hawkins, 17 Ind. 550; Alli-
■* Merrick ii. Trustees of the Bank of son 0. Hubbell, 17 Ind. 559.
§ 146] PEIVATE COEPOEATIONS. 189
advances made under this arrangement with the president instead
of upon the bond which the mortgage was executed to secure.^ ,
§ 146. Illustrations of the power of a president. — The con-
tracts binding a coi'poration which the president thereof has
authority to make, by virtue merely of his official position, are
confined to those relating to matters arising in the ordinary course ,
' Lewis V. Hartford Silk Manufac- at tlie disposal of its general un-
turing Co., (1887) 56 Conn. 25. In its limited financial agent, equally with
opinion as to the binding effect upon any other personal property belonging
the corporation of the transactions of to it. A corporate vote is not made
its president the court said: " No vote necessary to the valid disposition of
[of stockholders or directors] was nee- this right in personal property because
essary to make the acts of [the presi- of the mention of it in a sealed in-
dent] binding upon the corporation, strument. Therefore, if we should
Having made him its principal and concede that, as against the plaintiffs,
general financial manager and agent, the agreement between them and the
with no limitation uponhis power, and [corporation] constituted a valuable
having notified all persons concerned right in the possession of the latter,
of such appointment, the company is nevertheless [its president] had abso-
bound by his act of borrowing for its lute power of disposal of this right
benefit and of pledging [the products for its benefit. He could exchange,
of the mill] or any other personal sell, pledge or annul it by his indi-
property for repayment. He was vidual action at his discretion. Pre-
clothed with power to borrow money sumably the agreement by the mort-
f or its necessary and proper uses from gagor to deliver, and by the mortgagee
any person who would lend; to sell to receive [the products of the mill],
[their products] and repay; or consign in payment was for the benefit of the
[them] with leave to retain the pro- latter, and although it has a place in
ceeds; or use any other property for the condition of the mortgage, they
that purpose. And as in these matters, were under no obligation to see in it
in legal contemplation, he was the cor- any limitation upon the power of the
poration, he could bind it as effectu- mortgagor's general financial agent
ally as it could bind itself by corpo- thereafter to borrow, if they should be
rate vote when taking up money by willing to lend, other and additional
an agreement that payment should be sums for its benefit, and make pay-
secured by the previous mortgage, pro- ment therefor in money, [products of
vided (in the interest of other credit- the mill], or any other personal prop-
ers) the aggregate should not exceed erty. The purpose of the mortgagee
the extreme limit of one hundred was to give satisfactory security for
thousand dollars. Of course a cor- the loan of one hundred thousand
porate vote was necessary to a valid dollars, not at all to bar itself from
mortgage by its financial agent of the borrowing other money if a willing
real estate of the [corporation] to the lender could be found. As it is the
plaintiffs. But all money or other company's duty always to pay its
personal property or rights therein debts, the application of any of its
coming into its possession because of personal property or rights in stock at
the mortgage security thus given were any time to that use by its accredited
190 POWEE OF AGENTS AND OFFIOEES. [§ 146
of the business of the corporation.* And a corporation, for
instance, engaged in the business of conveying wateii 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.^ 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.^ 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.* 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.^ 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
pledgor], 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
pledgor'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.
' Blen V. Bear River & Auburn Water ' Oakland Paving Company «. Rier,
& Mining Company, (1862) 30 Cal. (1877) 53 Cal. 370.
603. " Wetherbee v. Fitch, (1886) 117 Dl.
'Ibid. In Shaver v. Bear River & 67; s. c, 7 N. E. Rep. 513.
Auburn Water & Mining Co., (1858) * Booth v. Farmers & Mechanics'
10 Cal. 396, the court held that the Bank, 50 N. Y. 396.
president of this corporation had au-
§ 146] PRIVATE COEPOEATIONS. 191
making and delivering its manufactured goods, has like authority,
unless the power is withdrawn, to authorize the termination and
release of such a contract.^ A railway corporation will be bound
by a contract made by its president, in its behalf, and within the
scope of its chartered powers, to pay fixed sums of money to the
proprietors of a railway bridge for the use of the same, where it
is made known to the directors and stockholders and not disap-
proved by them within a reasonable time.^ JSTo proof of the
authority of the president of a corporation will be required to
establisli an assignment made by the corporation, through its
president, of a special tax bill.' The lease of an office is within
the usual powers of the president of a corporation, and his decla-
rations, when making such a contract, are evidence of the intended
purpose for which it may be leased.* A corporation will be
bound by the act of its president, after its organization, in receiv-
ing a conditional subscription.^ 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.* It is within the scope of a president's
authority, as president, to undertake to bring before the board 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.'
'Indianapolis KoUing Mills ». St. gation of corporation, see Reno Water,
Louis, Fort Scott & Wichita Railroad, Company «. Leete, 17 Nev. 203; s. c,
(1887)12011. S. 356; s. o., 7 Sup. Ct. 30 Pac. Rep. 702; American Insur- .
Rep. 543. ance Co. «. Oakley, 9 Paige, 496; s. c,
'■ Pittsburgh, Cincinnati & St. Louis 38 Am. Dec. 561; Wetherbee v. Fitch,
Ry. Co. 1). Keokuk & Hamilton Bridge 117111. 67; s. c, 7 N. B. Rep. 513.
Co., (1889) 131 IT. S. 371; s. c, 9 Sup. As to president's indorsing commercial
Ct. Rep. 770. paper for transfer, see Irwin «. Bailey, 8
sRambrick ii. Campbell, (1889) 37 Biss. 533; Howland «. Myer, 3 N. Y.
Mo. App. 460. 290; Caryl v. McElrath, 3 Sandf. 176;
* Baltimore & Philadelphia Steam- Palmer v. Nassau Bank, 78 111. 880.
boat Co. v. McCutcheon, 13 Pa. St. 13. As to power of the president of a
^Pittsburgh & Connellsville R. R. bank to contract for the bank, see
Co. » Stewart, 41 Pa. St. 54. - Case v. HaTvkins, 53 Miss. 702.
'Dougherty ■». Hunter, 54 Pa. St. 'Union Gold Mining Co. v. Rocky
380. As to power of president to ap- Mountain Bank, 1 Colo. 581. As to
point attorneys for looking after liti- making sales of commodities of cor-
192 POWEE OF AGENTS AND OFFICERS. [§ 147
§ 147. Illustrations of his lack of power. — The president of
a corporation lias no legal power or authority to deplete tlie
coffers of the corporation by instructing the treasurer to refuse
to accept subscription money when tendered.' 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.^ 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.^ A resolution being upon the minutes of a corporation for-
bidding its president purchasing such goods, the president cannot
bind it for goods purchased.* Where a contract has been entered
into by authority of its board of directors, the president of a cor-
poration ia 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 v. Merritt, 63 Wallace, supra, further said: "It is
Hun, 628; 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 «. Mer- act, they will be bound by it. But the
chants' Bank, 18 Lea, (Tenn.) 334. general rule is that the president can-
' Potts 1). Wallace, (1893) 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 ao- securities or releasing claims in its
tiou 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- ' Bliss v. Kaweah Canal & Irriga-
dent and cashier that the indorser on a tion Co., (1884) 65 Cal. 503.
note shall not be liable on his indorse- * Westerfleld «. 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]
PRIVATE COEPOEATIONS.
193
poration, without the assent of the directors, has no power to
modify it.^ The president of a corporation, as such, has no power
to bind the corporation by any act outside his official duty.^ The
superintendent of a mining corporation has no authority, virtute
officii merely, to borrow mx)ney on the credit of the corporation.'
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.
' Western Railroad Co. v. Bayne, 11
Hun, 166; s. c, 75 N. Y. 1. For
classes of contracts or agreements in
which a president cannot bind the cor-
poration, see Spyker «. Spence. 8 Ala.
333; First National Bank ». Reed, 36
Mich. 363; St. Nicholas Insurance Co.
v. Howe, 7 Bosw. 450; First National
Bank 11. Bennett, 33 Mich. 520; Leavitt
V. Connecticut Peat Co., GBlatchf. 139;
Leggett V. New Jersey Manuf. Co., 1
N. J. Eq. 541; s. c, 23 Am. Dec. 728;
Fitzhugh «. Franco-Texas Land Co.,
81 Tex. 806; s. c, 16 S. W. Rep. 1078;
McKeag v. Collins, 87 Mo. 164; Olney
-0. Chadsey, 7 R. I. 224; Hodge «. First
National Bank, 22 Gratt. 51; Brouwer
25
v. Appleby, 1 Sandf. 158; Hone ®.
Allen, 1 Sandf. 171, note; Thompson
V. McKee, 5 Dak. 173; s. c, 37 N. W.
Rep. 367; Ellsworth "Woolen Manufg.
Co. e. Faunce, 79 Me. 440; s. c, 10 All.
Rep. 250; Ashuelot Manufg. Co. v.
Marsh, 1 Cush. 507; Globe Works ».
Wright, 106 Mass. 207; White -o. West-
port Cotton Manufg. Co., 1 Pick. 215;
s. c, 11 Am. Dec. 168; E. Carver Com-
pany 1). Manufacturers' Ins. Co., 6
Gray, 214; Markey ». Mutual Benefit
Ins. Co., 103 Mass. 78; Merchants'
National Bank v. Rawls, 7 Ga. 191 ; s.
c, 50 Am. Dec. 894; Aslier «. Sutton,
31 Kans. 286; Reynolds,etc.,Constr. Co.
». Police Jury, 44 La. Ann. 863; s. c,
11 So. Rep. 336; Potts ». Wallace, 146
U. S. 689; s. c, 13 Sup. Ct. Rep. 196;
Bank of United States v. Dunn, 6 Pet.
51; Weeks «. Silver Islet Consolidated
Mining Co., 55 N. Y. Super. 1; s. c,
8 N. Y. St. Repr. 110; First National
Bank «. Lucas, 21 Neb. 380; s. c, 31
N. W. Rep. 805; Foster ». Essex Bank,
17 Mass. 479; s. c, 9 Am. Dec. 168;
Dowd «. Stephenson, 105 N. C. 467;
s. c, 10 S. E. Rep. 1101.
' Perry ». Simpson Waterproof Man-
ufacturing Co., 37 Conn. 531. In
Stallcup «. 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 the
sanction of the directors, the bank was
held not to be liable.
' Union Gold Mining Co. v. Rocky
Mt. Bank, 8 Colo. 565.
194 POWEE OF AGENTS AND OFFICEES. [§148
dent, to undertake, in the corporate name, for the repayment of
such an unauthorized loan.' 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.^
§ 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
' Koch v. 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; a. c, 37 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. 63 111. 493. The business
leases of the real estate of the corpora- affairs of corporations are controlled
tion. Hoyt «. Thompson, 19 N. Y. exclusively by their boards of direct-
307. 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 1
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 himin
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 in 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 11. 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. ». 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 r'equired 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 on 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-
§148J
PRIVATE COEPOEATIONS.
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 the
corporation.'
' Crowley ®. Genesee Mining Com-
pany, (1880) 55 Cal. 373. It was said
in the opinion: ' ' Tbie 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 tieen 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 Redfibld, "it
would lead to very great in j ustice, 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 Middlebury v. Rutland R. R. Co.,
30 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 v.
Boyington, 73 HI. 534, where it ap-
peai'ed 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 POWEE OF AGENTS AND OFFICEES. [§ 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 indoi'sed 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 in
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 court to
dismiss the complaint ; that the evidence required the submission
of the question of the axithority of the president of the corporar
tion to bind it by indorsements to the jury.'
§ 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.*
1 Fifth National Bank of Providence, Co., 44 Cal. 106; "Wilbur «. Lynde, 49
E. I., ii.Navassa Phosphate Company, Cal. 290. In Farmers & Mechanics'
(1890) 119 N. Y. 256; s. c, 23 N. E. Bank of Savings v. Colby, (1888) 64
Rep. 737. Cal. 353, it was held that a note signed
"Seeley v. San Jose Independent by one as president of a corporation
Mill & Lumber Co., (1881) 59 Cal. 22. and anotherassecretary;?™ tew., they,
The court distinguished Hall v. Au- at the time of its execution, discharg-
burn Turnpike Co., 27 Cal. 355; Davis ing the duties of those respective
1). Rock Creek, L. F. & M. Co., 55 Cal. offices, was the note of the corpora-
359; San Diego «. 8. D. & L. A. R. R. tion, and imposed no personal liability
§ 151] PEIVATE COEPOEATIONS. 197
§ 151. In what cases the authority of a president may not
be questioned. — The knowledge of all the 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 Massachusetts
to have made valid, as the act of the corporation, the execution of
a mortgage of its personal property, without special authority
therefor, by its president, who was general manager of its busi-
ness.' 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.^ The by-laws of a corporation can-
hot 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.^ 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.* The
authority of a president of a corporation to subscribe for stock in
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.'
upon them as individuals. In Na- * Marine Bank of Buffalo ». But-
tional Spraker Bank'!). Treadwell Co., ler Colliery Co., 53 Hun, 612; 23
(1894) 80 Hun, 363, where a promis- N. Y. St. Repr. 318; s. c, 5 N. T.
sory note of a corporation was executed Supp. 291; affirmed in 125 N. Y. 695;
by its president, but not signed by its Bank of Attica «. Pettier & Stymus
treasurer in accordance with the by- Mfg. Co., 49 Hun, 606; s. c, 1 N. Y.
laws of the corporation, the Supreme Supp. 483; 17 N. Y. St. Repr. 327.
Court of New York in General Term When a corporation is estopped to deny
held that the fact constituted no de- the authority of its president, see Alex-
fense to an action on the note, if the ander i>. Brown, (1877) 9 Hun, 641.
paper was not diverted from its orig- * Brown v. Wright, (1887) 25 Mo.
inal purpose and went into the hands of App. 54.
a ioraas ^« holder and the corporation f^Eiysville Manufacturing Co. ■».
received the benefit of the proceeds. Okisko Company, 1 Md. Ch. 393; af-
> Sherman «. Fitch, (1867) 98 Mass. 59. firmed in 5 Md. 152. In Grape Sugar
''Grand Rapids Safety Deposit Co. Manufacturing Co. ■». Small, (1874) 40
V. Cincinnati Safe & Lock Co., 45 Fed. Md. 895, an action to recover for work
Kep. 671. done under a contract with the acting
198
POWEK OF AGENTS AND OFFIOBKS.
[§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.' 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. Ey. v. Sew-
ell, 35 Md. 351; Edwards 11. Grand
Junction Ey. Co., 1 Mylne & Cr. 650;
Wesley Church v. Moore, 10 Pa. St.
273; Attorney- General v. Corporation
of Leicester, 9 Beav. 546; Hughes v.
Antietam Manufacturing Co., 34 Md.
324; Fister v. La Eue, 15 Barb. 323;
Low «. Connecticut & Passumpsic
Eailroad, 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 «. H. M. Loud & Sons Lumber
Co., 86 Mich. 541; s. c, 49 N. W. Eep.
575; 24 Am. St. Eep. 134; Sherman
Center Town Co. ■». Swigart, 43 Kans.
292; s. c, 23 Pac. Eep. 569; 19 Am.
St. Eep. 137; Fitzgerald Constr. Co.
11. Fitzgerald, 137 U. S. 98; s. c, 11
Sup. Ct. Eep. 36; Olcott v. Tioga, etc.,
E. E. Co., 40 Barb. 179; First Nat.
Bank «. Kimberlands, 16 W. Va. 555;
Fitzhugh V. Franco-Texas Land Co.,
81 Tex. 306; s. c, 16 S. W. Eep. 1078;
Washington Savings Bank v. Butch-
ers', etc.. Bank, 107 Mo. 133; s. c, 17
S. W. Eep. 644; 28 Am. St. Eep. 405;
Dougherty i). Hunter, 54 Pa. St. 380;
Libby v. Union National Bank, 99 111.
632; ISTeiffer e. Bank of Knoxville, 1
Head, (Tenn.) 163. Estoppel by reason
of a presumption that corporation has
ratified a contract of its president. West
Salem Land Co. v. Montgomery Land
Co., 89 Ya. 193; s. c, 15 S. B. Rep.
534; Belleville Savings Bank «. Wins-
low, 35 Fed. Eep. 471; Bagaley v.
Pittsburg Iron Co., 146 Pa. St. 478; s.
c, 23 Atl. Eep. 837; Shaver v. Bear
Eiver, etc., Co., 10 Cal. 396.
1 Stokes 11. Jersey Pottery Co., (1884)
46 N. J. Law, 237. Arguendo, Depue,
J., for the court said: "The powers
of the president of a corporation,
mrtute officii, 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
§ 162] PEIVATE OOEPOEATIONS.
199
Court of Errors and Appeals of New Jersey has held that such a
judgment did not acquire validity from the fact that the money
advanced by the plaintiff was applied for the benefit of the com-
pany. " From that fact," it was said, " a debt would arise and
may, without any special authority duty or to he within the scope of his
from the board of directors, perform employment, cannot he regarded as
all acts of an ordinary nature which, the act of the corporation, and is not
hy usage or necessity, are incident to binding upon it. The authority re-
hls office, and may bind the corpora- quisite to charge the company must,
tion by contracts arising in the usual therefore, be derived from the board
course of its business. Boone on Corp. of directors.' 8 Vroom, 98-102. The
§ 144. To this extent, the president, other case is Leggett «. New Jersey
in virtue of his election as such, be- Banking Co., Saxt. 541. In that case
comes the agent of the corporation, the charter of a bank provided that
Beyond the powers which usage and the affairs, property and concerns of
custom and the necessities and con- the corporation should be managed by
venience of business require in the its directors; and the Court of Chan-
executive oflBcer of a corporation, he ceiy held that, although a mortgage
has no more control over the corporate executed under the authority of the
property and funds than any other board of directors would be valid, a
director. As illustrative of the re- mortgage executed by the president
stricted powers of a president of a and cashier under the corporate seal,
corporation in the management of its without the authority pr concurrence
business and control over its property, of the board of directors, was not a
I will refer only to two cases in our valid instrument. The reasoning on
own courts. In Titus «. Cairo & Ful- which the cases cited were decided
ton R. R. Co., this court held that a applies to the case now before the
power of attorney executed by the court. The plaintiff by his judgment
president of a corporation, authoriz- and the execution thereon, has ac-
ing a sale of its bonds in the market, quired a lieu on all the property of
gave the agent no power to sell, and the corporation; and I cannot find in
that the president could not execute principle any distinction between a
such a power without the authority of mortgage or conveyance of the lands
the board of directors. In delivering of a corporation and a judgment upon
the opinion of the court, Mr. Justice bond and warrant of attorney upon
Vak Stckbl said: ' In the absence of which the property, real and personal,
anything in the act of incorporation of the corporation is taken. Such a
bestowing special power upon the transaction is not within the ordinary
president, he has, from his mere ofB- business of a corporation, which the
cial station, no more control over the president, as its executive officer is, in
corporate property and funds than virtue of his office, authorized to
any other director. The affairs of cor- transact. There are cases in which
porate bodies are within the exclusive the powers of an officer of a corpora-
control of tl^eir boards of directors, tion, and his authority to act for the
from whom authority to dispose of company, are enlarged beyond those
their assets must be derived. The act powers which are inherent in his
of a president or other officer, unless office. But these are cases in which
it is shown to pertain to his official the agency of the officer has arisen
200 POWEE OF AGENTS AND OFFICERS. [§ 153
an obligation on the 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 lien upon the company's
property, unless his security is a valid security thereon, especially
when the rights of the other creditors are involved." ' 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.^
§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] waa
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. 203, 236-344; Ang. & A. on the active manager of the company,
Corp. §§ 299-303. 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 waa
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 «. 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
specls as well as to individuals, and property by a mortgage or judg-
with the same qualifications and ment confessed as a security for ita
limitations." The court then applied repayment."
these principles to the case at bar, • Stokes v. New Jersey Pottery Co.,
saying: " But the depositions laid be- (1884) 46 N. J. Law, 337; citing
fore the court do not bring the case in Hackensack Water Co. v. De Kay, 9
hand within the range of the author- Stew. Eq. 548.
ities above referred to. The only ^StateBankp. Holcomb,7Halst. 196.
153] PEIVATE COEPOEATIONS.
201
tion to confess judgment : " We think it plain, both upon prin-
ciple and from the authorities, that the president of a corporation
has not, as a matter of law, and simply by virtue of his office 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
the company which the president, as its executive officer, is
authorized to transact virtute officii. The power in question is
not inherent in or incident to the office from either usage or
necessity.*
• Joliet Electric Light & Power Co. of the record of the proceedings of
«. Ingalls, (1887) 23 111. App. 45; citing such meeting. He had actual and full
Stokes B. New Jersey Pottery Co., notice that all that the board of di-
(1884) 46 N. J. Law, 237; Thew v. rectors did on that occasion was to ac-
Porcelain Mfg. Co., 5 S. C. 415. cept without qualification the written
The court, in Joliet Electric Light offer that he himself had made for the
Co. V. Ingalls, supra, discussed the sale of the plant of [another electric
facts and the law applicable to them light company], and on the very terms
in the case in these words: "It is one proposed by himself, and also that
of the elements of a prima facie case the only papers the board authorized
that it is subject to be rebutted and the president to execute, and himself
destroyed by evidence to the contrary, as secretary to aflSx the seal of the cor-
The case of the defendant in error is poration to, were ' the necessary papers
not that of a stranger to the corpora- to complete said contract.' Whatcon-
tion dealing with the agents of the tract? Evidently the contract shown
corporation and without actual notice by the written proposition of defend-
of the power and authority given to ant in error to sell the plant for [a
such agents by the corporation or its fixed sum], payable as stated therein,
directors. It would in many instances ' and" secured by notes and mortgage
be difficult and even impossible for or other instruments upon all the plant
such stranger to ascertain with cer- offered ' for sale, and by the resolution
tainty and precision what the proceed- of the board accepting the said propo-
ings of the corporate board were. As sition. It would seem the reasonable
between such third party and the cor- construction of the transaction must
poration the rule sometimes applies necessarily be as shown by the offer
that where one of two innocent parties and the simple acceptance thereof
must suffer for the unauthorized act without qualification or counter offer,
of an agent the loss should follow that the completed contract between
[fall on?] him who selected the agent, the parties was, that in respect to
Taylor on Private Corporations, § 203. security for the purchase money the
Here defendant in error was himself a special terms proposed, i. e., 'notes
member of the board of directors of and mortgage upon all the plant,' con-
the [corporation], and present at and stituted the contract, and that under
participating in its meeting of the the agreement defendant in error could
[date of this action of the officers], and, have demanded nothing more or other
moreover, was secretary of the com- than notes and mortgage, and that a
pany, and kept and had the custody tender by plaintiff in error of such
26
202 POWER OF AGENTS AND OFFICEKS. [§ 154
§ 154. Where contract of purchase includes giving a
judgment note. — In a case where a corporation wishing to pur-
chase property for its use, 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, mrtute officii,
'notes and mortgage,' payment notes, to give a judgment note that would
or notes with warrants of attorney at- bind the company. In the case of
tached or incorporated, authorizing Hoyt «. 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 competent
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 au-
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] PRIVATE COEPOEATIONS. 203
"Where a promissory note and warrant of attorney are executed
in the 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 alfixed 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 is 'prima facie evidence
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.^
' McDonald ». Chisholm, (1890) 131 confession of judgment under a war-
Ill. 373; s. c, 33 N. E. Eep. 596. rant signed by a director, the treasurer
The power of a president of a corpora- and general manager of a corporation
tion to confess judgment for it with- without authority of the board of di-
out_ authority from the directors, has rectors or an executive officer, see Jack-
been questioned in Jones «. Avery, 50 son v. Cartwright Lumber Co., 3 Pa.
Mich. 336; s. c, 15 N. W. Rep. 494. Dist. Rep. 680. See, on confession of
The power to confess judgment for judgment by officer, Adams d. Cross-
the corporation has been held not be wood Prg. Co., 37 111. App. 313;
in its treasurer. Stevens «. Carp Freeman v. Plaindealer Co., 9 Luz.
River Iron Co., 57 Mich. 437; s. c, 34 Leg. Reg. 37; McMurray ». Oil Co.,
N. W. Rep. 160. As to the authority 33 Mo. 377. In Chamberlin n. Mam-
of a president of a corporation to con- moth Mining Co., (1854) 30 Mo. 96, it
fess judgment against the corporation, was held that the president of a min-
see Riaub ». Blairstown Creamery Assn. , ing corporation might appear and con-
(N. J. 1894) 38 Atl. Rep. 384. As to fess judgment for the corporation.
204' POWEE OF AGENTS AND OFFICEES. [§§ 155, 156
§ 155. 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.* 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.' 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.'
§ 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.*
There being no charter provision to the contrary, it will be pre-
' Thorington •». Gould, (1877) 59 Ala. supposes a delegated authority for the
461. Brickbll, Ch. J., said: In Bank purpose, and other corporate acts show
of United States «. Dandridge, 13 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 elation ®. Bustamente, (1877) 53 Cal.
to be presumed rightfully in office; 193; Bliss «. Kaweah Canal & Irriga-
acts done by the corporation which tion Co., 65 Cal. 503.
presuppose the existence of other acts ' Southern California Colony Asso-
to make them legally operative are ciation v. Bustamente, (1877) 53 Cal.
presumptive proofs of the latter." 193.
Again, "if officers of the corporation * State ex I'el. Page ». Smith, 48 Vt.
openly exercise a power which pre- 366.
§ 156] PRIVATE COEPOEATIONS. 205
sumed 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.' The president and
secretary of a corporation are proper officers to agree on its
behalf upon an arbitration.^ 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-laws of such corporation give
these officers specific powers not including such acts as are above
referred to.' 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.* 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.^
The president and secretary of a corporation are presumed to
'Eureka Iron, etc., Works «. Bres- in Verzan v. McGregor, 33 Cal. 339,
nahan, 60 Mich. 332; s. c, 27 N. W. 347.
Rep. 534. ^Rahm «. King Wrought Iron
.' Fitch V. Constantine Hydraulic Co., Bridge Manufactory of Topeka, (1876)
44 Mich. 74; s. c. 6 N. W. Rep. 91. 16 Kans. 377. In Stark Bank v. U. S.
5 Fay V. Noble, (1853) 13 Cush. 1. Pottery Company, (1861) 34' Vt. 144,
In Leonard v. 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 had 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 V. Table Mountain Water necessity, which was a question of
Company, (1858) 10 Cal. 441; approved fact for the jury.
206
POWEE OF AGENTS AND OFFICEES.
[§15T
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.'
§ 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.'
'American Exchange Nat. Bank v.
Oregon Pottery Co., (1892) 55 Fed.
Rep. 365. See, also. Merchants' Bank
V. State Bank, 10 Wall. 644; Crowley
1). Mining Co., 55 Gal. 373. In Fur-
niss V. 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 V. 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, 34 111. 180. In
Mclntire «. Preston, 5 Gilman, 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 1). Reynolds, Wilder & Co., 31
111. 491. Northampton Bank®. Pepoon,
11 Mass. 388, 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 objectfed 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 v. Gllman, 19 Me. 440, the in-
§ 158] PEIVATE COEPOKATIONS. 207
§ 158. Another illustration — one holding several offices.
— The by-laws of a Michigan manufacturing corporation provided
that one person might hold the oifices of president, treasurer and
general superintendent,. and vested in the president the general
supervision of the property and affairs of the corporation, and in
the treasurer the custody of its funds and valuable papers, with
power 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. He finally assigned to a bank to secure existing
indebtedness 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.'
dorsement by the cashier of the bank nation to the board, yet when, as in
was adjudged to be prima fade evi- this case, the stocliholders, being the
dence of a legal transfer of a negotiable owners, have seen fit to vest certain
note. See, also, Chase i\ Hathorn, 61 extraordinary powers of management
Me. 505; Dunn ii. "Weston, 71 Me. 370; in the president, and certain other pow-
Elwell «. Dodge, 33 Barb. 336; Marine ers in the treasurer and superintendent,
Bank ». Clements, 31 N. Y. 33." and the directors, with full knowledge
' Preston National Bank of Detroit of this, elect a man to fill all those ofll-
v. George T. Smith Middlings Purifier ces, and thereafter put no restraint
Co., (1890) 84 Mich. 364; s. c, 47 N. upon his management, the board must
W. Rep. 503. Champlin, Ch. J. , dis- be held to have consented to his exer-
sented solely upon the ground that the cising all the power reasonably in-
contract was too uncertain and indefi- eluded in the language by which it
nite to be specifically enforced. Argu- was conferred. Bank v. Comegys, 13
endo, as to the authority of this holder Ala. 773. The right of the directors
of the three positions, it was said by to make the security in question is not
Cahill, J., for the court: "Conced- disputed, yet their authority is given
ing that the president must exercise in language no broader than that which
his powers of management in subordi- defines the duties of the president. If
208 POWEE OF AGENTS AND OFFICEBS. [§ 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 sition to or in i-estraint of a course of
not thus usurp the powers of the board business they have themselves per-
and confer them on the president it mitted, If not established. Itisanordi-
may be said that the right of the di- nary occurrence for manufacturing or
rectors to delegate certain of their trading concerns, whose products
powers of management to the officers have sometimes to be carried to await
is undoubted, and if the consent of the a favorable market, to draw against
board was needed to fully invest the such products for the money needed
president with the power given to him to carry them; and, if requested, some
in the by-laws that consent has been form of security upon such products
given in this case. The question of is given. If this be permissible shall
[the president's] power is largely one the right to give security exist only so
of intention on the part of the stock- long as the goods are in stock, or may
holders and directors. As bearing they be sold on credit and the accounts
upon this question of intention, the due for such sales be substituted with
fact that no corporate meetings were the consent of the creditor? If not,
held for five years after the by-laws then trade is hampered, the debtor is
were adopted is an important circum- pnt into the hands of the creditor, and
stance. It is claimed that the neglect the latter cannot release him if he
to hold Corporate meetings can have would without risk. The right of Mr.
no bearing on this case, because it is Smith, as president and treasurer, to
not shown that complainant knew of borrow money for the legitimate needs
this fact or was influenced by it, and of the business and to give the com-
we are referred to the case of New pany's paper is not contested. The
York Iron Mine v. Negaunee Bank, 39 duty to pay is involved in the power
Mich, at page 655, where some Ian- to incur debts. In the case of this cor-
guage of Mr. Justice Coolet to that poration its power to pay its debts de-
efEect is found. In that case the only pended on the profitable sale of its
question was whether the bank had products and the collection of the
been influenced to rely upon Wet- money due on such sales. If it could
more's apparent authority, which did not otherwise dispose of its products
not in fact exist, to make the paper in it could turn them out to its creditors
question. The question is different in payment of, or as security for, such
here. It is not one of apparent power debts. If its goods were sold on credit,
to do an act conceded to be fraudulent these credits stood as the representa-
and void unless the corporation was es- tives of the goods, and the same use
topped by its conduct to allege the could, legitimately be made of them,
fraud, but it is a question of actual This is not like giving security upon
power in Mr. Smith, as the president, all the corporate property, the enforce-
treasurer and manager of this corpora- ment of which may involve the corpo-
tion, to perform an act entirely legal rate existence. The giving of the se-
and proper if authorized. The inten- curity or its enforcement did not nec-
tion to confer such power may be evi- essarily interfere with the prosecution
denced by their failure to act in oppo- of the corporate business. It was given
§ 160] PRIVATE COKPOEATIONS. 209
seal of the company, there being evidence that the plaintiff had
advanced to the corporation the amount for which the note was
given, 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.*
§ i6o. Power of superintendents, etc. — A corporation will
be bound by a contract made by its superintendent and manager
upon property and credits already de- in this manner, to meet its financial
voted In equity and good conscience necessities, was strictly within its
to the payment of its creditors, of authority as a corporation, and it was
whom the hank was one. The effect equally within its power, after having
of it was simply to give complainant obtained it, to execute and deliver the
priority of lien." The court referred note which was the subject of the
to the following cases to which it was action for payment of the amount. It
cited, to wit: Kimball v. Cleveland, 4 is true that it was not subscribed by
Mich. 606; Joy v. Plank Road Co., 11 the president, as contracts were
Mich. 155; Peninsular Bank i). Han- authorized to be made by article 7 of
mer, 14 Mich. 208; Adams Mining Co. the by-laws; but while the president
«. Senter, 26 Mich. 73; New York did not subscribe the note, his conduct
Iron Mine ®. Negaunee Bank, 39 Mich, authenticating its subscription, in the
644; Star Line «. Van Vliet, 43 Mich, name of the company, was equal to
364; New York Iron Mine u. Citizens' what was in this manner provided for,
Bank, 44 Mich. 357; Eureka Iron & inasmuch as he directed the note to be
Steel Works v. Bresnahan, 60 Mich, made by the secretary. These per-
332; D wight «. Lumber Co., 67 Mich. sons, were vested with the apparent
507; Delta Lumber Co. v. Williams, authority for conducting and carrying
73 Mich. 86; Genesee Co. Savings on the business of the company. And
Bank v. Michigan Barge Co., 52 Mich, even though they may have omitted
438; Kendall «. Bishop, 76 Mich. 634; literally to comply with the by-laws,
Stokes V. Pottery Co., 46 N. J. L. 237; as to the form of the contract for the
Bank ». Bank, 48 N. J. L. 527; s. c, 7 payment of the money, the company
Atl. Rep. 318; Fay ». Noble, 13 Cush. itself cannot be shielded from liability
1, as to the powers of agents of corpo- on account of that omission of its con-
rations in such matters. They said: trolling officers. The case in all its
"They are not altogether free from features differs from that of Bank «.
conflict, although if the exact point Church, 39 Hun, 498, where the note
necessary to be decided in each case be was neither sanctioned by the cor-
kept in mind, and the language used poration, nor given by the officers
be given no broader meaning than the conjointly required to act in the
facts of the particular case require, transaction of its business. The pres-
the conflict will be found more appar- ent note was the act of the officers,
ent than real." conjointly, of a business corporation
■ ' Jansen «. Otto Steitz New York empowered to borrow money and pro-
Glass Letter Co., (1888) 49 Hun, 606; vide for its payment, substantially the
s. c, 1 N. Y. Supp. 605. Daniels, J., same as that might be done by an un-
for the court, said: " To obtain money incorporated partnership."
27
310 POWER OF AGENTS AND OFFICERS. [§ 160
relating to the ordinary concerns of its business.* It may be
shown by the testimony of any one who knows the fact that one
is the general manager of a corporation.' 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 hona 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.' 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.* An engineer employed by a railroad corpora-
' Whitaker ». KUroy, (1888) 70 Mich, struction Co. e. Fitzgerald, (1890) 137
635; s. c, 88 K W. Rep. 606. U. S. 98; s. c, 11 Sup. Ct. Rep. 36.
2 Corning «. Walker, 14 N. Y. Wkly. Cases as to the power of a president
Dig. 314. In Negley «. 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. 399, the evidence fairs, its managing ofaoer. Siehe ».
that the agent of a corporation signing Joshua Hendy Machine Works, 86
a promissory note as "manager," Cal. 890; s. c, 35 Pac. Rep. 14; Lan-
' ' had mostly the entire charge of the caster County t>. Cheraw & C. R. R.
business," has been held sufficient to Co., 38 S. C. 134; s. c, 5 S. E. Rep.
show that his act in executing the 338; Kenton Insurance Co. «. 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; Maria tt ». Levee Steam Cotton
iacidental to, and necessary for, the Press Co., 10 La. 583; s. c. , 39 Am.
conduct of the corporation's business. Dec. 468; Topeka Primary Assn. ».
Citing Farmers' Baftli of Bucks County Martin, 39 Kans. 750; s. c, 18 Pac.
v. McKee, 3 Pa. St. 318. ' Rep. 941; Bambrick v. Campbell, 37
3 Bird i'. Daggett, (1867) 97 Mass. Mo. App. 460; Grafius ®. Land Com-
494. pany, 3 Phil. 447; Ceeder v. H. M.
*Swazey v. Union Manufacturing Loud & Sons Lumber Co., 86 Mich.
Co., 43 Conn. 559. As to the power 541; s. c, 49 N. W. Rep. 575; 24
of an ofiBcer of a corporation author- Am. St. Rep. 134; Chicago, etc., R.
ized 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 ti. McCutcheon, 13 Pa. St. 13; Smith
the absence of contrary instructions v. Smith, 63 111. 493; Richmond, etc.,
by the board of directors to bind the R. R. Co. ®. 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 «.
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. 347; Voris
road, see Fitzgerald & Mallory Con- v. Renshaw, 49 111. 435.
§ 161] PRIVATE COEPOEATIONS. 211
tion, by virtue of his position, has no power to bind the corpora-
tion by his contracts.^ To bind the corporation special authority
to the engineer must be shown.^ The secretary of a corporation
has no authority to give a memorandum of indebtedness of the
corporation, and such a memorandum would not be negotiable.'
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." 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 powers conferred upon him.^
§ i6i. 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 jui-y must be satisfied by affirmative
proof that the manager was authorized to indorse the namqii 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
' Gfardner ». B. & M. R. E. Co., 70 'Hascall v. Life Association of
Me. 181. .America, 5 Hun, 151. As to the
^ Ibid, power of a superintendent of a corpo-
' Sears v. Trustees Illinois "Wesleyan ration operating in a foreign country,
University, (1862) 28 HI. 183. see Rathbun «. Snow, (1890) 123 N. Y,
« Nebraska & K. Farm Loan Co. ■». 343.
Bell, 58 Fed. Rep. 326; s. c, 7 0. C.
A. 253.
21^ POWEK 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.'
§ 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 carae before the Supreme Court of the
United States, in the opinion rendered. Fuller, Oh. 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
acifon 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
' Huntington ». Attrill, (1890) 118 of the board of management, con-
N. Y. 365; s. c, 33 N. E. Rep. 544. tracted to lease the club house to
In Deller ». Staten Island Athletic plaintiff, who agreed to maintain a
Club, (1890) 56 HUH; 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 ofBcers at the request of members of the
of the club, acting under a resolution house committee.
§ 162] PRIVATE COEPOEATIONS. 213
that there could be no recovery on the notes and drafts in ques-
tion, because 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 named were paid by the plaintiff when he was
under no obligation to pay, and then and in that respect was a
mere volunteer. The Supreme Court of the United States held^
that the instructions to the jury in this case were justified by the
evidence.'^
' Fitzgerald & Mallory Construction certain instructions which limited his
Co. ■». Fitzgerald, (1890) 137 U. S. 98; authority in the premises.'" The court
s. c, 11 Sup. Ct. Rep. 36. The also instructed the Jury: "As to the
instructions of the United States Cir- promissory notes which were indorsed
cuit Court in this case to the jury by the plaintiff, and upon which he
were as follows: ' ' That if they found was held as indorsee, if the jury found
from the evidence that the presi- from the evidence that said notes were
dent was given entire management in executed in good faith for the presi-
building the raili-oad, and in the in- dent of the construction company, and
curring of liabilities and paying of that the proceeds, or the proceeds of
debts incurred therein, he might ap- the notes and drafts of which the notes
point other agents, such as a cashier in question were renewals, were re-
and auditor, for the purpose of making ceived by and used for the benefit of
the calculations on pay-rolls and on the construction company, and you
contracts for building the road, and further find that the plaintiif is not the
might empower any one of such holder and owner of said notes, you
agents who made such calculations will find for the plaintifE in the full
upon the pay-rolls of the amount due sum of the notes, with interest," And
to those who did the work by contract further: " And although there may be
or otherwise, to draw any checks or a provision in the by-laws of said con-
bills or sight drafts necessary to pay struction company requiring certain
the same, and ' if it becomes necessary formalities in the execution of a prom-
for the benefit of said company to exe- issory note or draft, yet that does not
cute promissory notes or to draw sight necessarily make such formalities es-
drafts, the said president would have sential to the ratification of the con-
ample authority to do the same, and tract; but if you find from this evi-
might likewise empower the cashier, dence that said notes were given for
or the party whose duty it was to the purpose of paying oS debts that
ascertain the amounts due to contract- were due by said construction com-
ers, materialmen and persons working pany, and that the directors of said
upon the construction or building of construction company had full knowl-
said railroad by the construction com- edge of the same and assented to this
pany, to draw drafts or checks, or transaction, to the signing and execu-
even make promissory notes, and that tion of the notes, you will find that
the same, if done for the company or said acts of the president have been
for its use and benefit, would be bind- fully conflrmfed, and you will find for
ing upon the said company, unless the the plaintifE the full amount of said
president received from the directors notes, with interest, provided you find
214
POWER OF AGEMTS AND OFFIOEES.
[§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 with 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 pai't 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
same, and is now the lawful holder of
them." It was said by the Supreme
Court on the merits of the case : " If the
moneys were used to pay off indebtedi
ness of the company arising in the con-
struction of the road, and for work done
under proper authority, the transac-
tions were in pursuance of the author-
ized purposes of the corporation, and
occuiTed in its legitimate business.
The execution of the paper could not
be held to be in excess of the powers
given, and it was clearly the duty of
the directors to give contrary instruc-
tions if they wished to withdraw the
general management from its presi-
dent, and to disaffirm the action of
their agents promptly and at will, if
they objected to it. Indianapolis
Rolling Mill ii. St. Louis, etc., R. R.
Co., 120 U. S. 256; Cresswell 11. Lana-
han, 101 U. 8. 347. The company
was liable upon the original indebted-
ness, and its change of form in order
to relieve the pressure of the creditors
was by the direction, with the partici-
pation, and the request of, the presi-
dent. We perceive no want of power
and no omission of essential formali-
ties in what was done. Another mere
fact that [the plaintiff] was a stock-
holder in and a promoter and director
of the company, and, with the presi-
dent;, the manager of the work in the
prosecution of which the indebtedness
arose, would not change the binding
character of the obligation. Twin- Lick
Oil Co. ®. Marbury, 91 U. S. 587;
Gardner v. Butler, 30 N. J. Eq. 703,
731; Harts «. Brown, 77 111. 236;
Again, there was evidence to the effect
that [the plaintiff] indorsed the notes
at the request of the president. Inas-
much as the defendant was answerable
for the indebtedness which the money
received upon the notes went to pay,
if in order to obtain that money [the
plaintiff] was called on to indorse the
notes, and compelled to protect his in-
dorsement, he could not be treated as
a volunteer. There would be no ele-
ment in such a transaction of the vol-
untary payment by one of another's
debt. So, if [the plaintiff] was the
manager of the work under the presi-
dent, and the money was used to pay
off the sub-contractor, materialmen
and hands, then, upon the refusal of
the company to repay, [the plaintiff]
had the right to take up the notes and
have them assigned to him; and
whether he was the owner and holder
of the notes was left to the determina-
tion of the jury. By the first section
of the by-laws, the officers of the com-
pany were declared to be ' a ' president,
vice-president, secretary and treasurer,
and such other officers as may be
deemed necessary to carry out the
object of the articles of this incor-
poration.".
§ 163] PRIVATE COEPOEATIONS.
215
belonging to the company, and claiming that such authority was
only in its treasurer. The trial court refused the request of the
bank on the trial to instruct " that if the jury shall find that by
the consent of the [corporation this person] had conducted the
plaintiff's business, had paid bills, sold goods, received and paid
out moneys for the [corporation], and was in fact ostensibly 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 ]S"ew York, in General Term, held that this
refusal to instruct, as requested, was error, for, said they : " Cor-
porations can act only through their officers and agents, and, if a
person has been instructed by the officers to carry on 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."^
' Craig Medicine Co. «. Merchants' at 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. 16. But the absent hy 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
ment, 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 New eral rule there, as in this state, and
Jersey to organize the corporation and universally, is that it requires a quo-
te vote for them. This he did, organ- rum of directors or managers as trus-
izing 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 treas-
as to the law applicable to this state of urer, who alone could transact busi-
facts: "We know of no principle ap- ness of the corporation of this charac-
plicable to the dischax-ge 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 the 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 bo chosen at the stockholders'
this state (Chapter 40, Laws of 1848) meeting, and 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 be.
chemical purposes, stockholders may. Under the power of attorney [he] had
216
POWBK OF AGENTS AND OFFICEES.
[§ 16*
§ 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 caishier, book-
keeper, or corresponding clerk.'
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."
'Delta Lumber Co. «. Williams,
(1888) 73 Mich. 86'; s. c, 40 N. W.
Eep. 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 indorser shall not be liable on his
indorsements, is not binding on the
bank. Bank v. Dunn, 6 Pet. 51; Bank
V. Jones, 8 Pet. 16. In the absence of
anything 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
§§165, 166] PRIVATE COEPOEATIONS. 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-
tions of such a board to allow or reject claims, such an audit-
ing board, it has been held, had no authority to rescind a con-
tract which it was claimed in the action against the corporation
had been made with a licensor by its president representing the
corporation, the licensee of a patented article used in its business,
or determine the future action of the corporation, but that such
authority was in the trustees of the corporation.*
§ 166. Power of a treasurer generally.— Title will pass by
a sale made by the treasurer of a corporation, without special
authority, where he has been in the habit of transacting such
business with the knowledge and sanction of the managing board
of the corporation.^ The authority of a treasurer of a corpora-
tion to bind it by the acceptance of a draft, may be inferred from
the knowledge and acquiescence of the directors.^ An attorney
may be employed by the treasurer of a corporation without any
special authorization of the board of directors.* A treasurer of
a corporation must have special authority, it not being within the
general power and province of such officer, to issue written admis-
sions, which would bind the corporation, of the amount due upon
a disputed claim for salary of other agents of similar grade ; the
power to fix such amounts belongs regularly to the board of
directors.^ The treasurer of a manufacturing corporation has no
authority to release a claim for a loss under a policy of insurance
obtained by him in behalf of the corporation.^ A treasurer of a
corporation is not authorized to pay a claim of his own against
the corporation where it has not been approved and its payment
not now be determined, as certain it is iug & Reaping Machine Co., (1893) 140
that he would have no authority, as N. Y. 217.
such cashier or general financial agent, 'Phillips ». Campbell, 43 N. Y.
to give away the property of the cor- 371.
poration or change its relation with its " Partridge ». Badger, 25 Barb. 146.
debtor by releasing a debt due to it, ■* Turner «. Chillicothe & Des Moines
without express authorization. Bank R. R. Co., (1873) 51 Mo. 501.
«. Dunn, 6 Pet. 51 ; Kirk v. Bell, 12 ' Kalamazoo Novelty Manufacturing
Eng. Law & Eq. 889; Hoyt v. Thomp- Co. v. McAlister, 36 Mich. 327.
son, 5 N. Y. 320." " E. Carver Co. «. Manufacturers'
' Skinner v. Walter A. Wood Mow- Insurance Co., (1856) 6 Gray, 314.
218 POWEE OF AGENTS AND OPFICEES. [§ 167
authorized by the corporation.^ On a debt being paid to the
treasurer of a corporation he has no power to assign the security
without direction from the board of directors.^ A vote of the
directors of a corporation authorizing its treasurer to hire money
on such terms and conditions as he 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.' 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.^ 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.^
§ 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.^ A treasurer of a corporation being intrusted
by it to take notes, an indorsement by him will bind the corpora-
' Peterborough Eailroad v. Wood, 61 a statue to be used as an advertise-
N. H. 418. ment of its business; that the concur-
° Ballou ». Campbell, 5 "Wend. 573. rence in such case of the whole or of
^ Belknap ®. Davis, 19 Me. 455. the majority of the board of directors
^ Kimball «. Goodburn, 32 Mich. 10. was not essential. As to the power of
* National Cordage Co. ■». Pearson a treasurer of a corporation, see Colum-
Cordage Co., 55 Fed. Rep. 813; s. c, bia Bank «. Gospel Tabernacle Church,
5 C. C. A. 376. In Ellis v. Howe (1889) 57 N. Y. Super. Ct. 149. As to
Machine Co., 9 Daly, 78, it was the power of a treasurer of s lumber,
held that the treasurer of the sewing ranch and mining company, see Rum-
machine company, owning with his boughs. Southern Improvement Co.,
brother, the president of the company, (1893) 112 N. C. 751.
nearly the entire capital, had power to « Knight v. Lang, 4 E. D. Smith,
bind the corporation by a contract for 381; s. c, 3 Abb. Pr. 337.
§ 168] PEIVATE COKPOEATIONS. 219
tion, his authority to indorse them being implied from his being
treasurer and being intrusted with the securities, and that they
are made payable to the treasurer, or to him as treasurer.* 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.^
§ i68. 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.' 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.* 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.^ The board of directors of a
' Perkins v. Bradley, 34 Vt. 66. is that the authority is not presumed
' Lester v. Webb, (1861) 1 Allen, 34. from the mere fact that the person as-
' Odd Fellows ». First National Bank sumed the right to give a note in the
of Sturgis, 43 Mich. 461; s. c, 4 N. name of the corporation. A corpora-
W. Rep. 158. tion is an artificial person, which must
* Hay ward ®. Pilgrim Society, (1838) act within certain limits. It differs
31 Pick. 370. from a natural person. If an individ-
' Foster v. Ohio-Colorado Reduction ual gives his note, it is not necessary
& Mining Co., (1883) 17 Fed. Rep. 130. to prove anything in the way of au-
McCrabt, J., in this case charged the thority, but a corporation must act by
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 pro-
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 the 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 this subject the constitution or by-laws of the cor-
2'30 POWEE OF AGENTS AND OFFICEES. [§ 169
construction company aiitliorized 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 arid 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." * It '
is not witliin 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.^
§ 169. Authority of a treasurer to borrow money by
means of sterling contracts. — In a federal court case the
action was assumpsit 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 ■o. 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 E. M. v. Dayton,
stances which are sufficient, in the S. & G. R. Ry. Co., 5 Fed. Rep. 853;
judgment of the jury, to show that s. c, 7 Sawy. 61; Schallard ». Eel
the party who executed the note had River Steam Navigation Co., (1886) 70
the authority. If it was the custom Gal. 144; s. 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. 327.
course, the trustees — they had, by 'Stark Bank «. U. S. Pottery Co., 34
recognizing that custom and acting Vt. 144.
upon it, themselves become bound by
§ 169] PEIVATE COKPOEATIONS. 221
treasurer had borrowed money by the purchase of a foreign bill
of exchange and entered into the contract signing the name of
the 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 hefore the directors monthly a written statement of all
notes, drafts, promises, contracts made, signsd, mdorsed or swr-
rendered hy 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 giv6 such authority, if it was intended to
be so conferred."'
' Page ■». Fall River, W. & P. R. loan of money on such contracts. On
Co., (1887) 31 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 horrowing 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
such 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-
were 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 0FFICEE8.
[§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
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
•0. 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 oflicial 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 v. State
Bank, 10 Wall. 604; Mining Co. i>.
Anglo-CalifornianBank, 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-
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 1 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
§ 171] PEIYATE COEPOEATIONS. 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
the treasurer to indorse negotiable paper or any proof of a recog-
nized course of business by which the treasurer was held out as
possessing 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 honafide holder.^
§ 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 ultra vires 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 plaintiff's 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
their inquiry. Colt, J., said: "I act." Wahlig ». Manufacturing Co.,
have no doubt that the directors by (N. T. City Ct. Gen. T., 1890) 5 N. Y.
allowing [the treasurer] for several Supp. 420; Mather «. 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 v. Radde, 7
which were sold to different banks in Daly 326; s. c, 55 How. Pr. 369.
the state and some 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
tlon 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." porate sanction, (Green's Brice Ultra
' Wahlig n. 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 POWEE OF AGENTS AND OFFICEES. [§ 1^1
plaintiff's board of directors left the direction and management
of the business to his judgment and habitually held no meetings
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}
' Holmes, Bootli & Haydens «. 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 Bkunt, P. J., forthe 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 iiires 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 poratiou to use its credit and money in
anything of that sort. The question such a way, it was said: " It is sufB-
§m]
PRIVATE COEPOEATIONS.
225
§ 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
witliout 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 the
agent in signing this particular note exceeded his authority or the
powers of the corporation.*
cient to say that the evidence shows
conclusively that it had been the prac-
tice of this corporation to lend money
and extend financial assistance to par-
ties V7ith whom it had business rela-
tions. It is true that it is claimed that
the only evidence of any sueh course
is that the defendant during his ad-
ministration often gave financial assist-
ance to customers by him, but that
such acts were not reported to the
board of directors. But the evidence
fails to establish this proposition. It
is true that the subsequent treasurer
says that such accommodations were
not extended to any but the customers
by him, but there is no evidence but
that it had been the practice prior to
this time to give financial assistance
to others than customers strictly
speaking, in the shape of extending
their paper as is claimed to have been
only done by [the last treasurer]. And
it appears without contradiction that
it was not customary for the board of
directors to give the manager direc-
tions in these matters; that he always
exercised the authority, and it was not
customary to bring it before the board
of directors. In other words, the
whole details of the management of
the corporation were, as above stated,
committed to the general manager.
Under this state of things, it is difficult
to see how the defendant can be held
liable, because of his action, in con-
ducting the business in precisely the
same way in which it had heretofore
been done, and extending aid to per-
29
sons with whom the plaintifE had
dealings. If corporations choose to
place the whole of the management of
their business for the purpose of ex-
pedition in the hands of a single indi-
vidual, and give him a general author-
ity to act as under the circumstances
may seem best to him, unless absolute
fraud is shown on his part, thei'e
seems to be no ground upon which a
right of recovery can be had against
him for any such acts. Certainly a
mere mistake in judgment does not
render him liable. Trading corpora-
tions are necessarily managed in a
more informal way than those of a,
different character. They are volun-
tary copartnerships, having a right of
survivorship, not dissolved by reason
of the death of any one of the parties
in interest, and a director or officer or
manager, with whom is intrusted all
the business of the corporation, can
exercise all the powers which the
board of directors could exercise under
the same circumstances in the general
management of the corporation busi-
ness. Hoyt ■». Thompson, 19 N. Y.
309. Even if we concede that the
corporation had no power to lend its
money, yet, when it is found that it
had been in the habit of so doing, and
that it had been the course of business
of the corporation, certainly an officer
cannot be held liable simply because
he has continued the practice."
' Merchants' Nat. Bank of Gardiner
V. Citizens' Gas Light Co. of Quincy,
(1893) 159 Mass, 505; s, c, 34 N. E.
■226 POWER OF AGENTS AND OFFICEES. [§ 173
§ 173. When a corporation is bound by acts of treasurer.
— In a recent ease before it the Supreme Court of New York,
in General Term, has held that where the treasurer of a business
corporation was also permitted to become and act as its sole finan-
cial manager, the corporation would be chargeable, irrespective
of the question of autliority, in fact, with liability for acts done
by him within the apparent scope of the authority conferred
Rep. 1083, citing Monument Nat. Bank holders or directors of a corporation,
v. Globe Works, 101 Mass. 57. Bab- do not toucli the question whether au-
KBB, J., for the majority of the court, thority is to be implied as matter of
said, arguendo : "It is not necessary law from the name and nature of the
that the authority of an officer or agent office itsqjf. In the present case the
to sign notes in behalf of a corporation jury were instructed that the treasurer
should appear in the by-laws, or of such a corporation as the defendant
should have been expressly given by company has, by virtue of his office,
a vote of the directors or of the stock- authority to sign a note which shall
holders. In Lester «. Webb, 1 Allen, bind the corporation, and the defend-
34, it was said: ' The rule is well set- ant contends that this instruction was
tied that if a corporation permit their incorrect. The incidental powers of
treasurer to act as their general fiscal some officers or agents have become so
agent and hold him out to the public well known and defined, and have been
as having the general authoritj' im- so frequently recognized by courts of
plied from his official name and char- justice, that certain powers are implied
acter, and by their silence and acqui- as matters of law in favor of third .per-
escence suffer him to draw and accept sons who deal with them on the as-
drafts and to indorse notes payable to sumption that they possess these pow
the corporation, they are bound by his ers, unless such persons are informed
acts done within the scope of such im- to the contrary. The officers and
plied authority. Fay «. Noble, 13 agents usually mentioned in this cate-
Oush. 1; Williams v. Cheney, 3 Gi'ay, gory are auctioneers, brokers, factors,
215; Conver «. Insurance Co., 1 N. Y. cashiers of banks and masters of ships.
290. Ou the facts found at the trial See Merchants' Bank v. State Bank, 10
the plaintiff might well claim, if the Wall. 604; Case v. Bank, 100 U. S. 446.
jury believed the evidence, that the Treasurers of towns or cities in this
treasurer had authority to indorse the commonwealth are well-known offi-
notes in suit, derived, not from any cers, and their powers are very limited,
express direction, but from the course They are in general to receive, keep
of conduct and dealing of the treas- and pay out money on the warrant of
urer with the knowledge and implied the proper officers of the towns and
assent of the directors of the corpr-ra- cities. Treasurers of business corpo-
tion.'" See, also, McNeil ». Chamber of rations usually have much more ex-
Commerce, 154 Mass, 285; s. c, 28 N. tensive powers, and the decisions of
E. Re,p. 245; Mining Co. ». Anglo- this court hold that the treasurer of a
Californian Bank, 104 U. S. 192. "But," manufacturing and trading corpora-
said the Massachusetts court, "cases tion is clothed, by virtue of his office,
where the actual authority of an officer with power to act for the corporation
is inferred from a course of business in making, accepting, indorsing, issu-
known to and permitted by the stock- ing and negotiating promissory notes
§ 173] PRIVATE COEPOEATIONS. 227
upon him by the corporation. In this case, for instance, the
treasurer of a water works company had been permitted, through
the omission of its other officers to direct its iinancial 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 lonafide
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.^
and bills of exchange, and that such cial institutions. It could not now be
negotiable paper in the hands of an abrogated or unsettled without dis-
innocent holder for value, who has turbing commercial transactions,
taken it without notice of any want of There are, however, many corpora-
authority on the part of the treasurer, tions which transact more or less busi-
is binding on the corporation, although ness to which the rule has been held
with reference to the corporation it is not to apply. Thus, it does not apply
accommodation paper. Narragansett to a college (Webber v. College, 23
Bank «. Atlantic Silk Co., 3 Met. 383; Pick. 302); nor to a parish (Packard «.
Bates V. Iron Co., 7 Met. 224; Fay v. Society, 10 Met. 427); nor to a monu-
Noble, 12 Cush. 1; Lester®. "Webb, 1 ment association (Torrey v. Bustin
Allen, 34; Banka. Winchester, 8 Allen, Monument Association, 5 Allen, 327);
109; Bird v. Daggett, 97 Mass. 494; nor to a municipality (Bank v. Win-
Monument Nat. Bank v. Globe Works, Chester, 8 Allen, 109;; nor to a savings
101 Mass. 57; Corcoran i>. Cattle Co., bank (Tappan v. Bank, 127 Mass. 107);
151 Mass. 74; s. c, 23 N. E. Eep. 727. nor to a horse railroad company (Craft
While it is possible that most, if not e. Railroad Co., 150 Mass. 207; s. c, 22
all, of the cases in which this rule has N. E. Rep. 920)."
been stated as law have some special ' Perry v. Council Bluffs Water
circumstances from which the treas- Works Co., (1893) 67 Hun, 456; s. c,
urer's authority could be inferred, and 22 N. Y. Supp. 151. The court ap-
thatthe court was influenced in the de- proved the findings and the reasoning
cisions by the well-known fact that in and conclusions of the referee in this
many of the manufacturing corpora- case, O'Brien, J., speaking for the
tions of this commonwealth the treas- court, referring to them thus: "He
urer not only has the custody of the finds that during the period from some
money, but is the general financial time in the month of October, 1885, to
manager, and often the general busi- February 27, 1887, Harry Allen, as
ness manager of the corporation, the treasurer of the defendant corporation,
rule itself has been frequently and made and Issued in the name of the
broadly stated in our decisions and is defendant, and to which the name of
■well known both to the officers of the defendant was signed by himself
manufacturing and trading corpora- as treasurer thereof, some forty or fifty
tions and to those of banks and flnan- promissory notes; to the order of and
228
POWEE OF AGENTS AND OFFICEES.
[§174
§ 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 heiug 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 oflicers 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 oflScial 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 «. 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 Uabil-
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 ari 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-
§ 1T4:] PEIVATE OOEPOEATIONS. 229
its authority or knowledge, or that of its officers. It was sought
to hold the corporation liable in an action by the bank 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 hona 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.'
tiff it became in his hands a Vegal dence was that he still had them. As
obligation against the defendant, but to the money, it went into his indi-
only to the extent of what was ad- vidual bank account, and he refused
vanced upon the faith thereof. We to say that he paid any debt of the
think the principle of the cases, which, company out of that bank account
tinder such circumstances, would pre- after he received the money. He
vent a profit being made out of the would not even say that he kept the
transaction, is applicable, and that, money for the payment of what the
while the plaintiff is entitled to proteo- company owed him, although he tried
tion to the extent of the moneys ad- to produce that impression. There was
vanced, and legal interest from the date no evidence, however, that the com-
of the loan, he cannot recover either pany owed him anything, except his
the face value of the note, with inter- general stateemnt that they owed him
est thereon, nor the amount loaned, something, but what the something
with interest at the rate agreed upon by was he did not attempt to say. Of
Bradford, of five dollai-s a day." course, as treasurer of the company,
' First Nat. Bank of Middletown v. he could not issue its notes and sell
Council Bluffs City Waterworks Co., them, and pocket the proceeds, under
(1890) 56 Hun, 413; s. c, 9 N. Y. the pretense that the company owed
Supp. 859. In support of their con- him money, without showing some
tention the counsel of the bank cited authority outside of himself for such
Bank of Batavia v. New York, L. E. a transaction, and without establish-
<fc W. R. R. Co., 106 N. Y. 195; s. c, ing, in the most satisfactory manner,
13 N. E. Rep. 433, and Bank of Au- that the company was indebted to him
burn 11. Putnam, 1 Abb. Dec. 80. for the amount which he so obtained.
Pratt, J., upon the question whether The referee found that the proceeds
the facts of the case brought it within of some of the previous notes made by
the rules of the cases cited, said: [the treasurer] were applied 'to at
"There was no evidence that any least some extent,' to the payment of
part of the proceeds of the notes sued the debts and obligations of the de-
on came to the use of the company, fendant. This fact would tend to es-
The bonds and money which [the tablish the company's liability for the
treasurer] received for these notes be notes sued on, under the theory that
retained. As to the bonds, the evi- they were responsible in thus having
230 POWBE OF AGENTS AND OFFICEES. [§§ 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 be
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 corporar
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.*
§ 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 knowle'dge 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 «. South Boston Railroad
proceeds of these notes. There not Co., (1889) 150 Mass. 307; s. c, 23 N.
only is no such finding, but the referee E. Rep. 930. 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
§ 1Y6] PRIVATE COEPOEATIONS. 231
into an agreement, by which the third interested party was to
construct the road, to be paid in bonds and stock. This latter
was the principal promoter of this railroad enterprise. The work
was to be done under the supervision of a chief engineer. The
work for building the road was let to a sub-contractor. The
plaintifE 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 plaintifE claimed that the goods were
delivered upon orders given by the company's agent, and upon
its credit. The principal question in the case arose 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 submitted 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 tlie 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.
His 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 plaintifE as hav- himself. Whether it was a benefit to
iug any such authority, or that treas- the company that he was able to ob-
urers of horse railroad corporations tain and use money for this purpose is
customarily have or exercise any such necessarily uncertain. The money
aiithority." Upon the second it was was not borrowed Jomo ^e for the use
said: " No objection on the part of of the company. See Railroad Na-
the [corporation] ought to be implied tional Bank v. Lowell, 109 Mass. 214;
in this case, because [its treasurer] was Agawam National Bank ■». South
a defaulter, and the money was used Hadley, 128 Mass. 503."
to cover up his defalcation by paying
232 powBE or agents and ot-ficees. [§ 176
in relying upon that action as an assurance of [tlie chief
engineer's] authority, and extending further credit, and defend-
ant is estopped from 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 plaintifEs 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.^ 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
'Hirschmann r. Iron Range* Huron Mich. 541; Whitaker v. Kilroy,' 70
Bay R. R. Co., (1893) 97 Mich. 384; Mich. 635, 638; Beattiet\ Railroad Co.,
s. c, 56 N. W. Rep. 843. The court 90 N. Y. 643.
referred in its discussion to the follow- ^ Michigan Slate Co. ii. Iron Range
ing cases as in point: Olcott v. Rail- & Huron Bay R. R. Co., (1894) .101
road Co., 37 N. Y. 546, 558; Ceeder v. Mich. 14; s. c, 59 IST. W. Rep. 646.
H. M. Loud & Sons Lumber Co., 86
§ 177] PEIVATE COEPOKATIONS. 233
latter was estopped from the recovery. The court held adversely
to this contention.^
§ 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
thereon.^ 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.' 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.* 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.' 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 it's vote. The acts and
assent of corporations may be shown and inferred from facts and
circumstances.* Before a corporation can be said to have ratified
'Ibid. The court said: " A party San Francisco, 16 Cal. 365; Fraylor ».
may act in the double relation of agent Sonora Mining Co., 17 Cal. 594; Ros-
for both parties." Adams Mining Co. r. borough v. Shasta River Canal Co., 33
Senter, 26 Mich. 73; Col well®. Keystone Cal. 556; Allen d. Citizens' Steam
Iron Co., 36 Mich. 51; U. S. Rolling Navigation Co., 22 Cal. 38; United
StockCo.8. Atlantic &G.W.R. Co., 34 States t. Dandridge, 13 Wheat. 70;
Ohio St. 450; Mayor, etc., 11. Inman, Olcott v. Tioga R. R. Co., 37 N. Y.
57 Ga. 370; Manufacturers' Sav. Bank 558; Hoyt v. Thompson, 19 N. Y. 315;
V. Big Muddy Iron Co., 97 Mo. 38; Bank of Kentucky e. Schuylkill Bank,
s. c, 10 S. W. Rep. 865; Kitchen 1). 1 Parsons' Sel. Cas. in Equity, 350.
Railway Co., 69 Mo. 324; Fitzsim- ^Beattie ». Delaware, Lack. & West,
mons i>. Express Co., 40 Ga. 830. See, R. R. Co., (1881) 13 N. Y, Wkly. Dig.
as to contract made by one styled en- 334.
gineer of the railroad corporation, ■'First National Bank v. Frlcke,
Wilson V. Kings County Elevated R. (1881) 75 Mo. 178.
R. Co., (1889) 114 N. Y. 487. "Campbell v. Pope, (1888) 96 Mo.
'Pixley «. Western Pacific R. R. Co., 468; s. c, 10 S. W. Rep. 187.
(1867) 83 Cal. 183; Gas Company v. ^ Louisville, New Albany & Chicago
San Francisco, 9 Cal. 453; Argenti v. Ry. Co. v. Carson, (1894) 151 111. 444;
30
£34
POWER OF AGENTS AND OFFIOEKS.
[§m
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.* 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."
Farmers & Citizens' Bank ®. Sherman,
6 Bosw. 181; Hoyt ii. Shelden, 3 Bosw.
267; Houghton v. Dodge, 5 Bosw. 326;
Madison Avenue Baptist Church «.
Baptist Church in Oliver St., 2 Abb.
Pr. (N. S.) 254; s. c, 33 How. Pr. 835.
What amounts to a ratification of the
contracts of officers or agents. M^i-
rine Bank v. Butler Colliery Co., 52
Hun, 613; s. c, 5 N. Y. Supp. 391;
Mobile & M. Ry. Co. •». 'Cilmer, 85
Ala. 432; s. c, 5 So. Rep. 138;
Campbell v. Pope, 96 Mo. 468; s. c,
10 S. W. Rep. 187; Hamilton v. Bates,
(Cal. 1894) 35 Pac. Rep. 304 (holding
there was no ratification of an agree-
ment of the president that the corpo-
ration should assume the debts of a
person); Frank «. Hicks, (Wyo. 1894)
35 Pac. Rep. 475; Bibb ». Hall, (Ala.
1894) 14 So. Rep. 98; Nebraska &
K. Farm Loan Co. v. Bell, 58 Fed.
Rep. 336; s. c, 7 C. C. A. 253; West
Salem Land Co. v. Laud Co., 89 Va.
192.
' Hyde ii. Larkin, (1889) 35 Mo. App,
365. As to corporations receiving the
benefit of a contract made by its agents
or officers being considered as ratify-
ing it, see Jourdan ®. Long Island R.
R. Co., 115 N. Y. 380; s. c, 32 N. E.
Rep. 158; Scott v. W., etc., R. R. Co.,
86 N. Y. 300; Wild «. New York, etc.,
M. Co., 59 N. Y. 644; Decker «. G.,
etc., Co., 61 Hun, 516; Hoag i>. La-
mont, 60 N. Y. 96; Bommer v. S. S.
Co., 81 N. Y. 468; Castle ». Lewis,
(1879) 78 N. Y. 131, affirming 13 Hun,
398; Kickland v. Menasha Wooden
Ware Co., 68 Wis. 34; Paxton Cattle
Co. V. First Nat. Bank, 31 Neb. 631;
Holmes v. Kansas City Board of Trade,
81 Mo. 137; Pauling v. London Ry.
Co., 8 Exch. 867; Beverley ». Lincoln
Gas Co., 6 Ad. & El. 839; Tuskaloosa,
etc., Co, «. Perry, 85 Ala. 158; Mel-
ledge 1). Boston Iron Co., 5 Cush.
158, 175; Smith ■». Martin Anti-Fire
Car Heater Co., 64 Hun, 639; s.
c, 19 N. Y. Supp. 285; Brower «.
Brooklyn Trust Co., 31 N. Y. Supp.
324; Tryon v. White & Corbin Co., 63
Conn. 161; s. c, 25 Atl. Rep. 712;
Weatherford, M. W. & N. W. R. Co.
V. Granger, (Tex. Civ. App. 1894) 33
5. W. Rep. 70.
^Pennsylvania, Del. & Maryland
Steam Navigation Co. v. Dandridge, 8
6. & J. (Md.) 248. As to estoppel to
deny authority of officers and ratifica-
tion of their acts on the part of a cor-
poration, see Tuskaloosa Cotton Seed
Oil Co. ®. Perry, 85 Ala. 158; s. c, 4 So.
Rep. 635; Morrelli). Long Island R. Co.,
(N. Y. City Ct. Spl. T.) 1 N. Y. Supp.
65; Pitch v. Lewiston Steam Mill Co.,
80 Me. 34; s. c, 12 Atl. Rep. 733; Metro-
politan T. & T. Co. V. Domestic T. &
T. Co., 44 N. J. Eq. 568; s. c, 14 Atl.
Rep. 907; Alabama Great So. R. R.
§ 178] PEIYATE COEFOEATIONS. 235
§ 178, Modes of ratification. — The United States Circuit
Court of Appeals for the eighth circuit held that the board of
directors of this corporation upon the promissory note of which
this action was brought by the receiver of the bank which loaned
the corporation money on the note, who were authorized by its
by-laws to borrow money and execute securities therefor, might
ratify the unauthorized execution of the promissory note by the
secretary of the corporation, and thus the corporation would be
bound.' 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.*
Co. «. South & North Alabama E. R. Co. v. Troy & Lansingburgh R. E.
Co., 84 Ala. 570; s. c, 3 So. Rep. Co., (1872) 7 Lans. 240. What does
286; Hoosac Mining & Milling Co. «. not: Harrington v. First Nat. Bank of
Donat, 10 Col. 529; s. c, 16 Pac. Rep. Chittenango, (1873) 1 T. & C. 861. In
157; Second Nat. Bank ». Pottler & Liebfritz «. Dubuque Street Railway
Stymus Mfg. Co., 56 N. Y. Super. Ct. Co., (1878)48 Iowa, 709, the managing
316; s. c, 2 N. Y. Supp. 644; Getty director of a corporation having
v. C. R. Barnes Milling Co. , 40 Kans. knowledge that an agent of the com-
281; s. c, 19 Pac. Rep. 617; Corn Ex- pany had borrowed money and ap-
change Bank ■». 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 ■». City Nat. liable for the sum borrowed.
Bank, (Neb. 1894) 58 N. W. Rep. 943; ' Nebraska & Kansas Farm Loan
Moyer «. East Shore Terminal Co., Co. v. Bell, (1893) 58 Fed. Rep. 326 ;
(1898) 41 S. C. 300; s. c, 19 S. E. Rep. citing AUis d. Jones, 45 Fed. Rep.
651; Norton v. Alabama National 148 ; Indianapolis Rolling Mill Co. ■».
Bank, (Ala. 1894) 14 So. Rep. 872; St. Louis, Ft. S. & W. Ry. Co., 120
Martin v. Santa Cruz "Water Storage TJ. S. 256; s. c, 7 Sup. Ct. Rep. 542;
Co., (Ariz. 1894) 86 Pac. Rep. 36 Pittsburgh, C. & St. L. Ry. Co. v.
(where there was held to have not Keokuk & H. Bridge Co., 131 U. S.
been a ratification); Currier. Bowman, 378 ; s. c, 9 Sup. Ct. Rep. 770.
(1894) 25 Or. 364; s. c, 35 Pac. Rep. « Martin «. Victor Mill & Mining
848 (ratification of execution of a mort- Co., (1885) 19 Nev. 180 ; s. c, 8 Pac.
gage); Church v. Sterling, 16 Conn. 398; Rep. 161. A ratification of an agent's
Howe «. Keeler, 27 Conn. 554; John- use of the corporation's funds for
son v. Smith, 21 Conn. 632; Hewitt v. "special purposes" by a resolution of
"Wheeler, 33 Conn. 564; Hyde e. Lar- the directors, held not to be void, as
kin, 85 Mo. App. 865; Union Bridge constituting a fraud upon the stock-
236 POWER OF AGENTS AND OFFICERS. [§ 1T9
§ 179. Illustration of ratification bf 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 $1T,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. 738; Willis «. 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 v. Augusta, T. & G. R. Co. t>. Kittel, 52
Dubuque, 13 Iowa, 555-560 ; Beach on Fed. Rep. 63; b. c, 2 C. C. A. 615;
Priv. Corp. § 195; Oregon Ry. v. 3 U. S. App. 409; Hitchings «. St.
Oregon Ry. & Nav. Co., 28 Fed. Rep. Louis, N. -O. & O. Canal & Transp.
505; Greenleaf v. Norfolk Southern Co., 68 Hun, 33; s. 0., 22 N. Y.
Ry., 91 N. C. 33 ; First Nat. Bank «. Supp. 719 ; Tingley ». Bellingham
Fricke, 75Mo. 178; Kelsey «. National Bay Boom Co., 5 Wash. St. 644; s.
Bank, 69 Pa. St. 436; Eureka Co. ». c, 32 Pac. Rep. 737; Goldbeck ».
BaileyCo., 11 Wall. 488, 491; Gold Min- Bank, 147 Pa. St. 267; Haines ».
ing Co. B. National Bank, 96 U. S. 640, Detrick, 75 Md. 256 ; Smith ». Martin
644; Pacific Rolling Mill Co. «. Day- Anti-Fire Car Heater Co. , 64 Hun, 639;
ton Ry., 7 Sawy. 61, 67; Walworth Co. s. c, 19 N. Y. Supp. 285; Seymour «.
Bank «. Farmers' Loan & Trust Co. , 16 Association, 64 Hun, 632; McComb «.
Wis. 639 ; Counett ». City of Chicago, Association, 134 N. Y. 598; Shaver i\
114 111. 233 ; Wood v. Whelen, 93 111. Hardin, 83 Iowa, 378 ; Hayden i-.
158. Ratification generally : Nims «. Wheeler & Tappau Co., 66 Hun, 639 ;
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 & lavest. Co., 5
■B. Eel River & E. R. Co., 98 Cal. 665 ; Wash. St. 423 ; s. c, 33 Pac. Rep. 214-
§ 180] ^ PRIVATE COEPOEATIONS. 237
corporation, by its representations, declarations and acts, through
its directors, intentionally led the plaintiffs to believe, and they
did believe, the president of the corporation was authorized to
execute the note and mortgage for one year, with interest pay-
able 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 sufBcient to constitute a ratification of the acts of the presi-
dent of the corporation and suflScient to support the invocation
of an estoppel in pais.*
§ i8o. 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 officio
secretary, after enumerating several particulars, provided gener-
ally tliat " 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. Tbe 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 committee
and certified as correct, were not acts which amounted to a ratifi-
1 Gribble v. Columbus Brewing Co., (1893) 100 Cal. 67; s. c, 34Pac. Rep. 537.
238 POWER OF OFFICERS AND AGENTS. [§ 180
cation of the release.^ 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 oflScers, 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.^
' Dedham Institution for Savings 11. fication may be shown by proving
Slack, (1850) 6 Cush. 408. that the officers who had the power to
^ Murray «. Nelson Lumber Com- authorize the act knew of it, and
pany, (1887) 143 Mass. 350; s. c, 9 N. adopted it as a valid act of the corpo-
E. Rep. 634. Mokton, 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 ®. 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 «. 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 CORPOEATIONS.
239
knew of the contract, and that it
would be sufficient if, in their judg-
ment, the directors, by the use of dili-
gence, might have known it. The
instructions are even broader than this,
as they told the jury that thedirectors
were presumed to know what 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 v. 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. «. Kittleson, (S. D. 1894)
57 N. W. Rep. 233; Willard v. Denise,
50 N. J. Eq. 483. Estoppel of corpo-
ration to deny authority of its officers
and agents. Dallas v. Columbia Iron
& Steel Co., 158 Pa. St. 446; s. c, 37
Atl. Rep. 1055; St. Louis & S. F. R.
Co. ■». Kirkpatrick, 53Kans. 104; s. c,
34 Pac. Rep. 400; Duggan v. Pacific
Boom Co., 6 Wash. 593; s. c, 34 Pac.
Rep. 157; Merchants' Nat. Bank »;
Citizens' Gaslight Co., 159 Mass. 505;
s. c, 34 N. E. Rep. 1083; Jourdan v.
Long Island R. Co., 115 N. Y. 380; s.
c, 32 N. E. Rep. 158; Beach ». Miller,
130 111. 162; s. c, 33 N. E. Rep. 464;
Brown «, Wright, 35 Mo. App. 54.
CHAPTER Y.
FRAUDULENT ACTS OF OFFICERS.
181. General rules.
183. General rules continued.
183. Breaches of triiist.
134. Oflacers interested in contracts
with a corporation.
185. 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.
193. 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.
300. False representations of offi-
cers — deceit.
301. A leading English decision on
this subject.
203. The rule adhered to in England.
303. 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.
306. Promoters obtaining stock of
corporation for nothing,
307. Jurisdiction of equity courts as
to breaches of trust, etc.
308. When a court of equity is not
open to the complaints of
stockholders.
309. Remedy in equity.
210. Malfeasance of the president of^
a corporation — a stockhold-
er's remedy.
311. When a demand upon a direct-
ory to bring suit is not re-
quired.
212. When a stockholder may bring
an action.
313. Dissolution of a corporation by
a scheme of stockholders and
a sale of the property to
themselves.
314. The rights of the minority in
such a case.
315. Principles applied to this par-
ticular case.
316. When a fraudulent assignment
of a mortgage by the treas-
§181]
FEAUDUENT ACTS OF OFFICEES.
241
urer of a corporation will
bind it.
I 217. When a corporation may re-
cover money fraudulently
paid out by its treasurer.
318. When a corporation must re-
spond for damages resulting
from a fraudulent issue of its
stock.
§219. The same subject — a Massa-
chusetts decision.
S20. The same subject — a Pennsyl-
vania decision.
221. When a corporation may not
respond for damages.
222. A Massachusetts decision on
this subject.
§ i8i. 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.' 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 diriect 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.' 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 affairs
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 chancery.* The character of directors as
1 Spering's Appeal, (1872) 71 Pa. etc., Railway Co., 69 Mo. 224; Chou-
St. 11. teau i>. Allen, 70 Mo. 290; Hubbard «.
= Cumberland Coal & Iron Co. v. N. Y., etc., Investment Co., 14 Fed.
Parish, 42 Md. 598; Cumberland Coal Eep. 679.
& Iron Co. V. Sherman, 30 Barb. 553; ' United Society v. Underwood, 9
Stewart*. Lehigh Valley Railroad Co., Bush, 609. See, also. Bank t>. Wulfe-
38 N. J. Law, 505; Gardner ®. Butler, kuhler, 19 Kans. 60.
30 N. J. Eq. 702; Kitchen «. St. Louis, * Bank v. St. John, 25 Ala. 566.
31
242 FBAUDTJLENT 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.* 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.^ 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.^
' Warden v. Railroad Co., (1880) 103 505; Gardner v. Butler, 30 N. J. Eq.
U. S. 651. 703; Foster v. Oxford, W. & W. By.
^Ibid.; citing Great Luxembourg Co., 14 Eug. Law <^ Eq. 306; Aber-
Railway Co. v. Magnay, 25 Beav. 586; deen Ry. Co. v. Blakie, 1 MacQueen
Benson v. Heathorn, 1 Y. & Cal. C. C. H. L. 4611 As to the duties of direct-
336; Flint & Pere Marquette Railway ors and the restrictions upon their
Co. V. Dewey, 14 Mich. 477; European action in matters of the corporation
& North American Railway Co. «. growing out of their trust relation in
Poor, 59 Me. 277; Drury i\ Cross, 7 Bird Coal & Iron Co. v. Humes, (1893)
Wall. 299. 157 Pa. St. 278: s. c, 37 Atl. Rep.
8 Barnes v. Brown, (1880) 80 N. Y. 750; 33 W. N. C. 174, Mr. Justice
537; citing Rlsley r. Indianapolis, B. Dean said: "A director is a trustee
& W. R. R. Co., 63 N. Y. 340; Butts for the entire body of stockholders,
V. Wood, 37 N. Y. 317; Stewart v. and both good morals and good law
Lehigh Valley R. R. Co., 38 N. J. Law, imperatively demand he shall manage
f 182]
FRAUDULENT ACTS OF OFFIOEBS.
243
§ 182. General rules continued. — A director of a corporation
cannot become a contractor with tlie 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
interests, 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. Afld 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-
trammeled by any hostile interest in
himself or others. There is an inherent
obligation as his part that he will in
no maimer use his position to advance
his own interest as an individual as
distinguished from that of the coi-po-
xation. Cumberland Coal & Iron Co. v.
Parish, 42 Md. 598; Hill ». Prazier, 33
Pa. St. 330. 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 V. Nickerson, 113 Mass. 195."
Fiduciary relation of directors to
shareholders discussed, and English
and American decisions on the sub-
ject examined. 36 Can. Law J. 66.
In McGourkey v. Toledo & Ohio
Central Ry. Co., (1893) 146 U. S. 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. V. Kelly, 77 111. 436; "Whelp-
dale «. Cookson, 1 Ves. Sr. 9; Drury
V. Cross, 7 Wall. 399; York Buildings
Co. V. Mackenzie, 3 Paton (Scotch) App.
Cas. 378; People ii. Overyssel Town-
ship Board, 11 Mich. 333, and others.
The competency of the mortgagee to
impeach this transaction was ques-
tioned in McGourkey «. 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 FEAUDULENT ACTS OF C I'FIOEES. [§182
poration and a third person.^ A board of directors who have
made a barter of the assets of 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 tnb stockholders
or their representatives from showing that no equivalent was
actually received.^ OfiBcers 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 oi 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 ia an obscure place unknown to
others interested and biiy 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 lawest 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.^ It being the duty of a director of a cor-
poration to know its financial condition, he cannot avail himself
of any dereliction of sudU duty to secure a personal advantage
over other creditors of the corporation.* Directors acting hon-
estly for what 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.^ 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.^ Where
expenditures may be made by directors of a corporation in carry-
ing out its prime object, even if such expenditures be ultra vires,
stockholders knowing of them and not objecting until long after
their completion, cannot compel the directors of the corporation
' Port «. Russell, 36 Ind. 60. account for all moneys and profits re-
^ Guild «. Parker, 43 N. J. Law, ceived by them out of the property or
430. its use.
' Jackson*. Ludeling,(1874) 21 Wall. * Clay ®. Towle, 78 Me. 86; s. c,
616, ordering the setting aside and can- 2 Atl. Rep. 852.
celing as fraudulent and void the <■ Watts' Appeal, (1875) 78 Pa. St.
sale and purchase of the property by 370.
tliese conspirators and holding them to « Ibid.
§ 182] FBAUDITLENT ACTS OF OFFIOEES. 245
to account for the moneys expended.' 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 mthin a reasonable time, but should follow it up by active
preventive measures. Six years', for instance, omission to pro-
ceed will effectually bar a stockholder's right to an action against
directors for the misuse of corporate property.^ 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
shown that one of the trustees had accepted a bribe.^ A contract
in the name of a corporation, by its board of directors, is not void,
if otherwise unassailable, simply because some of the directors
constituting a minority may use their position with the effect, or
even for the purpose, of advancing their personal interests to the
injury of the corporation they assume to represent.^ The courts
will refuse to enforce an agreement between a director of a cor-
poration and a third party whereby the director agrees to use his
vote and influence to the disadvantage of the corporation.'
Directors of a corporation, as they are managing the funds as
trustees of the stockholders, have no right to use or appropriate
the funds of their cestui que trust to themselves. They have no
power to waste, destroy, give away or misapply it, and, therefore,
where there is no salary provided for their services they are not
authorized to ' vote one to themselves or to any one of their
number.' A court of equity will scrutinize with vigorous and
jealous observation any attempt of directors of a corporation to
make a pledge of its assets in favor of themselves.' Directors
^and officers of a corporation from their position of trust, which
requires that they act in the utmost good faith, will not be allowed
to deal with corporate funds and property for their private gain.*
The application of the corporate assets of an insolvent corpora-
' Ibid. ' Holder e. La Payette, Blooming-
•^ Ibid. ton & Mississippi Ry. Co., (1873) 71
' White ' Mountains Railroad «. 111. 106; Gridley ®. La Fayette, Bloom-
White Mountains (N. H.) Railroad, 50 ington & Mississippi Ry. Co., (1873) 71
N. H. 50. ni. 200.
* Jesup V. Illinois Central R. Co., ' Chouteau ». Allen, (1879) 70 Mo.
(1890) 43 Fed. Rep. 483. 290.
' Attaway v. Third National Bank, » Wsird «. Davidson, (1886) 89 Mo.
(1887) 93 Mo. 485; s. c, 5 S. W. Rep. 445.
16.
246 FEATTDTJLENT ACTS OT OFFICERS. [§ 182
tion to debts due the officers, to the exclusion of other creditors,
by such officers will not be permitted.^ 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 corporatiou 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.^ 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.^
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
' McNeill i>. Lacey, (1890) 33 JiU. 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. , 38 N. W. Kep. 735, 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 «. Schott
and taken aid notes tohe used in build- (1890) 135 111. 655; s. c, 86 N. E. Rep.
ing the road and in discharging exist- 640, affirming 84 111. 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 ». Standard
payment of his own personal share of Theater Co., (1891) 109 Mo. 397; 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 ®. Lester, (1898) tracts made by directors with each
68 Hun, 532; s. c, 33 N. Y. Supp. other are voidable. Mallory «. Mallory-
1086. Wheeler Co., (1891) 61 Conn. 131; s. c,
^ Hutchinson i>. Sutton Manufactur- 38 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 ». Carriage Co., 25 himself. Green ». 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]
FEAUDTTLENT ACTS OF 0FFICEE8.
247
of the corporation to one of the board in payment of his debt, to
the exclusion of its other creditors.^
§ 183. Breaches of trust. — Should directors pay over the
funds of a corporation in their hands or in its treasury to an indi-
vidual upon a pretended claim which they know, or must be pre-
sumed to know, is wholly unfounded in law, they will be guilty of
a breach of trust.^ Directors of a bank are personally responsi-
ble for damages resulting to the bank from their acts or neglect.'
The measure of damages in an action against them would be the
extent of the injury.^ Officers of a bank are the agents of the
corporation, and will be, held liable for the abuse of their trust
wherever the agents of an individual will be.^ Directors are
est Is adverse to the corporation, see
Waite V. Mining Co., 36 Vt. 18; Waite
■B. Mining Co., 37 Vt. 608.
' Williams v. Jackson County Pa-
trons of Husbandry, (1886) 23 Mo. App.
132.
'Butts V. Wood, (1862) 38 Barb. 181.
In this case one who was secretary and
treasurer of the corporation, as well as
one its directors, presented a claim to
the Doard of directors for compensa-
tion for his services as secretary, and
the claim was allowed and ordered to
be paid by the vote of the three di-
rectors present, himself being one of
them, his father another, and a relative
the third. The Supreme Court of New
York, in General Term, speaking
through Johnson, J., said: "The
transaction challenges the most jealous
and severe scrutiny, even it there was
legal color for the claim. But as there
was in fact no legal claim the court is
In duty bound to pronounce this dis-
position of the funds of the company,
thus made, fraudulent and void as
against the other stockholders. It is a
clear abuse of trust, and should not be
allowed to stand."
' Percy ii. MUlaudon, 3 La. 568.
*Ibid. In Ilion Bank t. Carver,
(1857) 31 Barb. 280, it appeared that a
director of the bank, its president, pre-
tended to sell his stock, amounting to
?15,000, for $17,250, to an irresponsi-
ble person, and wit)h the connivance of
his son, who was the cashier of the
bank, this irresponsible pretended pur-
chaser of stock hypothecated the stock
for a loan of the largest amount named
above, and received bills of the bank
for the same. It was charged in the
action that this was a conspiracy be-
tween these parties by which the bank
was to be crippled and the president to
realize for his stock from the bank
more than its real value. It was held
that whether the transaction was
treated as a willful violation of the
duty which the president and cashier
owed to the bank, growing out of their
official relations to it, or as a direct
conspiracy to cripple and defraud it,
the parties concerned in it were liable
to the bank for the damages which it
had sustained in consequence of their
acts. Further, that in such a case no
Inches on the part of the bank, short
of the Statute of Limitations, would
constitute a defense to the action.
' Austin p. Daniels, (1847) 4 Denio,
299. In this case the officers of the
bank purchased state stocks to carry
on a private undertaking in which
they were engaged, and signed a con-
tract obliging the bank to pay for the
stock, and then took money from the
bank to fulfill their engagement. They
248 FEAUDULENT ACTS OF OFFICERS. [§ 183
authorized to manage and conduct the business of a corporation,
to audit and p"ay 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.* 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 igno-
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
" first mortgage bonds."* 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 ». Ross, 54 Barb,
bank for the money so taken. The 43.
money, it appeared further, was taken ^ Clark «. Edgar, (1884) 84 Mo. 106,
for this purpose by the cashier with afflrtning s. c, 18 Mo. App. 345. In
the assent of the president, the finan- Bartholomew ». Bentley, (1852) 1 Ohic
cial ofl3cer 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 Coiirt 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-
«. Depeyster, 1 Edw. 513. visions to escape private responsibility.
'Kelsey v. Sargent, (1886) 40 Hun,
§ 184] FEAtrDTJLENT ACTS OF OFFIOEES. 249
eery.' Should a bank allow its stockholders to withdraw its funds
to the amount of their subscriptions, and to use them without
security, in their private business, such conduct will be a fraud
on its creditors which would render its directors liable in equity
for the amount so 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.^ 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 person, 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 dis-
charge of the notes; and even if it was through the fraud of the
agent accepted as an absolute payment, the fraud would prevent
it from so operating.^ Directors of a moneyed corporation who
release shareholders from the payment in full of their shares,
would be guilty of a breach of trust.^
§ 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 bank by any contract to which they,
or either of them, were parties.^ A contract made between a
' Bank of St. Marys v. St. John, own private business, in payment for
Powers & Co., (1854) 35 Ala. 566; cit- a purchase made for his own benefit,
ing Attorney -General v. Aspinall, 2 A general authority to transact the
Myl. & Cr. 625; Attorney-General 1). business and manage the finances of
Kell, 3 Beav. 575; Attorney-General v. the bank would not authorize such a
Corp. of Leicester, 7 Beav. 176. use of its property. Nor do we see
'Bank of St. Marys v. St. John, that the case of defendant is in any
Powers & Co., (1854) 35 Ala. 566. way aided by trying to make out of it
3 Ibid. a satisfaction of the note by sub-
•• Walton ». Hake, (1881) 9 Mo. App. stituting for it the promise of [the
695. president] to the cashier that he would
'Rhodes, Assignee, v. Webb, (1877) pay to the bank the amount of the
24 Minn. 293. Gilfillan, Ch. J., note; for general authority in the
said: " The transaction [in this case], president and cashier to make con-
briefly stated, was an attempt by the 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 bind his prin-
assignee's suit was brought], in Us cipal, or cestui que trust, by a contract
32
250
FEAtTDULENT ACTS OF OFFICERS.
[§184
corporation and one of its directors to tlie pecuniary advantage
of that director, if made at a meeting of the board of directors
■when he is present and takes part in the proceedings, is void.^
Directors of a railway corporation, to whom it has been confided
made by him on behalf of his prin-
cipal, or cestui que trust, with himself.
General authority in these ofiBcers to
make discounts would not authorize
them to bind the bank by discounting
their own notes. Such authority to
the president of a bank to certify
checks drawn on it does not extend to
checks drawn by himself. [Citing]
Olaflln ®. Farmers & Citizens' Bank,
35 N. Y. 293. This restraint upon
agents, and those occupying fiduciary
positions, is essential l^o secure
absolutely fair dealing and adequate
protection to those whose interests are
confided to them." In Adams ».
Kehlor Milling Co., (1888) 36 Fed.
Eep. 213, a preference was granted by
the directors of the corporation known
to be insolvent to the estate of one
who was a director and its president,
deceased. The board at the time con-
sisted of three persons ; two of whom
were brothers of deceased, and one of
them his agent voting his stock at
corporation meetings. One of the
brothers was a creditor of the estate
preferred. It was held that the pref-
erence under the circumstances was
illegal, and that an unsecured judg-
ment creditor of the corporation was
entitled to recover of the two directors
who were brothers of the deceased,
who had voted for the preference,
such percentage of his debt as he
would have received if the sum
wrongfully paid by way of preference
had been divided pro rata among all
the unsecured creditors ; but the other
director, not being present at any
of the meetings of the directors,
and not voting for any of the
resolutions relating to this pref-
erence, was held not to be liable
personally, to the judgment creditor.
Cases bearing more or less upon the
non-enforceability of contracts of di-
rectors with the corporation. Conro
1). Port Henry Iron Co., 12 Barb, 37;
Buffalo, etc., R. R. Co. ». Lampson,
47 Barb. 538; Morrison ». Ogdensburg
& L. C. R. Co., 52 Barb. 173; Alford
». Miller, 33 Conn. 548; Coons ». Tome,
9 Fed. Rep. 532; Stout «. Yaeger, 13
Fed. Rep, 803; Gr-ay v. New York &
Virginia S. Co., 3 Hun, 388; Mayor of
Griffin «. Inman, 57 Ga, 370; Bestor v.
Wathen, 60 111. 138; Harts ». Brown,
77 111. 336; Paine ». Lake Erie & L. R.
Co., 31 Ind. 283; First National Bank
«. GifEord, 47 Iowa, 575; Cumberland
Coal & Iron Co, u. Parish, 42 Md. 598:
Redmonds. Dickerson, 9N. J. Eq. 515
Gardner v. Butler, 30 N. J. Eq. 703
Claflin V. Farmers', etc. Bank, 25 N.
Y, 293; U. S. Rolling Stock Co. ». At-
lantic & Great "Western R. Co., 34
Ohio St. 450; McAleera, McMurray, 58
Pa. St. 136; West St. Louis Sav. Bank
». Shawnee County Bank, 95 U. S,
557; Cook v. Berlin Woolen M. Co., 43
Wis. 433. In Hubbard ». New York,
N. E. & W. Investment Co., (1882) 14
Fed. Rep. 675, 676, Nklsok, 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
'Atlanta Hill Mining Co.?;, Andrews, Butts?), Wood, 37 N. Y, 317; Kelsey
(1887) 55 N. Y. Super. Ct, 93; citing v. Sargent, 40 Hun, 150,
§ 184] FRAUDULENT ACTS OF OFFICEES. 251
to purchase the right of way for its road, will not be allowed to
expend the funds of the corporation in expensive erections upon
land necessary for the purpose, and at the same time to purchase
or hire the land in their individual right and avail themselves of
the title 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.^ 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.^ It appeared in a case in the federal courts that the
etrictly trustees, and their position be- settled rules forbade their [the direct-
ing in every sense fiduciary, their con- ors] acquiring for themselves the prop-
, tracts with the corporation should be erty which it was their duty to acquire
scanned, if not with suspicion, at least for the company, and which was nec-
with the most scrupulous care. The essary for its purposes. Such a deal-
validity of such a contract must, there- ing would be equally objectionable as
fore, depend upon the nature and purchasing from the company land
terms of the contract itself, and the which it was their duty to sell on its
circumstances under which it is made, behalf. In respect to this last class of
The motives of the parties are not dealings directors of corporations stand
necessaiily material, but the effect of upon the same footing as ordinary
the provisions of the contract must be trustees. Citing Aberdeen Railway Co.
especially regarded, and if they are ». BlaWe, 1 MacQueen, 461; Hoffman
pernicious and tend to work a fraud Coal Co. «. Cumberland Coal & Iron Co.,
on the rights of the corporation and 16 Md.456; Cumberland Coal &Iron Co.
stockholders, in such case the directors v. Sherman, 30 Barb. 553. It is a rule
must be regarded as having no au- of equity of universal application that
thority to enter into it." Applying no person can be permitted to pur-
these rules to the case in hand, the chase an interest in property when he
court held a contract made by a di- has a duty to perform in relation to
rector with the corporation, granting such property which is inconsistent
to him enormous commissions without with the character of a purchaser."
regard to the debts or other liabilities [Citing] Riugo i. Binns, 10 Pet. 269;
of the corporation, to affect injuriously Van Epps v. Van Epps, 9 Paige, 338;
the rights of the stockholders and to Torrey «. Bank of Orleans, 9 Paige,
give this director a right, without re- 649; s. c, on appeal, 7 Hill, 860; Car-
gard to the rights of the creditors or ter v. Palmer, 1 Dru. & Walsh, 733;
the liabilities of the corporation, to be York Buildings Co. i). Mackenzie, 8
unreasonable and beyond the powers Bro. P. C. 43; Gardner ■». Ogden, 33
of his co-directors to make with him. N. Y. 337; Anderson v. Lemon, 8 N.
' Blake li. Buffalo Creek E. R. Co., Y. 386.
(1874) 56 N. Y. 485. Rapallo, J., « grown v. Grand Rapids Parlor
speaking for the court, said: •' Well- Furniture Co., 58 Fed. Rep. 386; s. c,
252 FEAUDULENT 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.' 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
he 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. 235, following Bank of Co. v. Kittel, 53 Fed. Rep. 63; s. c, 8
Montreal v. J. E. Potts Salt & Lumber U. S. App. 409; 3 0. 0. A. 615.
Co., 90 Mich. 345; s. c, 51 N. W. Rep. > Barr i). Pittsburgh Plate Glass Co.,
513. That a contract is not made void (1893) 51 Fed. Rep. 33; afiarmed 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 ina Pittsburgh Plate Glass Co., (1893) 57
construction contract made with the Fed. Rep. 86; s. c, 6 C. C. A. 360.
corporation, see Augusta, T. & G. R.
§ 185] FRAUDULENT ACTS OF OFFICEES. 253
the amount which he had thus fraudulently pbtained from it.
The court also held that the fact that the agent was also a stock-
holder in the plaintiff corporation did not affect its right to
recover for the fraud perpetrated ; and further, that where the
fraudulent 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.^
§ 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.^ The directors of an embar-
' Grand Rapids Safety Deposit Co. ing the solvency of the corporation,
1). Cincinnati Safe & Lock Co., (1891) the directors are the agents or trustees
45 Fed. Rep. 671. of the stockholders, and owe no duties
''Rosehooni v. Whittaker, (1890) 133 or obligations to others, but that the
III. 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 them-
f ully and elaborately discussed by this selves over other creditors. They are
court in Beach «. Miller, 130 111. 163, then within the scope of that wise and
and the rule there laid down must be equitable rule adopted by courts of
held to control the present case. We equity for the protection of cestui que
there held that, so long as a corpora- trustent or beneficiaries, which pro-
tion remains solvent, its directors may, hlbits trustees and persons standing in
with the knowledge of the stockhold- similar fiduciary relations to exercise
ers, deal with the corporation, loan it their powers or manage or appropriate
money, take security or buy property the property of which they have con-
of it, the same as a stranger; that, dur- trol for their own profit or emolument,
254: FKAUDULENT ACTS OF OFFICEES. [§ 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. They
then caused to be executed a deed of trust conveying all the
assets of the corporation as seciirity 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.'
or, as it is sometimes expressed, shall ». Marbuiy, 91 U. S. 587. In Grahams,
not take advantage of their situation Railroad Co., 102 V. 8. 161, Mr. Jus-
to obtain any personal benefit to them- tioe Beadley said: ' "When a corpora-
selves at the expense of the cestui que tion becomes insolvent, it is so finan-
trust." cially dead that its property may be
' Consolidated Tank Line Co. v. Kan- administered as a trust fund for the
sas City Varnish Co., (1891) 45 Fed. benefit of its stockholders and cred-
Rep. 7. Philips, J., after referring itors. A court of equity, at the in-
to the apparent insolvency of the cor- stance of the proper parties, will then
poration, said: " When a corporation, take those trust funds, which, in other
in its business affairs, is thus i'ji artJCMto circumstances, are as much the abso-
mortis, whatever may yet be main- lute property of the corporation as
tained on divided opinions as to its any man's property is his. The most
right to dispose of its property so as recent discussion of this question is to
to give a preference to some general be found in the very able opinion of
creditor, the law is too well settled, at Judge "Woods, in Howe v. Tool Co., 44
least in this jurisdiction, to admit of Fed. Rep. 231. I cannot better ex-
extended discussion that its directors press the strength of the reason why a
cannot make a disposition of the assets director should not be permitted to
so as to secure themselves, directly or prefer himself, under circumstances
indirectly, a preference over general like those under review, than by quot-
creditors. This is the rule of the Mis- ing his language: 'A sound public
souri courts. "Williams v. Jones, 23 policy and a sense of common fairness
Mo. App. 133; Mill Co. ». Kampe, 38 forbid that the directors or managing
Mo. App. 239; Roan i\ Winn, 93 Mo. agents of a business corporation, when
503; s. c, 4 S. W. Rep. 786. It is not disaster has befallen or threatens the
too much to say that it is the estab- enterprise, shall be permitted to con-
llshed doctrine of the federal courts, vert their powers of management and
It is strongly maintained by Judge their intimate, or, it may be, exclusive,
Thatbr in the eastern district of this knowledge of the corporate affairs into
state. "White, etc.. Manufacturing Co. means of self -protection, to the harm
V. Pettes Importing Co., 30 Fed. Rep. of other creditors. They ought not to
865; Adams «. Milling Co., 35 Fed. Rep. be competitors in a contest of which
433. See, also, Lippincott v. Carriage they must be the judges. The neces-
Co., 25 Fed. Rep. 577; Koehler «. Iron sity for this limitation upon the right
Co., 3 Black, 715-721; Railroad Co. i). to give preferences among creditors,
Howard,? "Wall.392; Twin-Lick Oil Co. when asserted by a corporation, may
§ I86J
FEATIDULBNT ACTS OF OFFIOEES.
255
§ i86. Directors contracting with a syndicate composed
of themselves — when such a contract cannot be rescinded.
— One of the late cases before the ISTew York Court of Appeals
presents as facts that a railroad corporation of that state, through
its directors, recognizing the importance of a connection by rail
with another point, promoted the building of a street line of rail-
way to accomplish this purpose. The directors of this road
not have been perceived in earlier
times, but the growing importance and
variety of modern 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, iu
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 first be discharged.
That will be the practical effect, and
the examples will multipljr of indi-
vidual enterprises prosecuted under
the guise of corporate organizations
for the purpose, not only of escaping
the ordinary risks of business done iu
the owner's name, wliich 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-
ened system of jurisprudence.' The
same thought was in the mind of Mr.
Justice MiLiiBK, in Sawyer v. Hoag,
17 Wall. 630, when he observed:
' When we consider the rapid develop-
ment of corporations as instrumentali-
ties of the commercial and business
world, in the last few years, with the
corresponding necessity of adapting
legal principles to the new and vary-
ing exigencies of this business, it is no
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 banks that,
although the deed' of trust might be
voidable as against the directors, yet
the banks were to be regarded as bona
fide purchasers) To this it was said:
'But 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 be 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 banks could not,
therefore, take without being privy to
the wrong attempted by the directors.
If the law were otherwise, the rule
could be of no avail which seeks to
prevent such directors 'from prefer-
ring debts in the payment of which
they have a personal interest,' as de-
clared in Adams v. MilUng Co., 35
Fed. Rep. 435.""
266 FEAUDULENT ACTS OF OFFICERS. [§ 186
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, Geay, 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 OFFICEES.
257
which forbids those who fill fiduciary positions from making use
of them to benefit their personal interests." ^ But 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.^
§ 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. Tlie 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 ofiicers
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.'
' Barr v. New York, L. E. & W. R. that the corporation has no power to
R. Co., (1891) 125 N. Y. 263, 374; 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 11. Eichholtz, (1891) 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 organized; 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 FEAUDULBNT ACTS OF OFFICERS. [§ 188
§ i88. 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.^ Holding the fiduciary relation they do to the
stockholders of the corporation, its directors and managers cannot
he permitted to acquire interests adverse to such relation.^ Thus,
a director contracting with certain parties for the construction of
a railroad for the corporation he represents, cannot receive or
teld 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
ors cannot lawfully benefit or favor a corporation require of them the.
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." Halo
discretion in the directors, who are v. Bridge Co. , 8 Kans. 466, and author-
trustees for the benefit of all the ities there cited; Ryan v. L. A. & N.
shareholders alike, which is to be W. Ry. Co., 31 Kans. 365; Hentig r.
exercised for the benefit of all of them. Sweet, 33 Kans. 344. As to what
1 Waterman on Corp. 630; Harris ». directors may do, see Holder «. La
N. D. Rid. Co., 20 Beav. 384. The Fayette R. 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., 83 Barb. 578;
subscribed stock at par, when they Bedford R. Co. i\ 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. i: FreSr 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.
<iirectors of a corporation are trustees ' Redmond v. Dickersou, (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, see
mit a plain breach of duty. Koehler McDonald v. Haughton, (1874) 70 N. C.
». Iron Co., 2 Black, 715; Shorb v. 393.
Beaudry, 56 Cal. 446; 1 Morawetz ' European & North American Ry.
Private- Corp. § 518. The law does Co. r. Poor, 59 Me. 277.
§ 188] FRAUDULENT ACTS OF OFFICEES. 259
retain any part of the profits arising from the contract for his
personal use and benefit.' "Where directors of a ferry company,
in their individual names bought a steamboat, and then, as direct-
ors, purchased 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.^ 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 / 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.' 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
' Ibid. for the company, -was not precluded
'Parker d. Nickerson, (1873) 112 from making sucTi contracts in his
Mass. 195. own name, but, having done so, he
3 Bristol D. Scranton, (1893) 57 Fed. using all the facilities afforded by the
Rep. 70, 78; citing Sugden «. Cross- company in performing them, would
land, 3 Smale & U. 192; McKay's Case, not be allowed to make profit out of
2 Ch. Div. 5; Pearson's Case, 8 such use, but would be held to account
Ch. Div. 807; Parker ts. McKenna, to the company for all that he received
L. R., 10 Ch. App. 96; Iron Works for the services performed by it. For
Co. V. Grave, 13 Ch. Div. 738, 746; an illustration of what will not be held
Railway Co. «. Blakie, 1 Macq. 461; a fraudulent sale to a corporation,
Warden «. Railroad Co., 103 U. S. where parties purchasing property at
651, 658. In Keokuk Northern Line a low figure before the organization
Packet Co. «. Davidson, 95 Mo. 467; of a corporation sold it at a much
8. c, 8 S. W. Rep. 545, it was held larger figure to the corporation, but
that the president of the packet com- there was some evidence of fraud or
pany, after having endeavored to ob- deception, see Stewarts. St. Louis.Fort
tain contracts for carrying the mails Scott & W. R. Co., 41 Fed. Rep. 736.
260
FRAUDULENT ACTS OF OFFICEES.
[§188
tliis 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 subscribei-s, any profit from the transaction, and they should
be held accoimtable for the stock which they had retained, or its
proceeds.^ 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
' Brewster ®. Hatch, (Sp. Term Sup.
Ot. 1881) 10 Abb. N. C. 400; citing
Blake ®. Buffalo Creek R. R. Co., 56
N. Y. 485; Cumberland Coal & Iron
Co. V. Sherman, 30 Barb. 553; Bag-
naU V. Carlton, L. R., 6 Ch. Div. 371;
Erlanger v. New Sombrero Phosphate
Co., L. R., 3 App. Cas. 1318; Simons
1). Vulcan Oil & Mining Co., 61 Pa.
St. 202. In Bast New York &
Jamaica B. R. Co. ». Elmore, (1875) 5
Hun, 314, 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 tlie transaction,
it was held that the treasurer could
not, by charging over the stock at its
par value, make the corporation Ms
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
Binsphar 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 v. Marsh, (1881) 11 Neb. 291.
As to ofiicers and stockholders con-
tracting with corporation, see Charter
Gas-Bugine Co. ■». Charter, 47 lU.
App. 36; Central Trust Co. «. Bridges,
57 Fed. Rep. 753; s. c, 6 C. C. A. 539;
Barr v. Pittsburgh Plate Glass Co. , 57
Fed. Rep. 86; s. c, 6 C. C. A. 260;
Foster ». 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 i>.
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
1). Second Avenue R. R. Co., 38 N. Y.
201; Blatchford i\ Ross, 5 Abb. Pr.
(N. S.) 434; s. c, 37 How. Pr. 110; ,54
Barb. 43; Ogden e. Murray, 39 N. Y.
303; Bliss V. Matteson, 45 N. Y. 32.
As to various rules governing con-
tracts in which directors have an inter-
est, see Duncomb «. New York, Housa-
tonic & Northern R. E. Co., 84 N. Y.
190; Western R. R. Co. i>. 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 1). Rich Hill Coal Min. Co., (Mo.
1894) 34 S. W. Rep. 333; Minneapolis
Times Co. ®. Nimocks, 53 Minn. 381.
§ 188]
FEATIDULENT ACTS OF OFFICEBS.
261
ako allowed him, to so manage the affairs of the corporation as
to result to his own pecuniary advantage. And in case such an
oflScer speculate in the funds of the corporation, or buy claims
against it at a discount, he wiU be required to account to the
creditors or stockholders of the corporation for any profit that
results from such transactions.^ The contract made by a director
of a corporation to secure a personal advantage to himself will be
1 Thomas ». Sweet, (1887) 37 Kans.
183; B. C, 14 Pac. Rep. 545. For a
strong opinion on the subject of the
duties of ofiBcers to the corporation, see
Ryan «. L., A. & N. W. Ry. Co., 21
Kans. 365. In Powell v. Willamette
Valley R. R. Co., (1887)15 Or. 393;
8. c, 15 Pac. Rep. 663, where the at-
torney, who was also a director in an
insolvent corporation, had 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 matter, 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 v. Los
Angeles Imm^igration & Land Co-
operative Assn., (1889) 78 Oal. 289; s.
c, 20 Pac. Rep. 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
Rudd «. 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 firm. One holding a
claim 'against this firm was a trustee
of the corporation, and with two others
of the boai'd constituted 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 sharp,
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 S. W. Rep. 237. 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
Mich. 316; s. c, 68 N. W. Rep. 335.
262 TEAUDULENT ACTS OF OFFIOEES. [§ 188
held to be void or to inure to the advantage of the corporation.'
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.^ 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.^ "Where directors own all
' Sargent v. Kansas Midland R. R. an insolvent milling company leased
Co., (1891)48 Kana. 672; s. c, 29 Pac. tlie corporate property to themselves
Rep. 1063. and operated the plant at a profit.
2 Butler ». Cornwall Iron Co , (1853) The Supreme Court held that the
32 Conn. 385. directors were liable to account to the
'Perry «. Tuskaloosa Cotton Seed creditors of the corporation for the
Oil Mill Co., (1890) 93 Ala. 364; s. c, profits under the lease. In McClure
9 So. Rep. 217. In Farmers & Mer- d. Levy, (1894) 79 Hun, 235; s. c, 29
chants' Bank of Los Angeles «. N. Y. Supp. 352, it appeared that one
Downey, (1879) 53 Cal. 466, where a who had secured his election as presi-
director of the hank who had taken dent of a life insurance association
from the borrowers a note running to and secured a board of directors sub-
the bank for the principal sum loaned, servient to his will, had gained
at a rate of interest therein stipulated, possession of certain notes of the
but at the same time, and as part of association which he had full knowl-
the same transaction, made an agree- edge could not be paid out of the Te-
ment with the borrowers that they serve fund of the association. He had
should permit him to participate with this board order the payment of the
them in the profits of a purchase and notes by drawing all the funds the
sale of certain lands, it was held that association had in bank properly be-
he could not be permitted to retain longing to the reserve fund in his
for himself the profits thus contracted favor. The Supreme Court of New
for, but must surrender those profits to York in General Term held that the
the bank for the benefit of all the stock- receiver of the association was enti-
holders. As to a city treasurer making tied to recover from him the
profit on public funds, see City of Chi- money thus wrongfully misappro-
cago V. Gage, 95 111. 593. As to officers priated through his and other willing
accounting to the corporation or stock- directors' action. That a president
holders or creditors of the corporation and vice-president of a railroad com-
for profits growing out of transactions pany who had arranged to use cei'tain
in behalf of the corporation in which bonds of the company secured by
they are interested, see Ward v. David- mortgages for their own private use
son, (1890) 89 Mo. 445; s. c, 1 S., W. instead of improving the railroad
Rep. 846. In Hutchinson v. Bidwell, property, has been held to be such a
(1893) 24 Or. 219; s. c, 33 Pac. Rep. fraud on the mortgage trustee and
560, it appeared that the directors of the bondholders as would enable a
§188]
FRAUDULENT ACTS OF OFFICEES.
263
the stock of a corporation they are not within the rule prohibit-
ing persons in a liduciary relation from contracting for their own
advantage in the name of their cestui que trust}
court of equity, at the suit of one of
the bondholders, to compel them to
appropriate the proceeds of the bonds
thus unlawfully diverted to the pur-
pose specified in the mortgage. Bel-
den ». Burke, 72 Hun, 51; s. c, 25 N.
Y. Supp. 601. It was held in Pa-
ducah Land, Coal & Iron Co. v. Mul-
hoUand, (Ky. 1894) 24 S. W. Eep. 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. For a
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
v. Union Trust Co., 60 Fed. Rep. 830.
'McCracken ». Robison, 57 Fed.
Rep. 375; s. c, 6 C. C. A. 400. That
directors in a private corporation have
no right, under any circumstances, to
use their official position for their own
individual benefit, see HoflEman d.
Reichert, (1893) 147 111. 274; Gllman,
Clinton & Spiingfield R. R. Co. v.
Kelly, 77 111. 426, 484; Hoyle v. Platts-
burg & Montreal R. R. Co., 54 N. Y.
314; Oliver v. Piatt, 3 How. 333;
Speidel ®. Henrici, 120 U. 8. 377, 386;
Ealh-oad Co. v. Durant, 95 U, S. 576;
Van Epps v. Van Epps, 9 Paige, 241.
Contracts of corporations made with
ofl[icers. President, etc., v. Ry. Co., 44
Cal. 106; Pickett «. School District,
25 Wis. 552; Cumberland Coal Co. v.
Sherman, 30 Barb. 558; Port «. Rus-
sell, 36 Ind. 64; Railway Co. «. Poor,
59 Me. 277; Gardner v. Butler, 80 N. J.
Eq. 702; Davis v. Mining Co., 55 Cal.
359; Copeland ». Manufacturing Co.,
47 Hun, 235; Thomas v. Railway Co.,
1 McCrary, 392. That they are not
absolutely void: Bundy i). Jackson, 24
Fed. Rep. 628; Bank «. Patterson, 7
Cranch, 299; Canal Bridge «. Gordon, 1
Pick. 296; Harts ». Brown, 77 111. 226.
What may make them valid: 1 Beach
on Priv. Corp. 402; Battelle ». North-
western Cement Co., 37 Minn. 89
Pneumatic Gas Co. v. Berry, 113 U. S,
323; Knowles o. Duffy, 40 Hun, 485
Santa Cruz Co. v. Spreckles, 65 Cal,
193: Hill 4). Nisbet, 100 Ind. 341
Richardson ». Green, 133 U. S. 80
Union Mut. Life Ins. Co. «. While,
106 m. 68; Smith v. Smith, 62 lU
493; Addison v. Lewis, 75 Va. 701
Stratton ii. Allen, 16 N. J. Eq. 229.
As to the effect of directors or other
officers of corporation being interested
in contracts, see County Court «. Balti-
more & Ohio R. R. Co., 35 Fed. Rep.
161; Holt «. Bennett, 146 Mass. 436;
s. c, 16 N. E. Rep. 5; Hancock v. Hol-
brook, 40 La. Ann. 58; s. c, 3 So. Rep.
351; Wasatch Mln. Co. v. Jennings,
5Utah, 385; s. c, 16Pac. Rep. 399. As
to a director dealing with the corpora-
tion for his own profit, see Schetter ».
Southern Oregon Improvement Co.,
(1889) 19 Or. 192; s. c, 34Pac. Rep.
25. As to a president and trustee
joining in voting himself compensa-
tion for services, see Copeland v. John-
son Manufacturing Co., (1890) 47 Hun,
235. Transactions by officers with
corporations: Raymond v. San Gabriel
Val. Land & Water Co., 53 Fed. Rep.
883; Langan v. Francklyn, 29 Abb.
K C. 103; s. c, 30 N. Y. Supp. 404;
Miner v. Belle Isle Ice Co., 93 Mich.
97; s. c, 53 N. W. Rep. 218; Beers v.
New York Life Ins. Co., 66 Hun, 75;;
s. c, 30 N. Y. Supp. 788; Main Jellico
Mountain Coal Co. v. Lotspeich, (Ky.
1894) 20 S. W. Rep. 877; Prince
264 FEATTDULBNT ACTS OF OFFICEES. [§ 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.^ If the directors of a corporation
exceed their authority or are recreant to their trust, the corpora-
tion may repudiate their fraudulent contracts.^ 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.' 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 ofiice, and a contract thus made would be void-
able at the election of the corporation without proof of unfair-
ness or fraud.* 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."
Manufg. Co. ». Prince's Metallic Paint inquiry, in an action by the trustee in
C'C, 20 N. Y. Supp. 463; Hannerty v. his private capacity to enforce the
Theater Co., 109 Mo. 397; Societe des contract in the making of which he
Mines D' Argent et Fonderies de Bing- participated. The value of the rule
ham ti. Mackintosh, 7 Utah, 35. of equity, to which we have ad.verted,
' Gardner i\ Butler, 30 N. .J. Eq. lies to a great extent in its stubbom-
702; Guild «. Parker, 43 N. J. Law, ness and inflexibility. Its rigidity
430. gives it one of its chief uses as a pre-
^ Metropolitan Elevated Ry. Co. v. ventive or discouraging influence, be-
Manhattan Ry. Co., (Spl. Term cause it weakens the temptation to
Sup. Ct. 1884) 14 Abb. N. C. 103, dishonesty or unfair dealing on the
312. part of trustees, by vitiating, vnthout
* 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. 0. 381. character of principal and representa-
* Ibid. tive. This rule has been declared and
''Munson v. 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. 855, affirming and completeness, but upon principle
39 Him, 76; s. c, 16 N. Y. "Wkly. and authority, than in the leading case
Dig. 213. Andrews, J., said: "The of Davoue v. Fanning, 2 Johns. Ch.
law cannot accurately measure the 251, 352. But the case of Aberdeen
influence of a trustee with his as- Railwaj' Company «. Blakie &
sociates, nor will it enter into the Others, 2 Eq. 1281, decided by the
§190]
FEAUDTJLENT ACTS OF OFFICEES.
265
§ 190. Rules as to such contracts. — The relation as a
director and officer to a corporation does not preclude him from
entering into contracts with it, making loans to it and takiiig its
bonds as collateral security ; but courts of equity regard such
personal transactions of a party in either of these positions not,
perhaps, with distrust, but with a large measui-e of watchful care,
and unless satisfied by the proof that the transaction was entered
into in good 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
House of Lords, is in many of its
features similar to the present one.
In that case it appeared that the plain-
tiffs were a manufacturing firm, and
that one of them was also a manager
of the Aberdeen Railway Company,
the defendant, and the chairman of the
board. At a meeting of the managers,
they by resolution authorized their
engineer to contract for iron chairs
needed by the company. The agent
contracted with the plaintiffs' firm.
It did not appear that the member of
the firm, who was also a manager and
the chairman of the company, inter-
meddled with the dealing on either
side, further than that it may be
assumed he was at the meeting which
authorized the engineer to procure a
supply of chairs. The plaintiffs
brought their suit to enforce specifi-
cally the performance of the contract,
or in the alternative to recover dam-
ages for its non-performance. After a
decision in their favor in the lower
court, the company appealed to the
House of Lords, where the ruling was
unanimously reversed on the ground
that the contract was condemned by
the rules of equity, as having been
made between the company of which
one of the plaintiffs was a manager
and a private firm of which he was a
member. The opinions of Lord Chan-
cellor Cranworth and of Lord
Brougham vindicate upon impreg-
nable grounds the general rule and its
34
application to the particular case."
Van Brunt, J., in Metropolitan
Elevated Ry. Co. v. Manhattan Ry.
Co., (Spl. Term Sup. Ct. 1884) 14
Abb. K C. 103, 372, said : " The un-
doubted rule of law in this state is,
that every contract entered into by a
director with his corporation may be
avoided by the corporation within a
reasonable time, irrespective of the
merits of the contract itself. * * *
I can see no difference in principle be-
tween the case of a director contract-
ing with his corporation and that of
directors of one corporation contract-
ing with themselves as directors of
another corporation. The evils to be
avoided are the same, the temptations
to a breach of trust are the same, the
want of independent action exists,
and the divided allegiance is just as
apparent." As to rules governing
vfhere directors act in their own inter-
est, see March v. Eastern Railroad,
43 N. H. 515; Fisher v. Concord
Railroad, 50 N. H. 200 ; Richards v.
New Hampshire Ins. Co., 43 N. H.
363 ; Ashuelot Railroad «. Elliott, 57
N. H. 397. As to the acts of school
trustees, so far as they should be
beneficial to themselves, being void,
see Rhodes v. McDonald, 4 Cushman,
(Miss.) 418. As to contracts between
a director and a corporation, being
voidable only, see Stewart v. Lehigh
Valley R. R. Co., (1876) 38 N. J. Law,
505.
266 FRAUDULENT ACTS OF OFFICERS. [§ 190
benefit, they refuse to lend their aid to its enforcement.* 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.^ 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-
' Ml-. Justice Lamae, in Bicliard- lie can be regarded as standing in the
son's Executor i>. Green, (1890) 133 U. position of a legal and equitable
S. 80; 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 jjoiut, 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- New 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 emplo3'ed 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 fi'om 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.
§ 191] FRAUDULENT ACTS OF OFFICERS. 267
ence, and if the sanction of the corporation to such a contract is
obtained 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.*
§ 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
' Munson 11. 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
39 Hun, 76; s. c, 16 N. Y. Wkly. contracts of officers dealing with
Dig. 313. Ahdrews, J., referring to themselves being voidable at the op-
this director, said: "He stood in the tion of the corporation, see Meeker «.
attitude of selling as owner and pur- Winthrop Iron Co., 17 Fed. Rep. 48.
chasing as trustee. The law permits In Pneumatic Gas Co. ». Berry, (1885)
no one to act in such inconsistent rela- 113 U. S. 833; s. 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, equi-
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 conceal-
ing to deal with the question of ment. As to contracts in which the
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 the most refusal, by a minority of stockholders,
searching inquiry, and it leaves, see Graves v. Mono Lake Hydraulic
neither to judge nor jury, the right to Mining Co., (1890) 81 Cal. 303; s. c,
determine, upon a consideration of its 33 Pac. Rep. 665.
268 FEAUDULENT ACTS OF OFFICEES. [§ 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 $160,000, 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.'
' Roblson D. McCracken, (1892) 53 by courts. The corporation which en-
Fed. Rep. 786. 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- euce 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 offi- of the entire body of stockholders for
cial influence. Wardell e. 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. b. that, as a general rule, contracts of a
Richmond & Danville Extension Co., corporation, which which were made
129 TJ. S. 643; s. c, 9 Sup. Ct. Rep. by directors who obtained a personal
402; West 1). Camden, 135 U. S. 507; pecuniary benefit thereby, are not, on
s. c. , 10 Sup. Ct. Rep. 888; 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; Barr«. Railroad Co., 125
ferent character from those which N.Y. 263; s. C, 36 N.E.Rep. 145; Twin-
have ordinarily marked contracts Lick Oil Co. v. Marbuvy, 91 U. S. 587,
which are the subject of just rebuke and Thomas «. Railroad Co., 109 TJ. S.
§ 192] FRAUDULENT ACTS OF OFFICEES, 269
§ 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.* 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.^ 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 the corporation, would be in bad faith, and a
533; a. c, 3 Sup. Ct. Rep. 315. In is an executed one; the defendants ra-
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 wicked
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 ®.
150,000 upon the [substituted] con- Gibbes, 17 How 333; Brooks d. Mar-
tract, the last payment being nine tin, 3 Wall. 70; Planters' Bank v.
months after its date. Neither ^cred- Union Bank, 16 Wall. 483, and Eail-
itors nor the present stockholders have road Co. ■». Durant, 95 U. 8. 579. In
ever dissented. The case clearly falls the latter case the com't said: ' The
within the general rule which 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 others, if
make the contract one which is aljso- 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 v. Brown, (1875) 77 111. 336.
able contract with the plaintiff, which ' Ibid,
has not been avoided. The contract
270 FEAUDTJLENT ACTS OF OFFICEKS. [§ 192
purchase by them of the property under such circumstances
would not be sustained.' 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.^ 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.^ In case a director or trus-
' Ibid. company. By fair dealing and in the
^ Ibid. legitimate business of the company he
' Inglehart v. Thousand Island Hotel may become one of its creditors.
Co. , (1884) 32 Hun, 377. The Supreme Transactions of this character between
Court of I^ew York in General Term an officer of the company and the com-
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] Duncomb «. N. Y., H. & N.
ers and creditors of the company. In K. R. Co., 84 N. Y. 190; Twin-Lick
dealing with its property and in the Oil Co. i>. 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 ®. 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, 80 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 B.Flint &Pere Marquette R. 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] FKAUDULENT ACTS OF OFFICEES. 271
tee of a corporation seek the enforcement of a judgment against
it owned by himself by a sale of the property or assets of the cor-
poration, it would be incumbent upon him to act with the great-
est fairness and publicity and to do everything reasonable within
his power to secure the highest price for the property sold ; and
if he should be guilty of any improper conduct by which he
eecures to himself the property of the corporation for less than its
fair market value, the sale may be set aside on the application of
any of the parties interested.* One of the appellate courts of
Missouri reversed a judgment in the court below, and held that
the president of a corporation who had voluntarily purchased a
smaTl debt against the corporation should be 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 en- of iiis speculating in eitlier its assets
force a collection of the debt thus ac- 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-
fuU amount, nor can I find any de- nistic to that of his beneficiary. In
cision limiting the trustee to the sum Covington & Lexington Railroad Co. v.
actually paid. In these times a large Bowler,9 Bush (Ky.),468, a director had
proportion of the mercantile, com- purchased at a judicial sale the rail-
mercial and manufacturing business road belonging to his corporation. It
of 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 a right
large amounts, secui'ities 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 McAUen v. 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 was pur-
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 regarded as having been
pany the entire sum secured thereby. " made for the benefit of the association,
' Inglehart ®. Thousand Island Hotel and that the title thus acquired could
On., (1884) 32 Hun, 377. not be considered as hostile thereto."
'Brewster v. Stratman, (1877)4 Mo. In Lingle «. National Insurance Co.,
App. 41. Lewis, P. J., said: "The 45 Mo. 109, the Supreme Court of
fiduciary position held by the presi- Missouri affirmed the judgment of the
dent of a corporation does not admit court below awarding out of the assets
272 FKAUDULENT ACTS OF OFFICEES. [§ 193
§ 193. Purchase and sale of property of corporation by
officers. — Where a sale of the property of a corporation to raise
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.^ 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.'
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.' 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.*
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,
oiiicer 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 Md. 456.
would be detrimental to the company ' Crescent City Brewing Co. v. Flan-
and the other stockholders, and would ner, (1892) 44 La. Ann. 23; s. 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 ' Tobin Canning Co. v. Fraser, (1891)
sanctionfed. It is true that in ordinary 81 Tex. 407; s. c, 17 S. W. Rep. 25.
cases no person would have a right to ■• Wilkinson v. Bauerle, (1887), 41 N.
complain of the transaction but the J. Eq. 635; s. c, 7 Atl. Rep. 514.
§ 193] FEAUDULENT ACTS OF OFFIOEES. S73
facts be not established the directors taking part in the sale will
be held answerable to the creditors for their losses by the diversion
of the corporate property.^ 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. Andeews, 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." ^ 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.' 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.* A director may loan
money to the corporation, take a mortgage to himself securing
the loan, and upoh foreclosure of the mortgage may purchase the
property and obtain title to the property mortgaged.^ A director
'Ibid. '^ Preston ®. Loughran, (1890) 58
s Cornell «. Clark, (1887) 104 N. Y. Hun, 310; s. c, 13 N. Y. Supp. 313.
451; s. c, 10 N. E. Rep. 888. As to a purchase by a director of the
3 Woodroof V. Howes, (1891), 88 Cal. property of a corporation at a fore-
184; s. c, 36 Pac. Rep. 111. closure mortgage sale being valid,
* San Francisco Water Co. «. Pattee, see Saltmarsh «. Spaulding, (1888) 147
(1890) 86 Cal. 633; s. c, 35 Pac. Rep. Mass. 334; s. c, 17 N. E. Rep.
135. 316.
35
274 FEAUDULENT ACTS OF OFFICERS. [§ 194
of a corporation cannot, for instance, take possession of corpo-
r::te property and set up his individual possession to the exclusion
of the corporation of which he is an equitable trustee.' 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 honafide 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.^
§ 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.
' Hoffman t). Eeichert, (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
». Henry B. Pettes Importing Co., purposes for which it was created,
<1887), 30 Fed. Rep. 864. That direct- see Abbot v. American Hard Rubber
ors have no power to sell the entire Co., 33 Barb. 578.
§ 194]
FEAUDULENT ACTS OF 0FFICEE8.
275
It was held that the sale was not fraudulent.^ In a Kansas case
it was attempted to make certain persons, directors of a railroad
corporation, account for the profits made by them in selling to it
a roadbed 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
' Stewart v. St. Louis, Ft. S. & W.
E. Co., (1887) 41 Fed. Rep. 736.
Foster, J., discussed the actions of
these directors in the premises as 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 still 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 fiduciary 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
honestly 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.
Warden v. Railroad Co., 103 TJ. S.
651; Ryan ®. Raih-oad Co., 21 Kans.
365; Koehler«. Iron Co., 2 Black, 715;
1 Moraw. Priv. Corp. g 517; Michaud v.
Girod, 4 How. 513. But it does 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. S. 13; 1 Mor. Priv. Corp. §§ 293,
531, 545; Van Cott ». Van Brunt, 82
N. Y. 535; Simons v. Oil Co., 61 ''Pa.
St. 203; Oil Co. ». Densmore, 64 Pa.
St. 43; 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 price, 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
fides of the transaction is to be tried.
1 Moraw. Priv. Corp. 293. 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 FEAUDULENT ACTS OF OFFICEES. [§ l^'"*
a graded roadbed could sell to a railroad corporation, tlie oflScers,
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.^ 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.^
§ 195. When a transfer of property of corporation will be
upheld. — These facts are disclosed in a New York ease. 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 ti-ustees of the corpora-
tion, carried on the business of issuing licenses to use the inven-
tor 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 E.
on the result. As before remarked, R. Co. «. 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 siou of the questions relating to pro-
show the transaction. It was not kept meters 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
§ 195] FRAUDULENT ACTS OF OFFICBES. 277
tion and collecting royalties. , Subsequently, concluding to go
into the business 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 ilrst $250,000 in cash, and for the
residue granting to the corporation a license to manufacture
under the patent, on payment of a specified royalty. It was
found by the trial court that this transaction was in good faith
and with no intent to defraud any future holder of the stock, and
that $350,000 of stocks was not an inadequate consideration for
the license. Defendants thereafter assigned to plaintiff and
another $100,000 of the stock, as the consideration of their assign-
ment to the corporation of certain other letters patent. These
assignees were informed of all the facts relating to the retransfer
to defendants and the consideration for the issuing to them of the
increased stock. Stock was also sold to another person who had
knowledge of the facts. Plaintiff was elected a trustee. The
corporation erected manufactories and carried on the business for
a time, which resulted in a loss. Defendants and another, com-
prising a majority of the board of trustees, as such, adopted a
resolution to sell the stock on hand, lease the manufactories, and
to secure defendants for advances made by them by mortgage
on the property of the corporation which was executed with the
assent of two-thirds in interest of the stockholders. Defendants
were the only creditors of the corporation, and the trial court
found that the resolution above reierred to was adopted in good
faith, without intent to injure, and that it did not affect plaintiff,
and was for the best interests of the corporation and its stock-
holders. The mortgage was thereafter foreclosed and the prop-
erty bought in by one of the defendants. Plaintiff brought his
action as trustee of the corporation to set aside the transfers of its
property, which he alleged had been made or authorized by the
defendant trustees as such to themselves individually, and for an
accounting. The Court of Appeals of New York, upon the facts
stated above, held that the complaint was properly dismissed.^
' Skinner ». Smith, (1892) 134 N. Y. and for their benefit, or a transfer of
240,afflnning 56 Hun, 437. The court its property by the authority of the
said: "A contract entered into by a trustees to themselves, may be set
corporation by the authority or direc- aside, in case it injures any public
tion of its trustees, with themselves interest, or the private interest of any
278 FEAUDULENT ACTS OF OFFICEES. [§ 196
§ 196. Officers voting themselves salaries or compensa-
tion.— The vote of a director for his own salary is manifestly
illegal.* An agreement of directors to pay themselves a stipula-
ted sum for services in the employment of a corporation is void.*
The salary of the president of a corporation having been fixed
by its directors, as they have a right to do, and accepting the office
under their action, he cannot, by his vote as a director, increase
his salary.^ 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.* 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." 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.^ 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 V. N. Y., H. & N. R. R. Co., 84 v. Salisbury Mfg. Co., 7 Gray, 395."
N. Y. 190. But this rule is not broad Hancock ». Holbrook, 9 Fed. Rep. 353;
enough to condemn as void on the Boston & P. R. R. Co. v. N. Y. & N.-
ground of public policy all contracts E. R. R. Co., 13 R. I. 363; Buford v.
and transfers executed by a purely Keokuk L. Packet Co., 69 Mo. 611;
private business corporation, with or Morawetz Corp., §§ 413 et seq. 1004.
to its trustees, in good faith, in caSe 'Davis Mill Co. i>. Bennett, (1889)
no public or private interest is harmed 39 Mo. App. 460.
thereby. Such contracts are £iot void, ^ Guild ». Parker, 48 N. J. Law,
but voidable, at the election of those 430.
■who are affected by the fraud. Twin- ^ Ward v. Davidson, (1886) 89 Mo.
Lick Oil Co. 1). Marbury, 91 U. S. 587- 445.
589; Thomas «. Brownville, etc., R. R. •'Besch ». West. Carriage Manufac-
Co., 109 U. S. 532-524; Risley v. In- turing Co., (1889) 36 Mo. App. 333.
dianapolis, B. & W. R. R. Co., 63 N. = Maux Perry Gravel Road Co. «.
Y. 240; Barnes ®. Brown, 80 N. Y. Branegan, (1872) 40 Ind. 361.
537-536; Munson ii. S., G. & C. R. R. ^Kelsey 11. Sargent, (1886) 40 Hun,
Co., 103 N. Y. 58-73; Barr v. N. Y., 150. In Copeland «. Johnson Manu-
L. E. & W. R. R. Co., 125 N. Y. 263- facturing Co., (1888) 47 Hun, 235, the
377." 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] FRAUDTILENT ACTS OF OFFIOEES. 279
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.'' 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.^ 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.' In a case before the Supreme Court of ISTew
pensation for the performance of K. Co., 27 Vt. 435; Butts «. Wood, 37
services rendered by him for the cor- N. Y. 317; Merrick i). Peru Coal Co.,
poration, being dependent for their 61 111. 473; Rocljford, Rock Island &
validity upon his vote, together with St. Louis E. R. Co. ■». Sage, 65 111.
that of the two directors, were held to 328; Cheeney ». LaFayette, Blooming-
be illegal. See, also, Coleman «. ton & Western Ry. Co., 68 111. 570;
Second Avenue R. R. Co., 38 N. Y. American Central R. R. Co. v. Miles,
201. 52 111. 174; Gridley v. LaFayette, B.
'Holder v. LaFayette, Blooming- & M. Ry. Co., 71 111. 200; LaFayette,
ton& Mississippi Ry. Co., (1873) 71 B. & M. Ry. Co. s Cheeney, 87 111.
111. 106. It was said by the court : 446; Illinois Linen Co. ». Hough, 91
"[These directors] are managing a 111.63.
fund as trustees for the stockholders; « Freeman v. Stine, (Pa.) 38 Leg.
and they have no right to use or Int. 368; Fareira v. Eiter, (Pa.) 38 Leg.
apropriate the funds of their eestuis que Int. 450.
trust to themselves. They have no ^-^i^ayne Pike Co. v. Hammons,
power to waste, destroy, give away or (1891) 139 Ind. 368; s. c, 27 N. E.
misapply it, and when they were Rep. 487. In Emporium Real Estate
elected by the shareholders, no pro- & Manufacturing Co. v. 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 were 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 «. Penrose Ferry Bridge Co., tion to assign to him certain certifl-
49 Pa. St. 131; Loan Association ». cates of purchase of land held by the
Stonemetz, 39 Pa. St. 534; New York corporation, and in their possession as
& N. H. R. R. Co. V. Ketchum, 37 officers, should surrender these certifi-
Conn. 170; Henry v. Rutland & B. R. cates to the corporation. It was said
280 FEATJBTJLENT ACTS OF OFFICERS. [§ 196
York these facts were shown : That the corporation had been naan-
aged by the owners of the stock in harmony and at a small salary
until the president of the corporation wanted a part of the plain-
tiff's stock ; to compel the sale a threat was made to raise the
salaries of the officers. A subsequent raise of the salaries fol-
lowed. Again there . was the same refusal to sell, another
similar threat, and this was followed by an extremely large
increase, and this was followed by a threat that there must be
another increase accompanied by an averment that there was no
limit to the raise except the will of the trustees. The court held
that the action of the trustees in the matter of raising the salaries
of its officers was a spoliation of the corporation for an unworthy
purpose, and trustees would not be permitted to act in such a
manner with the corporation's funds.' A majority of the direct-
ors, there being three, and all stockholders of a corporation, hav-
ing combined, so managed the business of the corporation as to .
divert all the profits of the enterprise from their legitimate desti-
nation, and to appropriate them to their own use, as by voting
to themselves extraordinary salaries, the chancellor held that as
they had in part executed their plan, and the circumstances ren-
dered any .change in the personnel of the management impracti-
cable, a proper case had arisen for the intervention of the court
to make a division of the assets. He also held that such a
by the court : ' ' The claim of the appearing that he dissented to this
president had not been allowed by the action, could be recovered of him by
board of directors or by a committee the receiver of the corporation on the
appointed by them. In effect, the general ground of equity controlling
president audited his own demand, the actions of directors or ofBcers of a
and then seized upon property for its corporation as holding a fiduciary
payment. This can never be per- position in connection with voting or
mitted to the oflBcers of corporations, granting anything to their personal
The toleration of such practice would advantage. As to the action of three
be destructive of the rights of of five directors of a corporation in
creditors and of stockholders. The voting a salary to one of the three as
assets would be at the mercy of the secretary being void, see Martin v.
officers, who have no legal or equita- Santa Cruz Water Storage Co., (Ariz,
ble rights to control them, except for 1894) 36 Pac. Rep. 36.
the benefit of the company." In • Zlegler v. Hoagland, (1889) 52
Ashley v. Kinnan, (Sup. Court, Spl. Hun, 385; s. c, 5 N. Y. Supp. 305,
Term, 1888) 2 N. Y. Supp. 574, it was affirming the judgment restraining
held that the amount received by an such conduct on the part of the
officer presiding over the board of trustees, citing to the point Butts i\
trustees, when the board voted him a Wood, 37 N. Y. 817; Ogden v.
salary for certain services, and it not Murray, 39 N. Y. 203.
§ 197] FEAUDULENT ACTS OF OFFICBES. 281
trustee, having committed a breaeli of trust by deliberately
extracting and appropriating to his own use a portion of the trust
fund, could not cure the breach and demand the further custody
of the fund by simply restoring it.*
§ 197. Interest upon exorbitant salary voted officer
recoverable. — There was a contention in an Indiana case that
the damages assessed by the court were too large. It was based
upon the fact that the court allowed interest on the amount, or
a portion of the amount, appropriated or used by the appellants.
The argument was that the money received by the treasurer
belonged to him and that he had the right to use it so long as he
furnished the amount due when called upon to do so. The
Supreme Court said of this : " The argument is based upon
false premises. The treasurer of a private corporation does not
bear that relation to the funds which come into his hands sus-
tained by a public officer. A public officer, when called upon to
account for moneys which come into his hands, as such, cannot
excuse himself on the ground that the funds have been stolen, or
destroyed without his fault, because, by legal fiction, the money
is supposed to belong to him, and he must bear the loss. Such
fiction is thought to be necessary for the safety of the public
funds. But it is not so with the treasurer, or agent, of a private
corporation. If the funds in his hands are lost, or destroyed,
without his fault, the loss is the loss of the principal and not the
loss of the treasiirer or agent. Mowbray v. Antrim, 123 lud. 24.
A large portion of funds involved in this suit was allowed to the
secretary and treasurer, as salary, and presumably he used the
sum so allowed him. The court found that such salary was
exorbitant and unreasonable and required the appellants to
account for all the funds used in that way over and above a
reasonable compensation for the services of the secretary and
treasurer. If these funds were so used, we know of no good
reason why those who used them should not account for the
interest. We do not think the court erred in charging the
appellants with interest on the funds which came into their
hands, and which were used by the secretary and treasurer in his
private business, under the guise of an exorbitant salary.'"*
" Fougeray v. Cord, (1893) 50 N. J. ' Wayne Pike Company v. Ham-
Eq. 185; s. c, 34 Atl. Rep. 499. mens, (1891) 139 Ind. 366, 378 379
36
282
FRAUDULENT ACTS OF OFFIOEES.
[§198
§ 198. Contracts between corporations having the same
directors in part. — "Where the managers of a railroad corpora-
tion, acting in its interests, buy a controlling interest in the stock
of a connecting railroad for the purpose of making with them-
selves as controlling managers of the connecting road contracts
more favorable-to the former, and accomplish their purpose, the
question whether the contracts are fair and just is immaterial in
a stockholder's injunction suit to restrain the execution of the
contracts.^ A construction company contracted with a railway
' Pearson v. Concord Railroad Cor-
poration, (1883) 62 N. H. 537. It
was said by the court, in the opinion:
"A director of a railroad corporation,
though not technically a trustee, stands
in a fiduciary relation to the corpora-
tion, and is under the disability of a
trustee. Practically, the directors are
trustees, and the stockholders are the
cestuis que trust. Like all other per-
sons where this relation exists, he
cannot, as buyer for his corporation,
buy of himself against the objection of
his cestui que trust, nor as seller for the
corporation become the purchaser, nor,
being its agent and trustee, contract
with himself or secure to himself ad-
vantages not common to other stock-
holders, because such contracts and
relations are likely to bring him in
conflict with his duty and self-interest,
and tempt him to be unfaithful to the
superior obligations he has assumed.
[Citing] Pierce on Railroads, 36; Mo-
raw, on Corp., § 215; Ang. & Ames on
Corp. § 233, note a, § 812; Butts v.
Wood, 37 N. Y. 317; Hoyle v. Rail-
road, 54 N. Y. 815, 328; Blake v.
Railroad, 56 N. Y. 485, 490; Barnes v.
Brown, 80 N. Y. 527, 535; Duncomb
V. Railroad, 84 N. Y. 190, 198; Robin-
son «. Smith, 3 Paige, 222, 332; Koeh-
lers. Iron Comipany, 2 Black, 715, 731;
Bliss 0. Matteson, 45 N. Y. 22; 1 Per.
Tr. § 207; Booth v. Robinson, 55 Md.
419f, 436, 440. * * * In England
parliament has declared by statute (8
& 9 Vict. 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 oflSce 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. Poster v. Railway Co., 13 C. B.
300. 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
Wblch, J., in Qoodiu 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. «. Railroad, 34 Ohio St. 465, was a
stockholders' bill for an injunction.
The plaintifE'B board of five directors
§ 198] I-EATJDITLENT ACTS OF OFFICERS. 283
corporation for the construction of a portion of its road, the pay-
ment to be 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
were members of the defendant's board James ». Eector, etc., Church of the
of thirteen. The bill was dismissed Redeemer, 45 Barb. 356; Kitchen v.
because not seasonably brought; and Railroad, 69 Mo. 334; Railroads. Kelly,
the remarks of the court, to the effect 77 111. 436; Koehler «. Black, etc.,
that the agreements ought to be set Iron Co., 3 Black, 720; Moraw. on Corp.
aside was valid because executed by a 345, and cases; 1 Perry on Tr. § 207,
majority of the board without the in- and cases; Pierce on Railroads, 36-
terested directors, would seem to be 40, and cases; Green Brice Ultra Vir.
dicta. Ashhurst's Appeal, 60 Pa. St. 477, note (a) and cases. Stockholders
291, and "Watts' Appeal, 78 Pa. St. 870. and creditors are entitled not only to the
are sometimes cited to the point that vote of a director in the board but to
contracts or sales, made by a board of his influence and argument in discus-
directors with or to some of their sion. Ogden v. Murray, 39 N. Y. 202,
number, may be sustained in equity, 207; Railway Co. ■». Blakie, 1 Macq.
and the remarks of the court are to the (H. L. Cas.) 461, where the court said:
point that such contracts and sales ' It was Mr. Blakie's duty to give his
may be upheld if their perfect fair- co-directors, and through them to the
ness is shown. These cases were stock- company, the full benefit of all the
holders' bills to set aside sales of prop- knowledge and skill which he could
erty, upon the ground of a violation of bring to bear on the subject.' In
fiduciary duty. Relief was denied upon Barnes v. Brown, 80 N. Y. 537, 536,
the ground that the applications came the court said: 'If he [plaintiff] had
too late. Plagg«.RailwayCo,20Blatch. attempted to perform the contract
143; s. c, 31 Am. Law Reg. 775, de- while he was director, the stockholders
cides that where an agreement is made could probably have intervened by
by the directors relinquishing the right some suit in equity adapted to the
to a guaranty of dividends to a corpo- nature of the case to nullify the con-
ration by another corporation, 'the exe- tract as to him, or to restrain him as
cution of the agreement will not be to the performance thereof, or to com-
enjoined at the suit of a stockholder, pel him to elect to resign his oflBce of
because three of the directors voting director, or to give up the contract.'
were also stockholders in the guarantor Our conclusion upon this part of the
corporation, it appearing that, without case is, that the directors of the Con-
counting their votes, a majority of the cord could not make the contracts with
directors voted for the measure. In the upper companies, nor settle the
Butts V. Wood, 38 Barb. 181; s. c, [on claims of those companies against the
appeal] 37 N. Y. 317, the action of the Concord. For the transaction of that
majority of two in a board of three, part of the business of their office they
passing upon' the claim of a third di- were disabled by the understanding
rector, who also voted, was set aside on which, the purpose for which, and
at the instance of one of the stock- the interest in and by which, they
holders. See, also, Wardens of St. were elected."
284 FEAUDULENT ACTS OF OFFICEKS. [§ 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 'w^ho 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.^ The stockholders had been allowed to come into the suit
for foreclosure of the mortgage and filed 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 in
the way of construction. To permit these interveners to defeat
the mortgage on any other ground would be unjust, and would
make the court the instrument of this injustice."^ 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 pi-oving 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 Wardell
Fort Kearney & Pacific R. R. Co., v. Union Pacific R. R. Co., 103 U. S.
(1883) 109 U. S. 533; s. c, 3 Sup. Ct. 651, and same case in 4 Dill. 380, as in
Rep. 315. The court said: "In the precise analogy to this,
present case the stockholders of the 'Thomas, Trustee, ». 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 v. Mexican National R.
The conduct of these directors is utterly Co., 58 Fed. Rep. 653.
§ 198] TEATIDULENT ACTS OF OFFICBKS. 285
control of the corporation being surrendered to the association,
and because the latter looked to the ultimate acquisition of the
road. These facts were held not to establish fraud.^ It was also
insisted in this case that the transaction was fraudulent because,
at the time of its consummation, three of the thirteen 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.* 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.' It was further held in this
' Kitchen v. St. Louis, Kansas City 324; citing, as authority, Buell ».
& Northern Ry. Co., (1878) 69 Mo. Buckingham, 16 Iowa, 284; Hartridge
324. The court said: " There is noth- v. Rockwell, R. M. Charlton's Rep.
ing inconsistent with the utmost good 260; Twin-Lick Oil Co. v. Marbury,
faith in either of these stipulations [as 91 U. S. 587.
to purchase of the road or securing con- ' Kitchen «. St. Louis, Kansas City
trol of it]. The last might well have & Northern Ry. Co., (1878) 69 Mo.
been insisted on because the purchase 334. The court said, arguendo, lead-
of the 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 Rail-
relied upon to save harmless those who road Company was 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 ity 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 thai the money fur- of the Twin-Lick Oil Co. «. Marbury,
nished might be thus applied and re- 91 U. S. 588, which is a recently and
suit in giving them ample security for thoroughly considered case, 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 ficiary whose property is confided to
infer from it, that if they should pur- his care, is viewed wifih jealousy, and
chase they would purchase it in any 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 «. 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 FKAUDULENT ACTS OF OFFICEES. [§ 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.' 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.^
§ 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.^ 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.* 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.'
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 in
that a director of a corporation is Judge Ryland's opinion in the case
bound by all those rules of conscien- of The City & County of St. Louis v.
tious fairness which courts of equity Alexander, 33 Mo. 538, and the au-
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. 334.
the corporation when the money is '' Augusta, Tallahassee & Gulf R.
needed and the transaction is open and Co. v. Kittel, (1893) 53 Fed. Rep. 63.
otherwise free from blame. * * * s Barnes «. Brown, (1880) 80 N. T.
No adjudged case has gone so far as 527, 584; citing Mechanics' Bank v.
this. Such a doctrine, while it would New York & New Haven R. R. Co.,
afford but little protection to the cor- 18 N. Y. §99; Bruff a Mali, 86 N. Y.
poration against actual fraud, would 300; Morgan v. Skiddy, 63 N. Y. 319;
deprive it of the aid of those most Shotwell i>. Mali, 38 Barb. 445.
interested in giving aid and best quali- '' Nelson v. Luling, (1875) 63 N. Y.
fied to judge of the necessity of that 645.
aid and the extent to which it might ^ Ibid.
§ 199] FEATJDULENT ACTS OF OFFIOEES. 287
and converted the proceeds to their own use, was held to have
stated a good cause of action in his complaint against those officers
in alleging the abov.e facts, and the further allegation that by the
overissue of stock the genuine stock, including that held by him-
self, was rendered valueless and became unsalable.' Officers of a
corporation issuing false certificates of stock authenticated by
them 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.^ 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 assumpsit 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.' 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.^
•'Cazeaux ®. Mali, (1857) 35 Barb. "Ibid. In Wright's Appeal, (1882)
578; s. c, as Mead 0. Mali, 15 How. Pr. 99 Pa. St. 435, the president of a rail-
347. See, also, Wells «. Jewett, 11 way corporation, it appeared, induced
How. Pi'. 343; Bell v. Mali, 11 How. a, stockholder in the corporation 4o
Pr. 254. surrender to him her shares of stock,
'BrufE V. Mali, (1867) 36 N. Y. 300; together with blank powers of attor-
Seiser «. Mali, 6 Abb. Pr. 270, note; ney to transfer the same, by means of
Shotwell V. Mali, 38 Barb. 445. For false representations that they were
a case illustrating under what circum- needed to aid the corporation. He
stances the purchasers of stock endan- 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 f raudu-
■V. Globe Panorama Co., 38 Fed. Rep. lently Issued stock in excess of the
817. Fraudulent issue of stock: Clark charter limit, and of this overissue of
V. American Coal Co. , (Iowa, 1894) 53 stock he awarded to the use from
N. W. Rep. 391; Citizens' Nat. Bank whence he had secured the shares
of Cincinnati v. 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 ti. Duluth, M. & N. Ry. Co., voted shares. In an equity proceed-
53 Fed. Rep. 889; Florida Land & ing by her to determine her rights and
Imp. Co. V. Merrill, 53 Fed. Rep. 77; the corporation's growing out of this
s. c, 3 C. C. A. 629. transaction, the Supreme Court of
' Rutland Railroad Co. v. Haven, Pennsylvania held that she must bear
(1889) 63 Vt. 89; s. c, 19 Atl. Rep. the loss resulting from the embezzle-
769. ment by the president of the funds re-
288 FBAUDULENT ACTS OF OFFIOEES. ' [§ 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.' 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.^
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.^ 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.^ In an action against the directors of an insurance
suiting from a sale of her valid sliares, 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, (1883) 13 president of a corporation with the
W. N. C. (Pa.) 338. debt of the corporation by reason of
' Kinkier ». Junica, (1892) 84 Tex. his representations to a creditor as to
116; s. c, 19 S. W. Kep. 359, adhering the solvency of the corporation, see
to Seale «. Baker, 70 Tex. 386; s. c, 7 King «. Davis, (1891) 61 Hun, 637; s.
S. W. Rep. 743. c, 16 N. Y. Supp. 437.
2 Kinkier «. Junica, (1893) 84 Tex. •'Fenn v. Curtis, (1881) 33 Hun,
116; s. c, 19 S. W. Rep. 359. 384.
'Ibid. The court said: "A stock-
§ 200] FRAUDULENT ACTS OF OFFIOEES. 289
corporation for damages incurred by one who had been induced
by a statement made by its ofiBcers 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
the defendants denied his participation in the fraud, and all
knowledge that certain bonds belonging to him were represented
in the oflScial 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 tlie 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.' 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 tliat
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 lona, 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
' Salmon v. Richardson, (1862) 30 Conn. 360.
37
290 FEAUDULENT 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.' 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-
' Van Weel v. Winston, (1885) 115 U. S. 328; s. c, 6 Sup. Ct. Rep. 23.
§ 200] FEATJDTJLENT ACTS OF OFFldEKS. 291
ally.* 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." 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.'
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.*
'Tyler ». Savage, (1893) 143 U. S. Barb. 131. See, also, Bagshaw «. Sey-
79; s. c, 13 Sup. Ct, Bep. 340. Mr. mour, 4 C. B.'(N. S.) 878.
Justice Blatchfokd, refening espe- * Morse a Swits, 19 How. Pr. 375.
daily to the statement as to the prior ' Hornblower v. Crandall, (1879) 7
declaration of a dividend, in his letter Mo. App. 330; affirmed in Hornblower
to complainant, said: "This suppres- ». Crandall, (1883) 78 Mo. 581. It was
sion of a material fact [the date when said in Hornblower «. Crandall, 7 Mo.
the dividend was actually declared] App. 330, 333: "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 sods investing in stock, under circum-
«. Wyoming Eanche Co., 138 U. S. stances like the present, have a right
383, 888. The effect of the fraud com- to confide in those who hold themselves
mitted 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
$6,300 of that sum went directly to ot the associates or their agents."
his benefit, and the remainder, he tes- Citing Cross ®. Sackett, 3 Bosw. 617;
tifles, went to the purchase of material Cazeaux v. Mali, 35 Barb. 588; Simons
and ordinary expenses of the company, o. Vulcan, etc., Co., 61 Pa. St. 302;
The latter amount enabled the com- Morgan v. Skiddy, 63 N. Y. 319; Mil-
pany to continue paying to Tyler his ler v. Barber, 66 N. Y. 558; Bradley
salary for some time longer." v. Poole, 98 Mass. 169; Kew, etc., Co.
'Newbery v. Garland, (1860) 31 ®. Erlanger, 4 Cent. L. J. 510.
292 FKAUDTTLENT ACTS OF OFFIOEBS. [§ 201
§ 201. A leading English decision on this subject. — In a
comparatively late Englisli 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.^ 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
Heeschell, 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 Heeschell : '' 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-
' See Peek v, Derry, 37 Ch. Div. 541.
§ 202] FEAtTDITLENT ACTS OF OFFIOEES. 293
ing a false statement througli want of care falls far short of, and
is a very diBEerent 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." ^
§ 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
• Derry «. Peek, (1889), 14 App. Cas. sion to which I have felt myself com-
337. Lord Hbkschbll took occasion pelled, for I think those who put
to say further: " At the same time I before the public a prospectus to in-
desire to say distinctly that when a duce them to embark their money in a
false statement has been made the commercial enterprise ought to be
questions whether there were reason- vigilant to see that it contains such
able grounds for believing it, and what representations only as are in strict
were the means of knowledge in the accordance with fact, and I should be
possession of the person making it, very unwilling to give any counte-
are most weighty matters for consid- nance to the contrary idea. I think
eration. The ground upon which an there is much to be said for the view
alleged belief was founded is a most that this moral duty ought to some
Important test of its reality. I can extent to be converted into a legal
conceive many cases where the fact obligation, and that the want of rea-
that an alleged belief was destitute of sonable care to see that statements
all reasonable foundation would suf- made under such circumstances are
fice of itself to convince the court true should be made an actionable
that it was not really entertained, and wrong. But this is not a matter for
that the representation was a fraudu- fit discussion on the present occasion,
lent one. So, too, although means of If it is tp be done the legislature must
knowledge are, as was pointed out by intervene and expressly give a right
Lord Blacebubn in Brownlie v. of action in respect of such a depar-
CampbeU, (5 App. Oas. at page 952), ture from duty. It ought not, I
a very different thing from knowl- think, to be done by straining the law,
edge, if I thought that a person and" holding that to be fraudulent
making a false statement had shut his which the tribunal feels cannot prop-
eyes to the facts, or purposely ab- erly be so described. I think mischief
stained from inquiring into them, I is likely to result from blurring the
should hold that honest belief was ab- distinction between carelessness and
sent, and that he was just as fraudu- fraud and equally holding a man
lent as if he had knowingly stated fraudulent whether his acts can or
that which was false. I have arrived cannot be justly so designated."
with some reluctance at the conclu-
294 FEAUDULENT ACTS OF OFFICERS. [§ 203
business of the company had been completed. He 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.^
§ 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
" Glasier «. Rolls, (1889) 42 Ch. Div. Russ. 297; Blain ». Agar, 1 Sim. SI;
436, following Derry d. Peek, 14 App. Gerhard v. Baley, 20 Eng. Law & Eq.
Cas. 337. As to the liability of cor- Rep. 130; Colman «. Riches, 39 Eng.
poration and ofllcers making them for Law & Eq. Rep. 333; Hichens ». Con-
damages resulting to individuals from greve, 4 Russ. 562; Walburn v. In-
false statements of such officers in gilhy, 1 Mylne & K. 61; Foss v. Har-
prospectuses or otherwise, see Moffat bottle, 3 Hare, 461; Pasley b. Free-
v. Winslow, 7 Paige, 124; National man, 3 Term Rep. 51; Shrewsbury!).
Exchange Co. ®. Drew, 33 Eng. Law Blount, 3 Scott's N. R. 588; Gallager
& Eq. Rep. 1, 14; Pontife 1). Bignold, ». Brunei, 6 Cowen, 346; Allen 11. Ad-
3 Man. & 6r. 63; Bagshaw ». Sey- dington, 7 Wend. 9; Bailey v. Mayor,
mour, 93 Eng. Com. Law Rep. 873; etc., 3 Hill, 531; City of Buffalo v.
Johnson v. Goslett, 3 C. B. (N. S.) Holloway, 3 Seld. 493; Culvers. Avery,
569; Colt V. Woolaston, 3 P. Wms. 7 Wend. 384; Upton v. Vail, 6 Johns.
154; Greens. Barrett, 1 Sim. 45; 181; Barney d. Dewey, 13 Johns. 334;
Jones V. Garcia Del Rio, 1 Tur. & Williams v. Wood, 14 Wend. 136.
§ 204] FEAUDULENT ACTS OF OFFICERS. 295
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 IlHnois case where it
appeared that the president of a private corporation, who held a
controlling share of the stock, was given the power to borrow
money, sold, as the agent of his wife, her stock to 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.'
§ 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-five 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 gr&und that it did not state facts sufiicient to constitute a
cause of action.^
' J. W. Butler Paper Co. v. Jeffery, rescission of the contract of sale; and to
(1894) 151 111. 588. effect this it was incumbent upon [the
'Bank of San Luis Obispo v. corporation] to act with reasonable dili-
Wickersham, (1893) 99 Cal. 655; s. gence and return or offer to return to de-
c, 34 Pac. Kep. 444. The court said, fendants the stock received from them
arguendo: "The [corporation] is not under the contract. It cannot be per-
entitled to any relief because of the mitted 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 rBATJDTJLENT 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 he may
money paid to them as the purchase stock. Cook Stock & S. §§ 283, 314;
price of such stock. This would be 1 Moraw. Priv. Corp. § 114; State v.
contrary to justice, and can receive no Smith, 48 Yt. 266; Williams «.
countenance in a court of equity. Manufg. Co., 3 Md. Ch. 451; Railway
There is no averment in the complaint Frog Co. e. Haven, 101 Mass. 398.
of any offer on the part of [the cor- The contract of sale was ultra vires,
poration] to return the stock pur- and resulted in an illegal withdrawal
chased and [it] apparently rested of [the corporation's] capital actually
satisfied with the contract for more paid in, but the stock was not actually
than fifteen years. Counsel for [the extinguished, and so long as there
corporation] do not dispute the gene- remained that number of shares of its
ral proposition that, to entitle one to capital stock unsold the [corporation]
rescind a contract, he must restore to could at any time have issued a new
the other party every thing of value certificate therefor, and tendered the
received from him under such con- same to the defendants which would
tract ; but it is claimed by them that in legal effect have been a tender of
the stock was extinguished by the the same shares sold by them to [the
sale, and, therefore, cannot be legally corporation]." In Coal Co. «. Lots-
returned, and that all defendant peich, (Ky.) 20 S. "W. Rep. 378, the
Wickersham can justly claim is to re- president of the coal company entered
ceive in the statement of the accounts into a contract with one of the stock-
demanded in the complaint a credit holders to deliver to him a quantity of
for the value of such stock at the time coal, the pay therefor to be applied on
of the sale. We do not agree with the payment of the individual in-
counsel on this point. The shares of debtedness of the president to the
stock were not extinguished by the stockholder. The stockholder brought
sale in such sense that they could not an action to enforce the contract and
be reissued by [the corporation] to any asked to be permitted to apply the
one subsequently subscribing for price of the coal on the debt. The
shares of its capital stock. [The cor- Kentucky Court of Appeals, in pass-
poration's] purchase did not reduce ing upon the question, said: "The
the number of shares which [it] was pleadings do not present the question
authorized to issue by its articles of of fraud by way of defense, but,
incorporation. The only effect of the nevertheless, in construing a contract
transaction was to reduce the amount made between officers of a corpora-
of the subscribed capital stock leaving tion, by which a corporate liability is
the [corporation] free to again issue attempted to be created to the one
the same number of shares to any one officer or the other, that construction
desiring to subscribe for its capital should be placed on terms most favor-
§^05] FBATJDULENT ACTS OF OFFICEES. 297
have made out of the corporation in such a sale.^ It appeared
in a case reserved from the Superior Court for the adjudicar
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.^
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 Ch. Dlv. 385. Sir Gbobge Jbssbl,
' Plaquemines Tropical Fruit Co. ». M. E., in a case (Phosphate Co. v. Er-
Buck, (N.J. Eq. 1893) 37 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 «. Phosphate Co., L. R., 3
' Yale Gas Stove Co. v. Wilcox,' App. Cas. 1218, the lord chancellor said
(1894) 64 Conn. 101; s. c, 29 Atl. Rep. of promoters: "They stand, iu my
308. 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 com-
relations of promoters to the corpora- pany. They have the power of defin-
tions which they helped to form, as 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,
ber 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.'" Bowbn, J., in Printing Co. ■». opinion, incumbent upon the pro-
Green, 28 Wkly. Rep. (Q. B, Div. 1880) meters 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 OFFIOEKS.
[§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. Foss v. Harbottle, 2 Hare,
461, 468; McElhenny's Appeal, 61 Pa.
St. 188; Simons v. Vulcan Oil & Mining
Co., 61 Pa. St. 302; Densmore Oil Co. v.
Densmore, 64 Pa. St. 43; Pittsburg
Mining Co. ». Spooner, 74 Wis. 307; s.
a., 43 N. W. Rep. 359; South JopUn
Land Co. v. Case, 104 Mo. 572; s. c,
16 8. W. Rep. 390 ; In re British
Seamless Paper Box Co., 17 Ch. Div.
467; Sewage Co. ». Hartmont, 5 Oh.
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 Buss. & M. 150 (on ap-
peal, 4 Russ. 562), three promoters
induced their company to buy a
mine for £35,000, 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 c& J.
230; Printing Co. ». Green, 38 Wkly.
Rep. (Q. B. Div. 1880) 351; Mining
Co. V. Grant, 11 Ch. Div. 918; Bagnall
1). Carlton, 6 Ch. Div. 385; Kent v.
Brickmaking Co., 17 Law T. (N. S.)
77; Water Co. ». Flash, 97 Cal. 610; s.c,
32 Pac. Rep. 600. See, also, Mallory
V. Mallory -Wheeler Co., 61 Conn. 135;
s. c, 33 Atl. Rep. 708, and the recent
English case: In re North Australian
Territory Co., Archer's Case, (1892) 1
Ch. 823. See, also. Ore Co. v. Bird,
33 Ch. Div. 85 ; Gover's Case, 1 Ch.
Div. 182; Atwool v. Merryweather,
37 L. J. Ch. 35; Sewage Co. v.
Hartmont, 5 Ch. Div. 395; Pitts-
burg Mining Co. 1). Spooner, 74 Wis.
§ 266] FRAUDULENT ACTS OF OFFICERS. 299
be issued to these owners for the patents. They then offered the
pubhc 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
they 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.' 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.' " ^ ,
307; s. c, 42 N. W. Rep. 359; 34 any fraudulent intent, or that the price
Am. & Bng. Corp. Cas. 1 ; In re paid for the patents was fair and rea-
Cape Breton Co., 26 Ch. Div. 331; sonable, cannot retrieve these def end-
s. c, on appeal, 39 Ch. Div. 795; Lady- ants. The law forbids them, from
well Mining Co. «. Brookes, 34 Ch. Div. their position, to secretly derive any
398; 8. c, on appeal, 35 Ch. Div. 400. benefit over other stockholders, and
' Chandler, Receiver, v. Bacon, (1887) makes them accountable to the com-
30 Fed. Rep. 538; Browne ■». National pany for any profit so derived.'"' Citing
Color Printing Co., ibid. Colt, J., Bagnall «. Carlton, 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. v.
out consideration, while other stock- Erlanger, 5 Ch. Div. 73; Emma Sil-
holders paid seven dollars per share], ver Mining Co. «. Grant, 11 Ch. Div.
As promoters of the new company, 918; Densmore Oil Co. ». Densmore,
they occupied a fiduciary relation 64 Pa. St. 43; McElhenny's Appeal, 61
towards it similar to that of agent to Pa. St. 188; Simons®. Vulcan Oil, etc.,
a principal, and they had no right in Co., 61 Pa. St. 202; Emery ®. Parrott,
these negotiations to derive any advant- 107 Mass. 95; Getty v. Devlin, 54 N.
age over other stockholders without a Y. 403.
full and fair disclosure of the trans- ^ Chandler, Receiver, v. Bacon, (1887)
actions, and any secret profits so made 30 Fed. Rep. 638; Browne v. 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, 136, 137-
300 FKAUDULENT ACTS OF OFFIOEES. [§ 20Y
§ 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.' 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.^ Officers and directors of a corporation, being trus-
tees of the stockholders, in securing to themselves an advantage
not common to all the stockholders, as, for instance, executing a
mortgage tg themselves, to secure indebtedness of the corporation
to themselves, would be guilty of an unauthorized act, plainly a
McKay's Case, 3 Ch. Div. 1; Flash, 97 Cal. 610; s. c, 33 Pac. Rep.
De Ruvigne's Case, 5 Ch. Div. 306; 600.
Nant-y-glo, etc., Co. v. Grave, 13 Ch. ' Dodge v. Woolsey, (1855) 18 How.
Div. 738. Contracts with promoters, 331; citing Cunllffe v. Manchester &
see Bash ?!. Culver Gold Mining Co., 7 Bolton Canal Co., 3 Russ. & Mylne
Wash. 133; 8. c, 34 Pac. Rep. 463; Ch. 480, m.; Ware v. Grand Junction
Weatherford, M. W. & N. W. R. Co. Water Co., 3 Russ. & Mylne, 470-
V. Granger, (Tex. Civ. App.) 28 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 i>. Dennis, Corp. (4th ed.) 434.
(Cal. 1894) 35 Pac. Rep. 444; Cornell v. ' Dodge v. Woolsey, (1855) 18 How.
Corbin, 64 Cal. 197; s. c, 30 Pac. Rep. 331.
639; Ex-Mission Land & Water Co. v.
§ 207] PEAtJDULENT ACTS OF OFFIOEES. 301
breach of trust, for which a stockholder would be entitled to a
remedy in a court of chancery.* 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.^ 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 accoiinting 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 iona fide stockholders who may
have taken no part in and had no interest in the fraudulent eon-
tracts, in case the corporation be disabled to complain.^ 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.* 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 He in the name of a
stockholder in his own behalf or in behalf of all.' The chancellor
' Koehler v. Black Eiver Falls Iron ' United States v. Union Pacific Rail-
Co., (1863) 2 Black, 715; citing Ang. road Co., (1878) 98 U. S. 569, 609, 610.
& Ames on Corp. (ed. 1861) § 313; ^IhiA.
The Charitable Corporation ®. Sutton, * Robinson «. Smith, (1833) 3 Paige,
3 Atk. 404; Robinson «. Smith, 3 333, a case involving the loss of corpo-
Paige, 330; Hodges e. New England rate funds by a speculation in stocks
Screw Co., 1 R. I. 313; York & North of other corporations by the directors.
Midland Ry. Co. v. Hudson, 19 Eng. = Ibid,
L. & E. 361.
302 FEAUDTJLENT 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.' And in such suits
the corporation is a necessary party.* 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 trust, may
invoke the aid of equity to thus protect their interests.' 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.* Where directors of a corporar
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.' In a stockholder's action brought by himseK
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
' Ibid. See, also, Scott b. Depeyster, unfaithful trustee has been constantly
1 Edw. Oh. 513; Cumberland Coal Co. brought before it, and made both to
v. Sherman, 30 Barb. 553; Cross ■». discover the fund belonging to the
Sackett, 16 How. Pr. 63. trust and to account for its manage-
' Robinson v. Smith, (1832) 3 Paige, ment and misapplication. If fraud in
333; Cunningham v. Pell, (1836) 5 the management of the fund is charged
Paige, 607. in the bill, by one interested In the
* Chetlain v. Republic Life Ins. Co., trust estate, and who has been injured
(1877) 86 111. 230. in consequence of such fraud, there is
■■NeallB. Hill, 16 Cal. 145. no doubt of the jurisdiction of the
' "Watts' Appeal, (1875) 78 Pa. St. court. If, superadded to the matters
370. In Bank of St. Marys e. St. of trust and fraud, the bill, as in this
John, Powers & Co. , (1854) 25 Ala. case, seeks a discovery and account, 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 aiiairs, 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 com-
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
amination of a court of equity, and an a court of equity for redress."
§ 208] FRAUDULENT ACTS OF OFFICERS. 303
himself personally with causes of action belonging to the
corporation.'
§ 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 property. The
stockholders, and the holders of the bonds as well, filed 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 prev^ented from proceeding by the misconduct of its
officers.^ GoFF, Circuit Jiidge, 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-
scriptions to stock by the company to the various purposes and
enterprises set forth in the bill were all made with the assent of
the stockholders, including complainants, most of whom voted
for them, as they were in the line of the enterprise in which the
company was engaged, and to which the stockholders were com-
mitted. It was simply an effort to carry out the object had in
view when the company was organized, for which the one-fourth
portion of the income received from the sale of lots was set
apart, as was provided in the charter and nominated in the bond.
I find that the stocks and bonds held and owned by defendant,
' Whitney «. Fairbanks, (1893) 54 « McGeorge v. Big Stone Gap Imp.
Fed. Rep. 985; citing Briggsi). Spauld- Co., (1893) 57 Fed. Rep. 362.
ing, 141 U. 8. 133; s. c, 11 Sup. Ct.
Rep. 934.
304 FRAUDULENT ACTS OF OFFICERS. [§ 208
issued by other corporations, were purchased and secured with
the one-fourth part so received, and not with trust funds to
which the bondholders were entitled. The directors of the
defendant seem to have advised fully with its stockholders, and
consulted with its bondholders, more so than is usually done ; and,
as the evidence discloses, they were always governed by the
advice received. It is true that a number of the enterprises that
were assisted with the funds of the company have not as yet
developed into remunerative investments by demonstrating their
dividend-earning capacities. Still the evidence shows that the
officers honestly endeavored in these instances to enhance the
interest of the company, and that, in their efforts, they had the
approval of the stockholders and the commendation of the present
complainants. It is clearly shown that complainants were not
only aware of the proceedings had at the meetings of the stock-
holders and directors, when the expenditures complained of were
authorized, but that they gave them their cordial support."
Upon this statement of the facts the court held that the bill of
the complainants was not maintainable.'
' Ibid. Arguendo, it was said : they are created, provide the way in
' ' Stocltholders of a corporation that has which they shall be managed, as well
been managed without fraud will not as the mode of voting the stock and
be permitted after they, for reasons of the manner of electing the officers
their own, have become dissatisfied thereof; and, if these provisions have
with the plan of organization, or the beenfairly complied with, then there is
management thereof, to force the no ground for the interference of a
abandonment of the business, and court of equity at the complaint of a
compel the majority of the stockhold- dissatisfied minority shareholder. If he
ers to submit to the will of the minor- disapproves of the management that
ity by the decree of a court of equity, has been conducted without fraud, and
If they had this power it would f re- under the requirements of the law, his
quently be exercised to the detriment only remedy Is to elect new officers in
of the corporation, the very existence favor of another policy by appealing to
of which might be thus destroyed, or the stockholders, or, failing in that, to
the value of its stock seriously im- sell his stock and retire. Certainly,
paired. Rival companies might make the equity courts of the country will
it to the interest of this minority so to not undertake to manage it for him,
act, or the stock of a corporation might nor will they, under such circum-
be purchased with such object in stances, take jurisdiction for the pur-
view, and the result would be that the pose of closing up the affairs of the
security relied upon by those invest- corporation. Such power is never
ing in corporate property would be exercised in the absence of a statute
seriously impaired. The charters giving the jurisdiction, and I find no
under which corporations are organ- such enactment applicable to this case,
ized, and the laws by virtue of which In the absence of such legislation the
§ 209] FRAUDULENT ACTS OF OFFICEBS. 305
§ 209. Remedy in equity. — A stockholder 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
and mere instruments to do his bidding, and have surrendered the
entire control of the affairs of the corporation to him, f of such relief
business matters of a corporation can court of chancery has no peculiar
only be controlled, or its charter jurisdiction over corporations to re-
privileges talsen from it, by the proper strain them in tlie exercise of their
and usual proceedings in such cases powers, or control their action, or pre-
provided in the courts of law. vent them from violating their charter
Chancellor Kent," said the court, in cases where there is no fraud or
" in a leading case on this subject, breach of trust alleged as the founda-
said : ' I admit that the persons who tion of the claim for equitable relief,
from time to time exercise the cor- Their rights and duties are regulated
porate powers may, in their character and governed by the common law,
of trustees, be accountable to this which, in most cases, furnishes ample
court for a fraudulent breach of trust, remedies for any excess or abuse of cor-
and to this plain and ordinary head of porate powers and privileges, which
equity the jurisdiction of this court may injuriously affect either public or
over corporations ought to be con- private rights. It is only when there
fined.' Attorney-General ®. Utioa Ins. is no plain and adequate remedy at
Co., 3 Johns. Ch. 371. ' It cannot be law, and a case is presented which
concealed,' said the chancellor in Bay- entitles a party to equitable relief,
less V. Orne, 1 Freem. Oh. (Miss.) 173, under some general head of chancery
' that to decree the pi-ayer of complain- jurisdiction, that a bill inequity can
ant's bill would be to decree a dissolu- be maintained against a corporation,
tion of the corporation. In this respect And this rule is applicable to stockhold-
it differs materially from bills which ers as well as to other persons." See
have frequently been entertained by Aug. & A. Corp. § 313; Grant on Corp.
courts of equity at the instance of 71, 371; Mozley v. Alston, 1 Phil. Ch.
stocliholders against the directors of a 790; Hodges v. Screw Co., 1 R. I.
corporate company to compel them to 350; Bakers. Railroad Co., 34 La. Ann.
account for the improper use of funds, 754. The circuit judge resumed:
or to restrain them from violating their " The rule is also well established that
trust. That a court of equity, as such, a corporation claiming redress for
has not jurisdiction or power over cor- wrongs must proceed through its
porate bodies for the purpose of re- regularly appointed agents. It is
straining their operations, or winding only when the company has been dis-
up their concerns, is, I think, well solved, or is prevented from proceed-
settled by various authorities'" See ing by the misconduct of its oflBcers,
on this subject Verplanck v. Insurance that the stockholders may themselves
Co., 1 Edw. Ch. 84; Attorney -General proceed in chancery for the protection
«. Bank of Niagara, 1 Hopk. Ch. 854; of their equitable rights. If the
Neall V. Hill, 16 Cal. 145. In Tread- directors refuse to act, or are them-
well 0. Salisbury Manufg. Co., 7 Gray, selves guilty of a wrong that the ma-
393, it is said : "Indeed, it is too well jority of the stockholders refuse to
settled to admit of question that a correct, equity will interfere at the
39
'306 ■ FEAUDULENT ACTS OF 0FFICEB8. [§ 209
as he may be entitled to.* 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 ionafide 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.^ 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.'' The managers of a
saving fund are liable in equity as trustees for the proper man-
agement of the fund.* 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.' 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.* But directors who did
suit of a stockholder. Moraw. Priv. Hotchkiss, 25 Conn. 171; Wright ».
Corp. §§ 339, 381, 386; Moore ii. Oroville Gold, Silver & Copper Min-
Schoppert, 22 W. Va. 282, 391; Hawes ing Co., 40 Cal. 20; Allen v. Curtis, 36
». Oakland, 104 U. S. 450, 460; Foss d. Conn. 456.
Harbottle, 2 Hare, 493. In this case ^ Lyman v. Bonuey, (1869) 101 Mass.
the complainants allege that they con- 563.
trol a maj ority of the shares of stock '' LeflEman v. Flanigan, (1863) 5 Phil.
of the defendant. If that is so they 155.
will have no trouble in calling a stock 'Ibid.
holders' meeting of the company and ' Maisch v. Saving Fund, (1863), 5
therein so voting their stock as to cor- Phil. 30. Shakswood, 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-
' Rogers «. La Payette Agricultural tions are responsible for gross negli-
Works, (1875) 53 Ind. 296. gence, as well as fraud, in the man-
'Ibid.; citing March ?). Eastern R. R. agement of the interest intrusted to
Co., 40 N. H. 548; Robinson ». Smith, them. It has received the indorse-
3 Paige, 223; Dodge «. Woolsey, 18 ment of courts of the highest character
How. 331; Brewer v. Boston Theatre, for learning. Robinson v. Smith, 3
104 Mass. 378; Hodges v. New Eng- Paige, 233; Scott n. Depeyster, 1
land Screw Co., 1 R. L 313; Goodin «. Edw. Ch. 513; Allen v. Curtis, 26
Cincinnati, etc., Co., 18 Ohio St. 169; Conn. 456. No one doubts the per-
Peabody ii. Flint, 6 Allen, 53; Sears ». sonal liability of the president, treas^
§ 209] FRAUDULENT ACTS OF OFFICERS. 307
I
Hot participate, aud never took their seats in the board, and
against whom there be no allegation of knowledge of the fraud,
need not be held liable.^ A president of a corporation may be
called npdn by 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.* 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.^ An action by a stockholder to set
urer and other officers who are paid ' Maisch v. Saving Fund, (1863), 5
for their services. Why should there Phil. 30. In Flagler Engraving Ma-
exist any doubt as to directors who chine Co. v. Flagler, (1884) 19 Fed.
are also officers? The difference is Rep. 468, it appeared that the organ-
only in the measure and degree of izers of the joint-stock company put
their respective responsibility. It in as a part of the capital stock cer-
would be monstrous if a director tain patent rights and by fraudulent
could look on and see a cashier or puffing induced others to purchase the
treasurer embezzling the funds of a stock at fictitious prices. It was held
corporation and not be responsible if that whether the purchasers could set
he gave no information, and took no aside the sales or not, they were not
measures to prevent it. Equally mon- entitled to gain control of the com-
strous would it be to say that the pany and pursue their remedy against
directors of a saving fund, insurance the fraudulent directors in the name of
office or bank should allow their names the company.
to go forth to the public in connection ^ Combination Trust Co. v. Weed, 2
with representations of the nature and Fed. Rep. 34.
value of the assets which, if the ordi- ' Ibid. In Pneumatic Gas Co. ■».
nary means of examination and super- Berry, (1885) 113 U. S. 333; s. c, 5
vision had been resorted to, they would Sup. Ct. Rep. 535, where the objec-
have easily discovered to be false. If tion was made to a contract entered
they have such unbounded faith in into with a director of the corporation
the faithfulness and integrity of their seven years after its execution and had
officers as to trust the whole affairs of been repeatedly ratified, the Supreme
the corporation to their management. Court of the United States said: "A
without any attention on their part, court of equity does not listen with
they must accept the alternative of much satisfaction to the complaints of
responsibility for their conduct. It is a company that transactions were ille-
Important that the community at large gal which had its approval, which were
should know this, and that gentlemen essential to its protection, and other
of wealth and respectability should be benefits of which it has fully received,
careful how they suffer their names to Complaints that its own directors ex-
be held forth as the trustees or man- ceeded their authority come with ill
agers of Institutions to which they grace when the acts complained of
have not the time or inclination to alone preserved its existence." In
give their personal attention." Jesup ». Illinois Central R. Co., (1890)
308 rEAUDULENT ACTS OF OFFICERS. [§ 20&
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 asi^e, cannot be maintained
unless he shows that the corporation ought to exefcise its rights
to avoid the resolution or contract made by its trustees in which
they were personally interested.' 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.''
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«. Cowles, (1835) 10 Conn. 399.
Gated 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 ^ Ibid. As to the rule which would
ye»rs, 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 Hablan 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 v. N. T., 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 offieers, 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, v. Manhattan Railway Co., 14 Abb.
binding upon them, especially where N. C. at pages 358, 359, 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., 3 Sup. Ct. (T. & 0.)
its value may be aSected by its rela- 653; affirmed, 58 N. Y. 633, is com-
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] FKATJDULENT ACTS OF OFFICEKS. 309
reason of the fraudulent acts and a misapplication or waste of the
corporate funds and property by an officer of the corporation.'
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, he 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, makmg the corpora-
tion a party defendant, alleging its refusal in his complaint and
proving it.' 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.'
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 a
stated time and for the purpose of defrauding its creditors, an
action will lie to 'set aside such alienation as fraudulent.* 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. 393; Mead v. Mali, 15 How. Pr.
corporation, see Barnes v. Brown, 80 347; Crook v. Jewett, 12 How. Pr. 19;
N. Y. 537; Chautauqua County Bank Cazeaux i). Mali, 25 Barb. 578; Abbot
fl Eisley, 19 N. Y. 381; Hawes v. Oak- v. Am. H. R. Co., 83 Barb. 578; Howe
land, 104U. S. 460. v. Deuel, 43 Barb. 505; Gardiner ®.
' Greaves v. Gouge, (1877) 69 N. Pollard, 10 Bosw. 675; Gray e. New
Y. 154. As to a stockholder's having York ^ Virginia St. Ship Co.. 5 T. <&
a remedy for losses produced by the C. 234.
fraud, culpable neglect of duty or a « Greaves «. Gouge, (1877) 69 N. Y.
violation of law, on the part of an 154.
ofiBcer of the corporation, see Bissell «. ' Ibid.
Michigan Southern & N. I. R. R. Co., <Beeoher v. Schieffelin, (Spl. Term
22 N. Y. 275; Butts v. Wood, 87 N. Sup. Ct. 1883) 4 N. Y. Civ. Pro. Rep.
Y. 817; Cross v. Sackett, 6 Abb. Pr. 230.
247, 865; House ii. Cooper, 16 How.
310 FEATJDULENT ACTS OF OFMOEES. [§ 209'
other officer of the corporation having a general superintendency
of its affairs.* 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.^ 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 filed for the pur-
pose by a stockholder, to order the certificates of such stock
returned and canceled.' And in such a bill the corporation is
not a necessary party.* 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.^ 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 diflference in price between what he paid for it and sold it
for to the corporation.^ 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, wliich 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.' An action at law can-
' Ibid. As to the rules governing ' Campbell ». Morgan, (1679) 4
the bringing of suits to compel the Bradw. (111.) 100.
ministerial officers of a private cor- *Ibid.
poration to account for a breach of 'Parker «. Nickerson, (1884) 137
official duty or misapplication of cor- Mass. 487.
porate funds, see Hyde Park Gas Co. ' Ibid.
®. Kerber (1879) 5 Bradw. (111.) 133. ' Averill v. Barber, (1889) 53 Hun,
'Parker v. Nickerson, (1884) 137 636; s. c, 6 N. Y. Supp. 235.
Mass. 487.
§ 209] FEAUDULENT ACTS Of OFFICKES. 311
not be maintained by a stockholder of a corporation against the
officers and directors of the corporation to recover damages for
willful waste 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. His remedy 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
whicTi he may allege had been caused by their mismanagement.*
While accountable in equity as trustees, in case the officers of a
•Hirsh V. Jones, (1893) 56 Fed. Rep. " The general rule of law is, that an
137. McCoRMiCK, Circuit Judge, said: action at law must be hrought 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- Woodbury Bank should have brought
poration is the proper party to sue, this suit. It is its property which has
and on its refusal to sue, or fallihg been misappropriated and lost, and the
under the control of those liable to the damages to be recovered belong to it —
suit, and thus not to be trusted to to be sure — in trust for billholders,
bring and conduct the action, the in- depositors and other creditors, if any
jured stockholder has his remedy in there be, and finally for the stock-
equity, and must seek it in that juris- holders, but for all of them and not
diction." Citing Kendig ». Dean, 97 for some of them exclusively. The
U. S. 433; Dewing «. Perdicaries, 96 U. bank then must sue. It may compro-
S. 193; Dodge v. Woolsey, 18 How. mise and settle or release the defend-
341; Conway v. Halsey, 44 N. J. Law, ants on terms mutually satisfactory,
463. which the stockholders cannot do, and,
'Neall B.Hill, 16 Cal. 145. As to should they do it, it would be no bar to
the rule with reference to an action by a suit afterwards brought by the bank,
a stockholder of a corporation against In this respect the defendants are
the directors for a misapplication of liable to the bank as any other agents
funds of the corporation, see Cogswell or persons would be for robbing or de-
V. BuU, (1870) 39 Cal. 330; Parrott v. frauding it or in any way injuring the
Byers, 40 Cal. 614. In Allen v. Cur- corporate property. * * * Besides
tis, (1857) 36 Conn. 456, an action on the directors of the bank are the agents
the case brought by a stockholder of a of the bank. The bank is the only
bank against the directors of the same principal, and there is no such trust
for mismanagement and willful neglect for or relation to a stockholder as has
on their part of the affairs of the bank been claimed by the plaintiff. The
which caused insolvency of the bank entire duty of the directors growing
and a loss to him in the value of his out of their agency is owed to the
stock, the case being referred to the bank, which, under the charter, is the
Supreme Court of Connecticut on a sole representative of the stockholders
demurrer, the court sustained 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 OFFICEES. [§ 210
corporation have gone out of oflSce, 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.^
§ 210. IVfalfeasance 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 faUed 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.^
protector or defender necessary until ' Bay City Bridge Co. ». Van Etten,
the bank shall neglect its duty in re- 36 Mich. 210.
fusing to call the directors to account; ' Ranger v. 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 ». Hurd, 12 stockholder in a trading corporation
Met. 371; Bishop v. Houghton, 1 E. has been defrauded and deprived of
D. Smith, 566; Ang. & Ames on Corp. his share of its property applicable to
§ 312; Hodsdon ». Copeland, 16 Me. dividends, by the action of the presi-
314; Hersey ». Veazie, 34 Me. 9. See, dent in misusing for his own purposes
also, Ruby v. Abyssinian Society, 15 the moneys of the company. That
Me. 306. every effort made by him to ascertain
§ 211] FRAUDULENT ACTS OF OFFICEES. 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 charging a conspiracy between the latter, they controlling a
majority of the stock, by which in electing and continuing cer-
the facts connected with this charge power, or an interference with vested
have been thwarted by the positive rights. Another class of cases is where
and distinct refusal, at the hands of the rights and interests of a corpora-
the president, made at an annual tion as a whole are 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 Dodge v.
the formal or technical difBculties Woolsey, supra, the courts of the
which will forbid this court from, at United States lent a ready ear to the
least, hearing such a complaint." The complaint of stockholders who inter-
biU and the rights of the stockholder fered in behalf of the corporate rights,
are then discussed in these words: But this indulgence of the courts was
"Does the bill make out pnwM/aafi a greatly abused. Many cases were
case for equitable rehef ? There can brought in the United States courts in
be no doubt that in a proper showing which the jurisdiction was secured by
this court will come to the aid of a collusion between a non-resident
minority of stockholders. Dodge v. stockholder and the corporation which
"Woolsey, 18 How. 331. The doctrine itself could not come into this court.
is well stated in Waterman on Corpo- This abuse was rebuked in Hawes v.
rations (page 578, § 319): 'A court of Oakland, 104 U. S. 450. The evil was
equity will enjoin, on behalf of the cured by the passage of the ninety-
stockholders, any improper alienation fourth equity rule, consequent on this
or disposition of the property, other case. This rule, by its terms, is made
than for corporate purposes, and will applicable to "every bill brought by
restrain the commission of acts which one or more stockholders in a corpora-
are contrary to law, and tend to the de- tion against the corporation and other
struction of the franchises, as well the parties, founded on rights which may
improper management of the business properly be asserted by the corpora-
of the corporation, or a wrongful di- tion." Hawes v. Oakland (page 454)
version of its funds, and in such case shows that these words, "other par-
equity may grant relief at the suit of ties," means "an outsider." But this
a single stockholder.' " The court re- case, and the rule consequent upon it,
sumed: "There are three classes of do not apply to cases in which there is
cases in which stockholders may com- a real contest between the stockholder
plain. A minority may object to the and his corporation. Leo «. Railway
business policy pursued by the major- Co., 17 Fed. Rep. 378. Hawes ». Oak-
itj"-, as tending to injure, perhaps de- land draws the distinction broadly and
stroy, their interests. In such cases clearly: "That the vast and increas-
the court will seldom or never inter- ing proportion of the active business
fere. The majority must govern, un- of modern life is done by corporations,
less there be a palpable abuse of should call into exercise the beneficent
40
314
FKATJDULBNT ACTS OF OFFIOEES.
[§211
tain ones of them as officers they were enabled to, and did,
misappropriate and vaste the funds of the corporation, by a
system of paying exorbitant and unreasonable salaries to each
other as officers and thus disabled the corporation to declare divi-
dends, there being many different allegations of wrongdoing on
their part in the complaint. The Supreme Court sustained the
overruling of the demurrers to each of the allegations in the
powers and flexible methods of courts
of equity is neither to he wondered at
nor regretted, and this is specially
true of controversies growing out of
the relations between the stockholder
and the corporation of which he is a
member. The exercise of this power
in protecting the stockholder against
the frauds of the governing body of
directors or trustees, and in prevent-
ing their exercise, in the name of the
corporation, of powers which are out-
side of their charters or articles of at-
sociation, has been frequent, and is
most beneficial, and is undisputed.
* * * The case before us goes be-
yond this." After stating that case
and the principle of Dodge ». Wool-
aey, in both of which the action of an
outsider was the gravamen of the com-
plaint, the court adds (page 454):
" This is a very different affair from a
controversy between the shareholder
of a corporation and the corporation
itself, or its managing directors or
trustees, or the other shareholders who
may be violating his rights, or destroy-
ing the property in which he has an
interest." Simonton, J., then refers
to the case before him: "The bill in
this case does not complain of any
business policy on the part of the cor-
poration or of the other stockholders,
nor does it charge supineness, or neg-
lect or collusion with any attack on
corporate rights, interests or privi-
leges, by an outsider. The complain-
ant charges that the president has
converted to his own use moneys of
the company in which, as a stock-
holder, complainant has an interest,
because they were applicable to divi-
dends; that the president misuses his
powers, and conducts the business of
the corporation to his own purposes;
that he controls and uses, in his own
private banking account, and for his
own private purposes, all the funds of
the company, against the express pro-
visions of the by-laws, and that in
this he is sustained by the officers of
the company, who aided him in a per-
emptory refusal even to consider a
motion of inquiry on this subject,
made at a general meeting of stock-
holders. He charges that his own
personal rights are infringed, and for
this he seeks his remedy. As his
rights are similar to those of the other
stockholders, he makes them parties
to his suit, as parties in interest, so
that they may take sides as they are
?dvised, and, at least, may be present
at the division of the common prop-
erty, and see that he gets his just
share and no more. His prayer is
that the money unlawfully converted
be returned, and out of it a dividend
be declared, and that he get his
dividend. This is a suit within the
corporation, concerning no one but
the stockholders and the company,
seeking rights, claimed as a stock-
holder, against the company and other
stockholders. The complainant could
not work out his case through the
corporation." The court then stated
the particular facts as to who hold the
stock and are offiicers, and said: "Un-
der these circumstances, it would be
absurd to require the complainant to
ask these gentlemen to institute, in
§ 211] FEAUDULBNT ACTS OF OFFICERS. 315
complaint, holding that each one of them stated a cause of action
against the defendants. One of the main contentions of the
defendants was that there should have been a demand upon them
to briug 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.'
the name of the corporation, a suit is not required. This occurs when the
against [the president] involving the corporate management is under the
grave charges of this suit. Tazewell control of the guilty parties. No re-
Co. ■». Farmers' L. & T. Co., 12 Fed. quest need then be made or alleged,
Rep. 752; Heath «. Railway Co., 8 since the guilty parties would not com-
Blatchf . 347." ply with the request; and even if they
• Wayne Pike Company ®. Ham- did the court would not allow them to
mons, (1891) 129 Ind. 368. Arguendo, conduct the suit against themselves.'
it was said: " Conceding that the cases The author cites many authorities
are numerous in which such demand which fully support the text. Mr.
is necessary, we do not think this case Waterman, in his work on Corpora-
belongs to that class. In this case tions, vol. 1, page 467, says: 'The
something more than a mere account- corporation may call its oflBcers to
ing is sought, namely, the appointment account if they willfully abuse their
of a receiver to take charge of the cor- trust or misapply the funds of the
porate property. The parties out of company; and if it refuses to sue, or
whose hands it is proposed to take the is still under the control of those who
management of the affairs of the cor- must be made defendants in the suit,
poration, and who are called upon to the stockholders who are the real par-
account for a misappropriation and ties in interest may file a bill in their
conversion of the corporation assets, own names, making the corporation a
constitute a majority of the directors, party defendant, or part of them may
It would not be reasonable to require file a bill in behalf of themselves and
those who are charged with a conver- all others standing in the same rela-
sion of the assets to bring suit in the tion. Where a majority of the stock
name of the corporation against them- of a corporation is held by one family,
selves, and to furnish the proof to who vote away the corporation profits
sustain the charge, and at the same for salaries, a court of equity will
time ask the court to take the prop- remedy the fraud. Cook Stock &
erty from their charge on account of Stockholders, section 567. In the case
their misconduct. ' Such a suit would of Carter v. Ford, etc., Co., 85 Ind.
be a farce, and it would be beyond 180, it was held that where the corpo-
reason to refuse the appellees relief ration was in the hands of its enemies
because they did not demand that such the stockholders might maintain an
a proceeding be had before they com- action, which, if successful, would
menced their suit. Cook on Stocks & inure to the benefit of the corporation.'
Stockholders, section 741, in treating See, also, Rogers v. La Fayette, etc.,
this subject, says: 'There are occa- Works, 52 Ind. 296. 'The officers of
«ions when the allegation that the a corporation are its agents, and they
■stockholder has requested the directors are governed by the rules of law ap-
ito bring suit, and they have refused, plicable to other agents, as between
may be omitted since the request itself themselves and their principal, in so
316 FEAUDULENT ACTS OF OFFICERS. [§ 212
§ 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 tlie
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.* 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 o. Coleman, 11 Fed.
fair dealing in the management of the Rep. 97; City of Detroit «. 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
cipalfor 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 v.
strict rule of accountability as the Cameron, 120 111. 447; s. c, 11 N. 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. 436; Allen «. Wilson,
«. Girod, 4 How. 502 ; Cumberland, 28 Fed. Rep. 677; Slattery ». St. Louis
etc., Co. ■». Sherman, 30 Barb. 553. & N. O. Transportation Co., 91 Mo.
If the appellants conspired together 217; s. c, 4 S. "W. Rep. 79; Taylor «.
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 i). Rail-
conspiring together the conspirators road Co. , 22 Fed. Rep. 130; Foote v.
assumed to themselves the attribute of Mining Co., 17 Fed. Rep. 46; Bills,
individuality so far as regards the Telegraph Co., 16 Fed. Rep. 14; City
proscution of the common design, thus of Quincy i>. Steel, 130 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. 33; s. c, 31 Pac.
the act of all. [Citing authorities.]'" Rep. 894; Poole «. Association, 30 Fed.
' Averill v. Barber, (1889) 53 Hun, Rep. 513; "Wilcox v. Bickel, 11 Neb.
636; B. c, 6 N. Y. Supp. 355. 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 Atl.
Doud V. Wisconsin P. & 8. Railway Rep. 35^; Hazeltine v. Belfast & M.
Co., 65 Wis. 108; s. c, 35 N. W. Rep. L. Railroad Co., 79 Me. 411; s. c, 10
533; Boyd v. Sims, 3 Pickle (Tenn.), Atl. Rep. 338; Oliphant i>. Woodburn
771; B. c, 11 S. W. Rep. 948; Bacon C. & Mining Co., 63 Iowa, 833; s. C,
«. Irvine, 70 Cal. 221; 11 Pac. Rep. 19 N. W. Rep. 212.
§ 212] FEAUDULENT ACTS OF OFFIOEES. 317
its express direction where a majority of the trustees may have
wroBgfuIly 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.' Where the assignee in
' Recamier Manuf g. Co. «. Seymour, said : ' In the government of corpora-
(Com. PI. New York City, 1889) 5 tions much must be left to the judg-
N. T. Supp. 648. In Merchants & ment and discretion of the directory.
Planters' Line v. Waganer, (1883^ 71 and much must he credited to the
Ala. 581, a stockholder's action against fallibility of human judgment. If it
the corporation and certain directors be supposed an unwise course is being
based upon alleged mismanagement, pursued, or that the interests of the
etc.. Stone, J., asks : " Have the com- corporation are suffering, or likely to
plainants averred sufficient facts to suSer though the inefficiency or faith-
authorize them, representing, as they lessness of an official an appeal should
do, a minority of the stock, to come first be made to the directory or
into equity for the redress of the governing body, to redress the griev-
wrongs they complain of while the ance. Failing there, in ordinary cases,
corporate powers are still in exercise ? " the next redress will be found in the
and answers as follows : •" Very true, power of the ballot, which usually
the present bill charges that three, a comes into exercise at short intervals.'
majority of the directors, have com- We quoted approvingly the case of
bined and formed a ring for their own Greaves i). Gouge, 69 N. Y. 154, and
private profit, at the expense of the Brewer «. Boston Theatre, 104 Mass.
other stockholders and many acts of 378. In Hawes ®. Oakland, 104 U. S.
wrongdoing are charged against those 450, Justice Miller, in delivering
three directors. No act is charged that the opinion of the court, stated that a j
is ultra vires, and there is no averment stockholder could appeal to the courts
that the corporation effects are for relief, ' when the board of direct-
imperiled by the insolvency of the ors or a majority of them, are acting
parties. Neither is there averment in for their own interest, in a manner
the bill that any request has been destructive of the corporation itself, !
made known, soliciting the use of the or of the rights of the other share- {
corporate name in bringing suit holders.' That is precisely what is
against the alleged offenders. Nor is averred in this case. ' But,' Justice
it shown that any attempt has been Miller adds, 'in addition to the
made to obtain a meeting of the stock- existence of grievances which call for ,
holders. In Tuscaloosa Manufactur- this kind of rehef, it is equally im- j
ing Co. ■». Cox, 68 Ala. 71, the ques- portant that before the shareholder is
tions presented arose on bill filed by permitted in his own name to institute
a minority of stockholders. True, the and conduct a litigation which usually
abuses charged in that case were less belongs to the corporation, he should
flagrant than those complained of in show to the satisfaction of the court
this; but the difference is in degree, that he has exhausted all the means
not in kind. In that case we ruled within his reach, to obtain, within the
that complainants had shown no corporation itself, the redress of his
ground for equitable relief. We grievances, or action in conformity to
318 FRAUDULENT ACTS OF OFFICEES. [§ 212
insolvency of a corporation refuses to sne, 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.* 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 Gras 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 ®. 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. 753; Earle «. Seattle, L. S. & E.
to require it.' The principles com- Ry. Co., 56 Fed. Rep. 909;
mend themselves to our approval by Culver, 71 Hun, 43; s. c, 34 N. T.
the strongest of considerations. A Supp. 514; Putnam v. Ruch, 54 Fed.
corporation, to attain the highest sue- Rep. 216; Putnam o. Ruch, 56 Fed.
cess, should, like a family, dwell to- Rep. 416; Atchison, T. & S. F. R.
gether in unity. And when disputes Co. «. Comrs., 51 Kans. 617; Eaton
arise between members of this body «. Robinson, (R. I.) 37 Atl. Rep. 595;
politic, or law-created household, they Pondir v. New York, L. E. & W. R.
should, if possible, be adjusted among Co., 73 Hun, 384; s. c, 35 N. Y. Supp.
themselves. It should be a strong 560; 31 Abb. N. C. 39; "Whitney v.
case to justify a resort to personal Fairbanks, 54 Fed. Rep. 985; Fitz-
litigation, which almost invariably gerald «. Fitzgerald & Mallory Con-
leads to personal alienation if not struction Co. et al., (1894) 41 Neb. 374;
open hostility. Pratt «. Jewett, 9 s. c, 59 N. W. Rep. 839.
Gray, 34." As to actions against > Streight v. Junk, (1893) 59 Fed.
ministerial officers of a corporation for Rep. 331.
§ 212] ] FRAUDULENT ACTS OF OFFICERS. 319
also, by purchase of tlie ^tock of the 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 the 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.'
Two receivers of this construction company had been appointed,
it appeared in the petition in this case, 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. But the court held to the contrary.*
There was also a contention in this case, it being found by the court
that this stockholder and one other representing one-fifth 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.' The corporation, a railroad company,
' Fitzgerald «. Fitzgerald & Mallory In the wrong found by the court,
Construction Co. et al., (1894) 41 Neb. whereby its ability to pay its debts
374; s. 0., 59 N. W. Rep. 839. was greatly impaired, should preclude
' Ibid. the right of the construction company
^ Ibid. Arguendo, it was said by to relief as against such wrong. The
the court: " It is diflScult to conceive trial court found that, aside from the
why the acquiescence of stockholders acquiescence of [the two stockholders].
320
FEAUDULENT ACTS OF OFFICEES.
[§212
one of the defendants in this case, was held liable civilly for the
damages occasioned by the torts of its oflBcers, 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
company dominated.'
management the railroad
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, 130 TJ. S. 344; 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 in j ray 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.]"
' Fitzgerald v. Fitzgerald & Mallory
Construction Co. et al., (1894) 41 Neb.
374; s. c, 59 N. W. Rep. 839. It was
§ 213] FRAUDULENT ACTS OF OFFICEES. 321
§ 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 E. Co., 23 N. J. Law. 369, it was
were not imputable 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 cimliter for all
of the Supreme Court of the United torts committed by ■ its servants or
States in Railway Co. ». Harris, 133 agents by authority of the corpora-
U. S. on page 607; 7 Sup. Ct. Rep. tion, express or implied. The result
1386: ' In Railroad Co. «. Quigley, 31 of the modern cases is that a corpora-
How. 303, this court held that a rail- tion is liable cimliter for torts com-
road corporation was responsible for mitted by its agents or servants pre-
the publication by them of a libel in cisely as a natural person, and that it
which the capacity and skill of a is liable as a natural person for the
mechanic and builder of depots, acts of agents done by its authority,
bridges, station houses and other struc- express ^r implied, though there be
tures 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 «. Hol-
permanent form of a book f or distribu- lister, 118 XJ. S. 356, 360; s. c, 6 Sup.
tion among the persons belonging to Ct. Rep. 1055; Steamboat Co. ■».
the corporation, of a report made by Brockett, 131 U. S. 637; s. c, 7 Sup.
a committee of the company's board Ct. Rep. 1039; Bank v. Graham, 100
of directors in relation to the adminis- U. S. 699-703.' In Booth 0. Bank, 50
tration and dealings of the plaintiff as N. Y. on page 400 et seg., is found the
a superintendent of the road. The following language: ' When an oiEcer
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 eral 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
delicto, 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 v. Morris & Essex third parties who have sustained dam-
41
322
FEAUDULENT ACTS OF OFFICEES.
[§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 thiust 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
tliat 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 ». Butch-
ers & Drovers' Bank, 16 N. Y. 125;
Bissell B. Railroad Co., 33 N. Y. 358;
Bank of Genesee v. Patchin Bank, 13
N. Y. 309.' In Hussey «. 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
oi: 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 has 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 v. Railroad Co. , 8 Neb.
319, it was said th£lt 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
foi» such acts they must be connected
with the transaction of the business
for which the company was incorpo-
§ 213] FEAUDULENT ACTS OF OFFICEES. 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
heard to 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 witliin the scope of
the corporate powers.' l^or 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.^ In other words, if tlie 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 majo'rity 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' [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 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.' If the
majority sell the assets to themselves they must account for their
fair value. They cannot bind the minority by flxing 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 ®. Old Colony & F.
poses of the corporation. The stock- E. Co., 87 Mass. (5 Allen) 250; Bill ».
holders, however, by electing officers, Western Union Tel. Co., 16 Fed. Rep.
assume the risk of the faithful or un- 19.
faithful management of the corpora- " Citing Clarke v. White, 13 Pet. 178.
tion, and cases may arise where, if one * Menier «. Hooper's Telegraph
of two innocent persons has to suffer. Works, L. R., 9 Ch. App. Cas. 350, 354»
324 FEAUDULENT ACTS OF OFFICERS. [§ 214r
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.* In^ [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."^
§ 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, 895; Preston v. Grand 595. .
Collier Doolt Co., 11 Sim. 827; Hodg- 'Ervin v. Oregon Ey. & Nav. Co.,.
kinson v. National Live Stoclv Ins. Co., (1884) 30 Fed. Rep. 577, 580.
26 Beav. 478; Atwool«. Merryweather,
L. R., 5 Bq. 464, note.
§ 214] FEAUDULENT ACTS OF OFFICEES. 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 coiisequence 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.' 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 consohdate 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^ [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 fit, 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
' Citing Livingston «. Lynch, 4 v. Clay, 33 Me. 132 ; Clincli v. Finan-
Johns. Ch. 573; Hutton v. Scarborough cial Corporation, 4 Ch. App. 117 ;
Cliff Co., 3 Drew. & S. 514 ; Brewers. Clearwater v. Meredith, 1 "Wall. 25.
Boston Theatre, 104 Mass. 878 ; Kean = Taylor v. Chichester Ry. Co., L.
V. Johnson, 9 N. J. Eq. 401 ; Rollins R., 3 Exch. 379.
326 FEAUDULBNT ACTS OF OFFICEES. [§ 215
legal control in exact proportion to their rospective amoxmts 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 e£Eects, and the relation between it and its several members
is, for all practical purposes, that of trustee and cesPui ^ue iynist}
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 relatioh they have assumed, and are guilty at
least of constructive fraud." ^
§ 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] ^ to the case in hand, Wallace, J., said :
<t * * * 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 «. 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 shai'e 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
' Peabody «. Flint, 6 Allen, 53, 56; ^ Greenlaw ii. King, 3 Beav. 49, 63;
Hardy v. Metropolitan Land Co., L. Gibson ». Jeyes, 6 Ves, 378; Torrey ®.
B., 7 Ch. 437; Stevens «. Rutland E. Bank of Orleans, 9 Paige, 663; Mi-
Co., 29 Vt. 550. choud ». Girod, 4 How. 555; Gardner
= Ervin «. Oregon Ry. & Nav. Co., «. Ogden, 33 N. Y. 837; and Hoyle ®.
(1886)37 Fed. Rep. 625; citing Jack- Plattsburgh&M. R. Co., 54N.T. 315.
son v. Ludeling, 21 Wall. 616, 622;
Story Eq. § 323.
§ 216] FRAUDULENT ACTS OF OFFICERS. 327
the property of the old company was not worth more than the
sum fixed by the appraisers, estimating its value with a view of
the winding up of the corporation ; but for several months the
property had been 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 be estimated at what the property was
worbh as then situated. This results from the rule of equity
which entitles those whose property has been misapplied by an
agent or fiduciary to f ollov 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." '
§ 2i6. 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 due form, and indorsed the note secured by
it to a honafide purchaser, it was held in the United States Cir-
cuit Court for the district of Massachusetts that the title passed,
notwithstanding the treasurer perjjetrated a fraud upon the bank,
and converted to his own use the purchase money. It was
further held that the corporation was estopped to prove, as
against honafide purchasers, either irregularity or fraud upon the
part of its oificers when acting within their authority.'
'Ervin v. Oregon Ry. & Nav. Co., ^^ Whiting i\ Wellington, (1883) 10
(1886) 27 Fed. Rep. 635. A rehearing Fed. Rep. 810. Lowell, Circuit
of this case was denied in 38 Fed. Rep. Judge, referring to a certificate of the
833. treasurer given to the purchaser, that
328
FEAUDULENT ACTS OF OFFICEES.
[§ 2ir
§ 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 certiiicate.
* * * 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 he 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 v. NicoUs, 3
App. Gas. 1004. In that case (page
1036) a very able judge 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 fide
purchasers, either irregularity or fraud
on the part of their own offlcers 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. Comrs. «. As-
pinwall, 21 How. 539; Moran «. Comrs.
of Miami, 3 Black, 733; Rogers v. Bur-
lington, 8 Wall. 654; Grand Chute i>.
Winegar, 15 Wall. 855; Comrs. v.
January, 94 U. S. 303; San Antonio ».
Mehaffy, 96 U. S. 813; County of
Warren «. 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; Hart«. 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. v.
Schuyler, 34 N. T. 30."
§ 217] ' FRAUDULENT ACTS OF OFFIOEES. 329
embezzlements from the corporations created a deficit in tlieir
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 embezzlements 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-ofE the amount of its funds
received by the plaintifE 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.'
'Atlantic Cotton Mills ». Indian case for two reasons: In the first place.
Orchard Mills, (1888) 147 Mass. 368. under the circumstances disclosed in
C Allen, J., speaking for the court the auditor's report, the plaintiff can-
said: " The ground on which the not be considered as an innocent cred-
plaintlfE 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
embezzled its funds, as well as the amount to payment. It is true that
funds of the defendant, to a large no officer of the plaintifE 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
bezzlements, and treat the same as a plaintifE 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 the
stamps it as a payment, and that thus plaintiff's directors had received the
the plaintifE 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 re-
doctrine is inapplicable to the present ceived. The important consideration
42
330
FEATOUI.ENT ACTS OF OFFICERS.
[§218
I 2i8. 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, bo-
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 ■». Merchants' Bank, 10 Gray,
533, 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 «. 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 knovnng 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
fi-audulent transfers were made by
checks of the defendant, payable to
the order of the plaintiff, and these
checks before being available must
§ 218] FEAtTDTJLENT ACTS OF OPFICEES. 331
certificates shall be issued and signed by the president and
treasurer and countersigned by the transfer agent." The certificate
upon its face was perfect and regular in every respect, and ^howed
a partner of the secretary and treasurer to be the owner of the
shares of stock stated therein. The in testimonmm 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-
necessarily have been indorsed by the clear that the transfer cannot be con-
plaintlfE, acting by some oflBcer au- sidered as a payment by [him] to the
thorized to indorse checks payable to plaintiflE, because it was not so under-
its order. If these checks, therefore, stood. Nobody on the part of the
were taken by the plaintiff in payment plaintiflE called [the treasurer] to any
of indebtedness of [the treasurer] they account, or knew that he was account-
carried notice upon their face that ing or that he was indebted to the
they were checks of the defendant, plaintiff, or that these funds had come
not payable to [his] order but to the into the plaintiff's possession or that
order of the plaintiff. Now, assuming they had come from [the treasurer],
that [his] transaction had been con- Nobody but [he] could possibly have
ducted with some other officers of the intended that the transaction should
plaintiff, who represented that corpo- amount to a payment, and his inten-
ration, it is impossible to suppose that tion, if entertained, was ineffectual
they could have accepted these checks because of his fraud. It is not neces-
in extinguishment of a known in- sary to deny or doubt that [he] might
debtedness of [the treasurer] without secretly transfer to the treasury of the
being put upon inquiry as to how he corporation money or property of his
came by the defendant's checks to so own, and thus, if the same should be
large an amount, made payable to the kept, extinguish an indebtedness aris-
plaintifl, which he could apply upon ing from a former embezzlement,
his private account. National Bank There would be nothing fraudulent in
of North America v. Bangs, 106 Mass. the act of such a transfer; and the cor-
441, 445." After commenting upon poration, being lawfully in possessioii
various cases cited by the plaintiff's of the money or property, might prop -
counsel the discussion of this point erly keep it. But where he undertook
closes with this: "Thus far the discus- in this manner to make a payment by
sion has proceeded upon the assump- secretly transferring the property of a
tion that even if the transfer of the third person the act cannot take effect
defendant's property to the plaintiff as a payment, because it was not re-
were intended as a payment on account ceived as such by any person acting in
of [the treasurer's] indebtedness to the behalf of the plaintiff. There was not
plaintiff, yet the plaintiff would not be even the semblance of an accounting,
entitled to hold the same on the ground And under these circumstances if the
that it would be chargeable with [his] plaintiff would adopt the intention to
k-nowledge of the source from which make it a payment it must also adopt
the money came. But it is equally the fraud. It cannot adopt so much
332 FKAUDTJLENT ACTS OF OFFICEES. [§ 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 hona fide 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 hona 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.^ It appeared in a
of [the treasurer's] act as was benefl- 331; s. c, 33 N. E. Rep. 878, afflrm-
cial and reject the rest. As Lord ing judgment in favor of the bank.
Kbnyon said in Smith «. 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 ofBcer, the court, speaking through
chants' Bank, 10 Gray, 533, 547-553, Maynakd, J., said: " This result fol-
and in Skinner «. Merchants' Bank, 4 lows from the application of the f unda-
AUen, 390." mental rules which determine the
' 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] FEATIDULENT ACTS OF 0FFICEE8. 333
ITew York case that tlie by-laws of the corporation required cer-
tificates of stock to be issued 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 been 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 parently 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, misrep- 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 f erred upon them. Griswold «. Haven,
he forbade the acts or disapproved of 25 N. Y. 599; New York & New Haven
them. In all such cases the rule applies E. R. Co. ■». Schuyler, 34 N. Y. 30;
respondeat superim', and is founded Titus ». G. W. Turnpike Co., 61 N. Y.
upon public policy and convenience, 237; Bank of Batavia «. 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 theirdealings. 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-
case the principal holds out his agent ture of the president to the certificate
as competent 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 stock 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 exercise of this power, are accompanied
issued; but these were facts necessarily with all the indicia of genuineness, it
and peculiarily within the knowledge is essential to the public welfare that
of the secretary, and the issue of the the principal should be responsible to
certificate in due form was a repre- 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 sideration 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. 3 Beach on Pr. Corp.
334 FEAUDULENT ACTS OP 0FFI0EK8. [§ 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.'
§ 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 lie 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. He owned no stock,
and held none as agent or otherwise, and the whole amount of
the capital stock had already been issued. In eacli 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 m 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 unaer the corporate seal, and delivered
790; North River Bank «.. Aymar, 3 has a claim to recognition as a stock-
Hill, 363; Jarvis 1). Manhattan Beach holder, if such stock can be legally is-
Co., 53 Hun, 368; Tomes. Parkers- sued, or to indemnity if this cannot he
burg Branch, 39 Md. 36; Baltimore, done. The fact of forgery does not
etc., B. R. Co. ii.Wilkens, 44 Md. 11, 38; extinguish his right when it has been
Western M. B. Co. ®. Franklin Bank, perpetrated by or at the instance of an
60 Md. 86; Com. v. Bank, 137 Mass. officer placed in authority by the cor-
431; Holden «. Phelps, 141 Mass. 456; poration and intrusted with the cus-
Manhattan Beach Co. 1). Harned, tody of its stock books and held out
27 Fed. Bep. 486; Shaw «. 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, "Titus v. President, etc.. Great
we think, correctly stated in Beach on Western Turnpike Eoad, (1876) 61 N.
Private Corporations (Vol. 3, § 488, p, Y. 337. Claflin v. Farmers & Citizens'
791): 'When certificates of stock con- Bank, 25 N. Y. 393, was distinguished
tain apparently all the essentials of by the Court of Appeals,
genuineness, a botM fide holder thereof
§ 219] FEAUDULENT ACTS OF OFFICERS. 335
them 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. The purchasers and the brokers acted in good
faith, and the brokers acted according to the general custom of
brokers. The treasurer had made nearly all the transfers on the
books of the corporation as attorney under like powers ; and it
was not the custom of brokers to take transfers of certificates to
themselves when ordered to sell stocks. The court upon these
agreed facts held that the plaintiffs were entitled to damages from
the company, as the company could issue no more stock, and the
measure of the damages was the market value of the shares at
the time the corporation first refused to recognize the certificates
as valid.'
• Allen V. South Boston Railroad Co. , tional Bank v. Field, 126 Mass. 345;
(1889) 150 Mass. 300; Craft «. South Bos- Pratt v. Taunton Copper Manuf. Co.,
ton Railroad Co. , (188'9) 150 Mass. 200. 133 Mass. 110; New York & New Haven
" The agreed facts in both cases," said Railroad v. Schuyler, 34 N. Y. 30, 64;
Field, J., speaking for the court, Titus u. Great Western Turnpike Road,
"show gross carelessness on the part of 61 N. Y. 237, 245; Holbrook v. New
the president in signing certificates in Jersey Zinc Co., 57 N. Y. 616; Shaw
blank, and negligence on the part of the v. Port Philip Mining Co., 13 Q. B. J).
directors in not examining the books 103. Of the contention on behalf of
and discovering the fictitious trans- the corporation, it is said: "But he
fers of stock made by the treasurer." contends that the plaintiffs were negli-
Then, as to the admissions on the part gent in accepting the new certificates
of the defendant, it is said : ' ' The without taking pains to ascertain
counsel for the defendant does not whether old certificates of a corre-
deny that if these certificates of stock spending number of shares had been
had been sold and duly assigned by surrendered, and a transfer made upon
the plaintiffs for value to one who had the books of the company. Bach
no knowledge that they had been certificate of stock in the defendant's
fraudulently issued, the defendant company, as the plaintiff knew, de-
would be liable in damages to the pur- clared that the shares are ' transfer-
chaser. He admits the general rule able by an assignment in the books of
that a corporation is estopped to deny said company upon a surrender of this
the validity of certificates issued in certificate. When a transfer shall be
proper form under its seal, and duly made in the books of the company,
signed by the officers authorized to and this certificate surrendered, a new
issue certificates, if they are held by one will be issued.' See Pub. Sts.
persons who took them for value with- Mass. chap. 113, § 13. The contention
out knowledge or notice that they had is, that one object of this provision
been fraudulently issued." Moorea «. was the protection of the corporation
Citizens' National Bank, 111 U. S. 156; *against the frauds of its oflicers in
Boston & Albany Railroad ii. Richard- issuing false certificates, and that if ,
son, 135 Mass. 473 ; Machimsts' Na- the plaintiffs in these cases had re-
336
FEATJDtTLENT ACTS OF 0FFICBE8.
[§220
§220. The same subject — a Pennsylvania decision. —
A president of a eorporation 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 heen 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 oflieers, is insufficient. The
primary pui'pose 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 suiTender 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
transfeiTed in accordance with its by-
laws and in accordance with law,bef ore
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 «.
Richardson, 135 Mass. 473. Before
the passage of the statute of 1884,
chapter 239, 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] FEAUDULENT ACTS OF OFFICERS. 337
Common Pleas of Pennsylvania held that ionafide purchasers of
such stock were entitled to relief against the corporation which
could not gainsay its own certiiicates. They held further that
the measure of damages in such a case would be the market value
of stock represented by a single cer- the fact that [the treasurer], who
tificate were often sold in parcels to committed the fraud upon the defend-
many different persons, and the seller ant, was, also, her agent in the trans-
made but one surrender, with'powers action. If he be regarded as acting
of attorney to transfer the parcels to in two capacities, and as having com-
the different purchasers. A purchaser mitted the fraud in his capacity as
of stock violated no duty to the corpo- treasurer, he yet, as her agent, knew
ration when he trusted to the seller to of and participated in it. Is this
make the assignment and the surrender knowledge to be imputed to her in de-
of the old certificate. The utmost that termining her rights against the
can reasonably be contended is that defendant? The general rule is that
the fact that a certificate was not ex- notice to an agent, while acting for
hibited and delivered with a power of his principal, of facts affecting the
attorney to the purchaser, was a cir- character of the transaction, is con-
cumstance to be considered upon the structive notice to the principal. Suit
question whether the purchaser acted ». Woodhall, 113 Mass. 391; National
in good faith and with due care." The Security Bank ». Cushman, 131 Mass.
court then, in detail, states the facts 490; Sartwell ». North, 144 Mass.
attending the purchase and transfer 188; The Distilled Spirits, 11 Wall,
of shares through the brokers, and 356. There is an exception to this
said: " On these facts, we think it rule, when the agent is engaged in
clear that [this plaintiff] exercised due committing an independent fraudulent
care in obtaining a transfer of the act on his own account, and the facts
stock, and that [the treasurer] in mak- to be imputed relate to this fraudulent
ing the transfer was not his agent, but act. It is sometimes said that it can-
the agent of [the broker selling it], or not be presumed that an agent will
the undisclosed principal. In issuing communicate to his jirincipal acts of
the new certificate he was the agent fraud which he has committed on his
of the defendant, and as the plaintiff own account in transacting the busi-
cannot now be put in statu quo, the ness of his principal, and that the doc-
defendant must bear the loss." Of trine of imputed knowledge rests upon
the second case, it was said: "The a presumption that an agent will com-
plaintiff received from [the treasurer], municate to his principal whatever he
as broker, a certificate, in her name, knows concerning the business he is
• of the stock which he said he engaged in transacting as agent. It
had bought for her, and there is may be doubted whether the rule and
nothing to show that this was not the the exception rest on any such reasons,
usual way in which brokers transacted It has been suggested that the true
such business. Apparently [she] reason for the exception is that an in-
acted as a purchaser, though a broker dependent fraud committed by an
usually acted, and we see no want of agent on his own account is beyond
due care on her part." They then re- the scope of his employment, and,
fer to a question in her case: "An- therefore, knowledge of it, as matter
other question arises in her case from of law, cannot be imputed to the prin-
43
338
FEAUDULENT 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.^
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. II 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 conduct of 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. Oo. V. Schuyler, 34 N. Y. 30, 52, 80;
Bank of Kentucky ». 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 banier 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-
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,
a De G. & J. 547; Rolland ». Hart, L.
R., 6 Ch. 678; In re European Bank,
L. R., 5 Ch. 358; Cave v. Cave, 15 Ch.
D. 639; Kettlewell «. Watson, 31 Oh.
D. 685, 707; Innerarity «. Merchants'
National Bank, 139 Mass. 332; Dilla-
way ®. Butler, 135 Mass. 479; Atlantic
Cotton Mills V. Indian Orchard Mills,
147 Mass. 268; Howe v. Newmarch,
12 Allen, 49. The case [of Craft e.
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."
' Willis V. Philadelphia & Darby R.
R. Co., (Pa. 1878) 6 W, N. 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
§ 221] FEAUDTJLENT 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
corporation, which had been signed by a former president of
the corporation in blank, and left with the other then officers
urer could, by a fraudulent and un- cogency of this reasoning should not
authorized overissue, bind the com- render us unmindful of a considera-
pany to that which the company was tion by which it is controlled. That
powerless to perform, was to hold that which a corporation is not authorized
an agent might acquire a power to do under any circumstances, or
through fraud which the principal did which is absolutely forbidden by its
not possess and could not have con- charter, is so entirely void that nothing
ferred. The court said : " This argu- short of an act of assembly can render
menl might be unanswerable if the it valia, but that which it may do for
power to give certiiicates was identical certain purposes and not for others, or
with the power to create stock, or if a on the happening of a particular event,
certificate could not legitimately be is not necessarily within fjhis rule, and
issued to any one who claimed under may take effect although the pre-
a derivative title, because it would requisites were not fulfilled. N. Y. &
then be incumbent on third persons to N. H. R. E. Co. i). Schuyler, 34 N. Y.
take notice of the limited nature of the 30, 68. The case in hand apparently
power and ascertain whether it had belongs to the latter category. We
been strictly pursued. It is, however, have seen that although the railway
plain that the legislature did not in- company could not create new stock,
tend to impose a rule contrary to the it might pj'operly give a certificate to
ordinary course of business, and which a purchaser as evidence that he had
would have enhanced the market acquired a title regularly deduced on
value of the stock. Although the the books, and the legal, as well as the
company could not issue a larger natural, presumption in every such
number of shares than that prescribed case is that the power has been ex-
by its charter, it might well give a ercised for a legitimate end, and not
new certificate to a purchaser in lieu in a way to render it invalid. N. Y.
of that surrendered by the vendor, & N. H. R. R. Co. v. Schuyler, 34 N.
and repeat the act as often as the occa- Y. 30, 63. ' Acts of corporations,'
son required. This was virtually says Judge King in Bank of Kentucky
conceded during the argument, but it v. Schuylkill Bank, 1 Pars. 353,
was at the same time strenuously ' which presuppose the existence of
urged that, to render such a substitu- other acts to make them legally oper-
tion valid, the pre-existing certificate ative, are presumptive proof of the
must be given up as other stock duly latter. In short, the acts of artificial
transferred on the corporate books, persons afford the same presumptions
If this method was observed the public as the acts of natural persons. Each
and stockholders would be safe, and a afford presumptions, from acts done,
departure from it involved an excess of what preceded. A vote of a cor-
of power which rendered the trans- poration may be presumed from other
action void, not only between the acts, though there is no proof of such
original parties, but as it regarded vote on the corporate records. * * *
purchasers claiming under them. The The source from which these prin-
340 FEAUDULENT ACTS OF 0FF1CEE8. [§ 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
certihcates, 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.^
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, 13 Wheat. 64.' This cita- quence of 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 s. c, 34 N. E. Rep. 776. This opinion
avers. Such an investigation is abso- was rendered by Maynaed, 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. «. 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 necessaiy 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 valuQ 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 hq,
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.
Sil
§ 222. Massachusetts- decisions on this subject. — In a ease
in Massachusetts it appeared that the treasurer of a raih'oad 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 hitn. The court held
to this eflfect: 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 name, he was 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. 331. 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 u, 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
certificate 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 certifi-
cate in the form in which it was pre-
sented to the plaintiff. There was no
negligent or wrongful use by him of
any authority derived from the [cor-
poration]. It was a willful and
criminal act, 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]
is 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 v. Ocean Nat. Bk.,
60 N. Y. 278. Or, as is sometimes
stated, the representations of the
agent, when not expressly authorized
by the principal, must, in order to
bind him, be within the scope of his
34:2 FEATTDULENT ACTS OF OFFICEES. [§ 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.*
agency, which is but another form of clple from Moores ®. 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,
tlon, when called upon to respond to § 113, note 3. The ground of that de-
the inquiries of intending p urchasers of cision as stated In the opinion is as f ol-
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 were 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], h.er 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 iu
his personal interest in the ti'ansactlon the position of one who receives a cer-
might lead him to betray his prin- tificate of stock from the proper offl-
clpal. 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 ». Hayes, 3 the cashier individually and lent money
Denio, 575; Bentley ». Columbia Ins. to him for his private use, and received
Co., 17 N. Y. 423; Clafliu «. Farmers from him a certificate in her own
& Citizens' Bank, 85 N. Y. 393; Wil- name, which stated that shares were
son V. M. E. R. Co., 130 N. Y. 145; transferable only on the books of the
Moores ». Citizens' Nat. Bank, 111 U. bank and on surrendered former cer-
S. 156; Farrington ». South Boston R. tificates, and no certificate having been
R. Co., 150 Mass. 406. surrendered by him or by her, and
' 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] TEATJDULENT ACTS OF OFFICEES. 343
These facts appear in another Massachusetts case. The by-laws
of a corporation provided that " each stockholder shall be entitled
to a certificate of his stock under the seal of the corporation and
signed by its president ,and treasurer.'-' The president had 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 of the
delivered to her by its cashier." In stock should be signed only by the
that case the president of the bank had treasurer, and if he were charged with
left blank certificates of stock signed the duty of attending to the transfer
by him with the cashier, as in the of stock and the issuing of certificates,
present case the president of the rail- any person lending money to him for
road company had left similar blank his private use and taking in his own
certificates with the treasurer. At the name a certificate of the company's
trial of that case in the United States stock as collateral security, could
Circuit Court a verdict was directed reasonably be required to investigate
for the defendant on the ground that the title of the treasurer to the certifi-
the plaintifE having had knowledge of cate delivered, because in issuing such
the fact that Moores, upon whom she a certificate the treasurer would have a
relied to have the stock transferred to personal interest adverse to that of the
her, was acting for himself as well as corporation. An agent cannot prop-
in his capacity of cashier — that is, erly act for his principal and himself
acting for the bank upon one side and when their interests are adverse, and
for himself on the other in reference to any person dealing with an agent in a
the matter of issuing this certificate — matter affecting his principal and
she is not, in the judgment of this knowing that the interests of the agent
court, an innocent holder of the stock, are adverse to those of his principal,
Moores v. Citizens' National Bank, 15 ought to be held to the duty of ascer-
Fed. Rep. 141." The Massachusetts taining that the acts of the agent are
Supreme Court resumed: "We have authorized by his principal. The
decided in Allen v. South Boston Rail- difliculty in the present case is that
road Co., 150 Mass. 300, 304, that a these considerations are only partially
purchaser of stock owes no positive applicable to it. It is on account of the
duty to the corporation to see to it danger that one oflBcer may abuse his
that the seller surrenders the old cer- power to issue stock certificates that
tificate and makes an assignment of the by-laws of corporations usually ra-
the stock on the books of the company, quire the certificates to be signed by at
but that it is the duty of the corpora- • least two ofiicers of the corporation,
tion which requires these things to be If one of these neglects his duty or
done to see that they are done before delegates the performance of it to the
a new certificate is issued to the pur- other, the safeguard intended by this
chaser. The plaintifE, in the case at requirement of the by-law becomes
bar, knew that he was dealing with inefHectual, and if one of these officers
the treasurer of the defendant in his in issuing a stock certificate has a per-
personal capacity as a borrower of sonal interest adverse to that of the
money. If the by-laws of the com- corporation, a person dealing with him
pany had provided that certificates of and knowing this may well be required
344
FEAUDULENT ACTS OF OFFIOEES.
[§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 sufEer 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 tliat state held that the corporation was not liable
for the acts of its president in issuing these certificates.^
to take notice tliat the rights of the
corporation are not protected in the
transaction to the full extent intended
by the by-laws."
'Hill ». 0. F. Jewett Publishing
Co., (1891) 154 Mass. 173; s. c, 28 N.
E. Rep. 142. Alt.,bn, 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
Ijresent. 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 v. Evans' Charities, 5 H. L.
Cas. 389; Mayor etc., of Staple of
England D. Governor etc., of Bank
of England, 21 Q. B. D. 160, 176;
Swan V. North British Australasian
Co., 2 H. & C. 175, 189. See, also,
Vagliano v. 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 d. 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
§222]
FEAUD0LENT ACTS OF OFFICEES.
345
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 liave transfers registered, to
procure the preparation, execution
and signature of certificates with all
requisite and prescrihed 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."
U
CHAPTEK YI.
PERSONAL LIABILITY OF OFFICERS.
§ 233. Directors' liability — general
' rules.
234. Liability of other officers —
general rules.
225. Rules as to liability of oflBcers
for diversion of property of
corporation.
236. 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.
285. 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.
288. Statutory liability — California
statutes.
§239. Statutory liability— Colorado
statutes.
240. Statutory liability — Iowa
statutes.
241. Statutory liability — Massachu-
setts statutes.
243. Statutory liability — Minnesota
statutes.
343. Statutory liability — Missouri
statutes.
244. Statute of New Tork — UabiUty
for failure to file annual
report.
845. Actions to enforce this liability.
346. 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 — liability
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.
351. 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] PEESONAL LIABILITY OF OFFIOEES. 347
ural persons are, so they should be held responsible to third
persons for the malfeasance by them in fact committed or
commanded.* 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.*
But they are not liable,, in the absence of fraud or intentional
breach of trust, for negligence, mistakes of judgment and bad
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.*
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.* 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.^ If directors of a cor-
'Rule declared in Salmon «. Ricli- Spering's Appeal, 71 Pa. St. 11; Citi-
ardson, (1863) 30 Conn. 360, 374, in zens' B. L. & S. Association v. Coriell,
which case the directors of an insur- 34 N. J. Eq. 888, 393; Swentzel «.
ance company who had fraudulently Penn. Bank, (1891) 147 Pa. St. 140;
permitted false statements to be offl- s. c, 33 Atl. Rep. 413; In re Forest of
cially made by the president and Dean Coal Mining Co., L. R., 10 Oh.
secretary of the company, as to its Div. 450; Ackerman v. Halsey, 37 N.
assets and condition, which induced a J. Eq. 363; Hun v. Cary, 83 N. Y. 65;
person to insure in the company when In re Denham & Co., L. R., 25 Ch.
the company was utterly insolvent, Div. 753; Watts' Appeal, 78 Pa. St.
and after his loss he . could recover 391. Liability of directors for acts
nothing from the company, were held vltra mres 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, 84
that they were acting officially. Solic. J. 503.
* Joint-Stock Discount Co. ». Brown, * Lewis ®. St. Albans Iron & Steel
L. R., 8Eq. 381; Flitcroft's Case, L. Works, 50 Vt. 477.
R., 31 Ch. Div. 519; Franklin Ins. Co. = Frost Manufacturing Co. v. Poster,
V. Jenkins, 8 Wend. 130. (1889) 76 Iowa, 535; b. c, 41 N. W.
' Briggs v. Spaulding, 141 U. S. 130; Rep. 313. That directors are not re-
348 PEESONAL LIABILITY OF OFFICERS. [§ 223
poratiou 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.' 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 tJie circumstances.^ 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.' 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.* 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.^ 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)43 Minn. 196; s. c, 44 N. W.
see DonalSson v. Haldane, 7 CI. & Rep. 56.
Fin. 771; Thorne ». Deas, 4 Johns. 84, ^ gmith «. Prattville Manufg. Co.,
96, 97; Charitable Corporation ti. Sut- (1857) 39 Ala. 503; citing Angell &
ton, 2 Atk. 405; Litchfield v. White, 3 Ames on Corp. §§ 812-314; Robinson
Sandf. 551; Spering's Appeal, 71 Pa. s. Smith, 8 Paige, 323; Forbes «. Whit-
St. 11, 21; Giblin«. McMullen,L. R.,3 lock, BEdw. Ch. 446; Bushwick, etc..
Privy Council Cas. 318, 337; First Turnpike Co. v. Ebbetts, 3 Edw. Ch.
Nat. Bank i). Ocean Bank, 60 N. Y. 353; Van Oortlandt ». Underhill, 17
295; Grill v. S. O. Co., L. R., 1 C. P. Johns. 405; Dodge ». Woolsey, 18
612; Beal ». R. R. Co., 3 Hurlst. & How. 831; Godbold v. Branch Bank
Colt. 341; Nolton v. R. R. Co., 15 N. at Mobile, 11 Ala. 191; Mozley ti Als-
Y. 444; "Wilson «. Brett, 11 Mees. & W. ton, 1 Phil. Ch. 790; Ware «. Grand
113, 115. Junction Water Works Co., 2 Russ. &
' Horn Silver Mining Co. «. Ryan, Myl. 470.
(1889) 42 Minn. 196; s. c, 44 N. W. -i Hutchinson ». Sutton Manufactur-
Rep. 56. See, also, Brinkerhoff v. Best- ing Co., (1893) 57 Fed. Rep. 998.
wick, 88 N. Y. 53. =■ Ibid.
§ 223] PEE80HAL LIABILITY OF OFFI0EE8. 34:9
the vote of the majority.* 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.* 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.' 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.*
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.^ 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
> Trisconi v. Winship, (1890) 43 La. ' Ibid. See Rolseth v. Smith, 38
Ann. 45; B. c, 9 So. Rep. 39. In Minn. 14; s. c, 35 N. "W. Rep. 565.
Baily, Receiver, «. Burgess, (1891) 48 * Franklin Fire Ins. Co. ». Jenkins,
N. J. Eq. 411; s. c, 22 Atl. Rep. 738, 8 Wend. 130; Robinson i>. Smith, 3
a director of a corporation who was Paige, 323.
appointed as agent to secure a plant ^ National Bank of Jefferson v.
of another corporation for its use, and Texas Investment Co. (Lim.), (1889) 74
to remove incumbrances from it, and Tex. 431; s. c, 13 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- s. c, 16 N. E. Rep. 5, it was held 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
with the funds in his hands. such directors by a creditor of the
'' Horn Silver Mining Co. ®. Ryan, corporation whose debt at the time
(1889) 43 Mina; 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.'
§ 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.' If any personal liability
exists against officers of a corporation who have executed a nbte
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.^ 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.* 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.^ The president of a cor-
' Pierson «. Cronk, (Sup. Ct. N. Y. cent ». 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 «. Crandall, (1866) 29 Cal. 567. sonal responsibility upon the members
See, also, Blanchard v. Kaull, (1872) of the vestry of a church by proceed-
44 Cal. 440; Lander ■». Castro, 43 Cal. ings as vestrymen pledging thecorpo-
497. rate funds to persons who might per-
3 Hall ®. Crandall, (1866) 29 Cal. 567. form work for it, which the vestry
■* Drake 0. Plewellen, 33 Ala. 106; then thought adequate, if the funds
Harwood ». Humes, 9 Ala. 659. should prove to be merely nominal and
' Solomon®. Penoyar, (1891) 89 Mich, inadequate; further, that their subse-
11; s. c, 50 N. W. Rep. 644. In Vin- quently manifesting an impression that
§ 224] PEESONAL LIABILITY OF OFFIOEKS. 351
poration may be held individually liable on an implied war-
ranty of bis autbority where he executes a written guaranty
in the name of the corporation without authority.' The presi-
dent of a corporation would not make himself personally liable
to a 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.' 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 uli/ra vires the powers of the corporation, or that
its charter was fraudulently obtained and the election of its offi-
cers illegal.* 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.* 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.' 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 v. Stanley, (1893) 30 N.
bility, without an act to fix the lia- Y. Supp. 317.
bility, could not vary the interpreta- * Haacke «. Knights of Liberty
tion of the instrument nor entitle the Social & Literary Club, (1892), 76 Md.
pledgers to a recovery upon a claim 439; s. c, 25 Atl. Rep. 433.
not otherwise well founded. * Hauser e. Tate, (1881) 85 N. C. 81.
' NelUgan e. Campbell, (1893) 65 » Ibid.
Hun, 632; s. c, SON. Y. Supp. 334.
352 PEESONAL 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.' The court also ruled upon some questions of evidence
in such a ease 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.' 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
> North Hudson Mutual Building croft's Case, L. R., 21 Ch. Div. 519;
& Loan Association «. Childs, (1893) Franklin Ins. Co. v. Jenkins, 3 Wend.
83 Wis. 460; s. c, 53 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 misjudgment 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, cai-e, skill and judgment as
Thomp. Liab. OfE. Corp. 357; Briggs are ordinarily used and practiced in
D. 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- ' North Hudson Mutual Building
quired to make good the loss out of & Loan Association v. Childs, (1893)
their private estates. Thomp. Liab. 83 Wis. 460; s. c, 53 N. W. Rep.
Off. Corp. 375; Joint-Stock Discount 600.
Co. V. Brown, L. R., 8 Eq. 381; Flit-
§ 224] PERSONAL LIABILITY OF OFFICEES. 353
of the corporation.* 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.* An action of conti-act by the corporation against a
person to whom the treasurer of tlie corporation has, without
authority, loaned to that person, thus misappropriating its funds,
will not be held such a ratiiication of the treasurer's act as will
relieve him from liability to the corporation.' 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, ofEered to pay the plaintifE, 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
' Bay View Homestead Assn. v. ' Goodyear Dental Vulcanite Co. v.
Williams, (1875) 50 Cal. 353. Caduc, (1887) 144 Mass. 85; s. c, 10
* Atlantic & North Carolina R. R. N. E. Rep. 483. Thecourt said: "T»
Co. V. Cowles, (1873) 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
■». Clarke, 73 N. C. 355; Havens v. 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. [§ 225
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.*
§ 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," Magib, 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
betiveen 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. !N"at. Trust Co. v. Miller, 6 Stew. Eq. 155 ;
Guild V. Parker, 14 Vr. 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 ejrtent." itself to do business in that state upon
' Goodyear Dental Vulcanite Co. v. contracts made on behalf of that cor-
Caduc, (1887) 144 Mass. 85; s. c, 10 poration, see Lasher v. Stimson.
N. E. Eep. 483. As to the personal (1893) 145 Pa. St. 30; s. c, 38 Atl.
liability of an agent representing a Rep. 553; 39 W. N. C. (Pa.) 404.
foreign corporation In Pennsylvania,
■§ ^25] PERSONAL LIABILITY OF OFFIOEES. 355
of the creditors thereof, at least to this extent, that it may not be
diverted to other purposes. The corporation and its officers owe
to their creditors this duty, not to divert the corporate property
from the 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
has, 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 above 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 mudh
356 PERSONAL LIABILITY OF OFFICERS. [§ 225
as has been lost to the creditors by their miscondnet.' 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.^ 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.'
'Wilkinson i>. Bauerle, (1886) 41 N. ington & Mississippi Ry. Co., 71 111.
J. Eq. 635, 645, 646, in whicti the 106; Gridley «. 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. v. 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-
2 Ellis J). 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- ^ 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. ■». 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. o. Miles, 53 111. 174; Mer- tion, their cestui gue trust, to them-
rick «. Peru Coal. Co., 61 111. 473; selves, or to waste, destroy, give
Rockford, Rock Island & St. Louis away, or misapply them. Holder i>.
Railroad Co. v. Sage, 65 111. 328; La Fayette, Bloomington & Mississippi
Cheeney v. La Payette, Bloomington Ry. Co., 71 111. 106; Cheeney v. La
& Mississippi Ry. Co., 68 111. 570; 87 Fayette, Bloomington & Mississippi
m. 446; Holder v. La Fayette, Bloom- Ry. Co., 68 Rl. 570; 1 Morawetz on
§ 226] PERSONAL LIABILITY OF OFFIOEES. 857
§ 226. Liability of officers arising from manner of execution
of commercial paper. — In a case before the Appellate Court of
Illinois the note sued on was subscribed by the defendants with the
affix to one signature " Pres.," to the other " Sec," and below the
signatures " Salem 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, did not release them from individual liability,
in the absence of evidence that they were officers, and that the
note was intended as the note of the corporation only.^ In a
case before the Minnesota Supreme Court, the note given to the
plaintiff was signed by the defendant with the affix " Pres." to
his signature. Its defense was that he was the president of a
certain " club," a corporation organized under the laws of that
state, and that he made the contract for articles for that club and
gave this note for it. The Supreme Court held that where
defendant undertook to overcome the TplaintiE's prima J^acie case
by testimony tending to show that the notes were executed by
him in behalf and as the act of a corporation of which he was
Private Corpor. §§ 516, 517. And it oable, and such appears to be the re-
is equally well settled that no lapse of lation established by law between
time is a bar to a direct or express directors and the corporation. 3 Pom-
trust as between the trustee and eroy's Eq. § 6; Id. §§ 1088-1090, 1094.
cestui que trust. Chicago & Eastern And see, also, as respects stockholders,.
Illinois Railroad Co. ». Hay, 119 111. Hightower v. Thornton, 8 Ga. 486;
493; "Wood on Limitation of Actions, Payne ■». BuUard, 33 Miss. 88; Curry
§ 200, and cases cited in note. If the v. Woodward, 53 Ala. 371."
trust assumed by the directors of a ' Williams v. Miami Powder Co.,
corporation in respect of the corporate (1890) 36 111. App. 107. The court said:
property under their control, is to be " The absence of all evidence on these
regarded as a direct trust, as contra- questions renders it necessary to con-
distinguished from simply an implied stru,e these notes according to the face
trust, then it is apparent, under the of the notes, and in doing so the rec-
rule announced, the statute presents ords 'Pres.' and 'Secy.' are to be re-
no bar to this proceeding by the re- gar&ed as deseriptionm personoB vaerelj.
ceiver of the corporation. Ordinarily, They must be held according to their
an express trust is created by a deed contract." Citing Hypes v. GriflSn,
or will, but there are many fiduciary Admr., etc., 89111. 134; Stobie -b. Dills,
relations established by law, and 63111.433; Bickford ■». Pirst Nat. Bank
regulated by settled legal rules and of Chicago, 43 111. 238; Trustees of
principles, where all the elements of Schools v. Eautenberg, 88 111. 219;
an express trust exist, and to which Powers v. Briggs, 79 111. 493; Scanlan
the same legal principles are appli- 1). Keith, 102 lU. 684.
358 PEESONAL LIABILITY OF OFFICEES. [§ 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.' Where in a negotiable
" Brunswick-Balke CoUender Co. v. tendent," against the signer individ-
Boutell, (lb90) 45 Minn. 21; s. c, 47 ually. The Supreme Court of Illinois
N. W. Rep. 361. The court said: " It said of this writing : " [It] is not dis-
is well settled in this court that when tinctly the note of [defendant]. A per-
such a word as 'agent' or 'trustee,' sonal note by Mm, in proper form,
which may be descriptive of the per- would have used the personal pronoun
son, or may be descriptive of the char- ' I ' instead of the name of the corpo-
acter in which the signer contracts, is ration, and would have been signed
affixed to the name of the party enter- without the description '<Jen. Supt.'
ing into a contract, it is prima facie Neither is it by its terms the note of
descriptive only, and that it may be a corporation. As such it should have
shown by extrinsic evidence that the been signed with the name of the cor-
attached word was understood by all poration by its president, secretary or
interested as determining the character other officers authorized to execute it,
in which the person using it contracted, or, as in Scanlan v. Keith, 102 111. 634,
Pratt ». Beaupre, 13 Minn. 187, 189; by the proper officers designating
Bingham v. Stewart, 14 Minn. 153, 214; themselves officers of the corporation
Deering«. Thorn, 29 Minn. 120; s. c, for which they assumed to act, or, as
12 N. W. Rep. 350; Peterson v. Ho- in Newmarket Savings Bank ». Uillet,
man, 44 Minn. 166; s. c, 46 N. W. 100 111. 254, using the corporate name
Rep. 303. In the earlier of these cases, both in the body of the note and in the
where the words ' Agents Steamer signatures to it. But if it be conceded
Flora,' had been affixed to the defend- that, prima facie, a general superin-
ants' signatures to a shipping contract, tendent of a corporation has authority
it was also settled that where a party to make promissory notes in its name,
seeks to change the prima facie char- and this instrument be held to appear
acter of the contract on the ground of on its face to be the obligation of the
agency, it is incumbent upon him to society, rather than of [defendant],
prove the fact of the agency. Toes- certainly it could not even then be con-
tablish that he acted in a representa- tended that it was conclusively so. It
tive capacity he must first show the is well understood that if the agent,
existence of the capacity. If he as- either of a. corporation or an individ-
sumes to act as an agent he must prove ual, makes a contract which he has no
his authority to do so, or his liability authority to make, he binds himself
upon the contract is necessarily of a personally according to the terms of
personal character." In Frankland «. the contract. Augell & Ames on Corp.
Johnson, (1893) 147 111. 520, an action § 303. It was said by Suthbk-
was brought upon a note which was land, J., in Mott «. Hicks, 1 Cow. 513.
in these words : " On or before, etc., s. c, 13 Am. Dec. 556 : ' It is perfectly
the Western Seamen's Friend Society well settled that if a person undertake
agrees to pay or order the sum of to contract, as agent, for an individual
* * * with interest, etc., [signed] or corporation, and contracts in a man-
[defendant's name] general superin- ner which is not legally binding upon
§226]
PEKBONAL LIABILITY OF OFFICEES.
359
promissory note, given for tlie debt of a corporation, tlie language
of the promise does not disclose the corporate obligation, and the
signatures to it are in the names of individuals who were in fact
officers of the corporation, a hona fide holder, without notice of
the circumstances of its making, is entitled to hold it as the per-
sonal undertaking of its signers, although they have affixed 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.'
his principal, lie is persoiifUy respon-
sible (citing autliorities). 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 plaintiff to show that he had not
authority. The defendant must show
affirmatively 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 prima
facie the personal notes of the signers,
see McNeil v. Shober & Carqueville
Lithographing Co., (1893) 144 111. 338;
Sturdivant i>. Hull, 59 Me. 173; Tucker
Manuf. Co. ®. Fairbanks, 98 Mass. 101;
Savage «. Rix, 9 N. H. 363; Bank v.
Hooper, 5 Gray, 567; Trustees n.
Rautenberg, 88 111. 319; Powers «.
Briggs, 79 111. 493; Stobie v. Dills, 63
111. 433; Fiske v. Eldridge, 13 Gray,
474; Seaver s. Coburn, 10 Cush. 334.
As to the admissibility of parol evi-
dence in such cases to show whose note
it was, see La Salle National Bank ii.
Tolu Rock & Rye Co., 14 111. App. 141;
Mechanics' Bank ». Bank of Columbia,
5 Wheat. 336; Baldwin «. Bank of New-
bury, 1 Wall. 334; Brockway ■». Allen,
17 Wend. 40; Eean». Davis, 31 N. J. L.
083; Haile ». Peirce, 33 Md. 337; Rich-
mond R. Co. V. Snead, 19 Gratt. 354;
Lazarus v. Shearer, 3 Ala. 718; Owings
V. Grubbs' Admr., 6 J. J. Marsh. 31;
McClellau v. Reynolds, 49 Mo. 312;
Hardy d. Pilcher, 57 Miss. 118; Hager
V. Rice, 4 Col. 90; Magill v. Hinsdale,
6 Conn. 464; Mann «. Chandler, 9 Mass.
335; Neill ». Spencer, 5 III. App. 478;
Western Union ». Smith, 75 111. 496;
Bowles 11. Lambert, 54 111. 337; Stookey
«. Hughes, 18 111. 55; Scanlan v. Keith,
102 111. 634.
' Casco National Bank of Portland ».
Clark, (1898)139 N. Y. 307; s. 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 Jiaving
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 ti'easurer, 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-
360
PBKSONAL LIABILITY OF OFFICERS.
[§22r
§ 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. 371; Taft v. Brewster, 9
Johns. 334; Hills «. Bannister, 8 Cow.
31; Moss V. Livingston, 4 N. Y. 208;
De Witt ». Walton, 9 N. Y. 571; Bot-
tomley v. Fisher, 1 Hurlst. & Colt. 311.
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 ». 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
It. 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 v.
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.
313, referred to by the appellant's
counsel, the action was against the de-
fendant to hold it as the iudorser of a
bill of exchange, drawn to the order
of 'S. 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 w.as 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 musf
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 eilect of
this rule, the appellant in this case
proved that one, a director of the cor-
§227]
PEESONAL LIABILITY OF OFFICEES.
361
" board of directors," was the cause of action in a Kansas case.
The lower court refused any evidence as to the circumstances
under which the names of the directors were indorsed upon the
note, and they were held bound as guarantors of the note of the
corporation. The Supreme Court held that as between the origi-
poration, the payee company, was also
a director in the plaintiff bank at the
time when the note was discounted,
and it was argued that the knowledge
chargeable to him as director of the
former company was imputable to the
piaintiff. To this argument the Court
of Appeals said: "But that fact is in-
sufficient to charge the plaintiff with
knowledge of the 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 v.
Norton, 1 Hill, 572, 579; Mayor, etc.,
i>. Tenth National Bank, 111 N. Y. 446,
457; Farmers', etc. , Bank v. Payne, 35
Conn. 444. He was but one of the
plaintiff's directors, who could only
act as a board. National Bank v. 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
board. An officer's knowledge, de-
rived as an individual, and not while
acting officially for the bank, cannot
operate to the prejudice of the latter.
Bank of U. S. v. Davis, 3 Hill, 451.
The knowledge with which the bank
as his principal would be deemed
chargeable so as to affect it would be
where, as one of the board of directors
and participating in the discount of
the paper, he had acted affirmatively,
or fraudulently, with respect to it, as
in the case of Bank «. Davis, supra,
by a fraudulent perversion of the bills
from the object for which drawn; or
as in Holden ». New York & Erie
Bank, 73 N. Y. 386, where the presi-
dent of 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, as an in-
dividual or as an executor, was not
imputable to the bank merely because
he was the president, but because
when it acted thi'ough him as presi-
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 has
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 ». Clark, (1893)
139 N. Y. 314 (an action upon similar
notes to those in the case above, made
by the same parties defendant). In
Bremen Saving Bank v. Branch-
Crookes Saw Company, (1891) 104 Mo.
435, the defendant corporation was
sued on a note purporting to be signed
by it as maker and one B. as iudorser.
It defended In its answer on the ground
that it was a manufacturing and busi-
ness corporation; that its name was
used by B., the then president of the
corporation, for his own accommoda-
tion, and for the pm-pose of satisfying
iis prior individual debt; that the note
was so executed without any consid-
eration moving to the defendant, and
that the plaintiff, when it accepted the
note, had knowledge of the foregoing-
facts. The court held that if the
362
PEESONAL LIABILITY OF OFFICEES.
[§22T
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 official
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.' 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
conduct under the circumstances to
believe in good faith that the defend-
ant had assumed to pay the debt,
though it did not in fact assume to
pay it, defendant was liable. Citing
Deere -e. Marsden, 88 Mo. 512; Craw-
ford i>. Spencer, 93 Mo. 498; Fitzger-
ald V. Barker, 96 Mo. 661; Mechanics'
Banking Assn. v. N. Y., etc.. White
Lead Co., 35 N. Y. 505; National Park
Bank v. German-American Mut. W.
& S. Co., 116 N. Y. 292; National
Bank of Republic v. Young, (N. J.) 7
Atl. Rep. 488; Holmes, Booth & Hay-
dens V. Willard, 24 N. Y. St. Repr.
260; Second National Bank ». Pottier
& Stymus Mfg. Co., 18 N. Y. St. Repr.
954; Supervisors v. Schenck, 5 Wall.
784; La Fayette Savings Bank t). Stone-
ware Co., 2 Mo. App. 299.
' Kline ■b. Bank of Tescott, (1892) 50
Kans. 91. It was claimed in the case
that the cashier of this bank, the
assignee of the note, who was also a
director of the corporation to the order
of which the note was payable, as-
sured these directors that the only way
to make a corporation note was for the
officers and directors of the corpora-
tion to sign their names and affix their
official positions thereto, and that the
note was thus signed under his direc-
tion to bind the corporation, but not
the officers individually. The court
said: "If the parties who wrote their
names upon the back of the note as
directors had signed their names upon
the face thereof, they could have
shown by extrinsic evidence that they
were acting for the corporation only,
and we perceive no reason why, as be-
tween the original parties or any sub-
sequent holder of the note accepting
the same as collateral, with full notice
of all the facts and circumstances con-
nected with the execution and deliv-
ery thereof, the same rule will not
apply when such signatures are upon
the back of the instrument before
delivery."
§ 228] PEESONAL LIABILITY OF OFFICERS. 363
not erpressly given to the agent, he is not personally responsible
upon 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 was no
issue which required submission to the jury. It was argued to
the court that the statute had no application to the law-merchant
and promissory notes the offspring of that law, and that the
payee having been designated as " Pres't " merely when made
the payee by the face of the note, was responsible individually,
because he could not by the indorsement explain what that term
" Pres't " meant ; and when he turned over the note to the bank by
his indorsement and gave them the control of the paper and title
to sue it, he could not then limit his liability and indorse only as
president. Of this contention the court said : " "We cannot see
the logic of any such conclusion, nor do we think that any such
point has ever been adjudicated, even under the laws governing
commercial paper unaflEected by statute, as it is here, by the alle-
gation that [the payee] and [maker] had power to contract for the
corporation, and did so, and borrowed the money for the corpo-
ration that used it." It was also held that outside of the statute
prior to indorsing the note payable to the order of the payee no
liability arose against him ; and when he indorsed it, the terms of
such indorsement determined the contract between the indorser
and indorsee, and the indorser could limit his liability by the
terms thereof.^
§ 228. Liability of officers of savings banks. — In a case
where the trustees of a savings bank, the business of which had
been a losing one from the start, its deposits not large and its
expenses exceeding its income, doing business in hired rooms,
purchased real estate for a large sum out of the funds in its care
' Bank of the University v. Hamil- Veneer Mfg. Co., 4 N. Y. Supp. 385;
ton, (1886) 78 6a. 313. Cases as to in- Slieridan Electric Light Co. v. Chat-
dorsement of paper by officers: Mid- ham National Bank, 53 Hun, 575; s.
dlesex County Bank v. Hirsch Bros, c, 5 N. Y. Supp. 539.
364. PEESONAL LIABILITY OF OFFICEKS. [§ 228
and agi'eed to erect a building thereon at a further large cost,
before the completion of the same the bank became hopelessly
insolvent and passed into the hands of a receiver. The receiver
brought his action against the trustees for damages on account
of an improper investment of its funds on their part in the matter
above stated. The New York Court of Appeals, considering
the relation between these trustees and the bank to be that of
agents and principals, and between them and the depositors as
similar to that of trustee and cestui que trust, held, that in
transcending the limits placed upon their power m the charter
of the bank and causing damage to the bank or its depositors,
they would be personally liable for the damages. They affirmed
the judgment against the trustees in the lower courts and dis-
missed tjhe appeal.' As agents of the bank such trustees are
' Hun, Receiver, n. Cary, (1880) 83 ordinary slsill and judgment. As he
N. T. 65, affirming 59 How. Pr. 426. is bound to exercise ordinary skill and
The contention in this case on the part judgment, he cannot set up that he
of the defense involved the extent of did not possess them. When damage
the care to be exercised by such trus- is caused by his want of judgment he
tees of the funds and the uses to which cannot excuse himself by alleging his
they devoted them. Eakl, J., speak- gross ignorance. One who volunta-
iug for the court, after referring to the rily takes the position of director, and
following cases: Scott ». De Peyster, invites confidence in that relation, un-
1 Edw. Ch. 513; Spering's Appeal, 71 dertakes, like a mandatory, with those
Pa. St. 11; Hodges v. New England whom he represents or for whom he
Screw Co., 1 R. I. 312; s. c. in 3 R. acts, that he possesses at least ordinary
I. 1; The Liquidators of "Western Bank knowledge and skill, and that he will
■«. Baird, 11 Sess. Cas. (3d series) bring them to bear in the discharge of
112 (Scotch); The Charitable Corpora- his duties. Story on Bailments, § 183.
tion » Sutton, 3 Atk. 405, and Litch- Such is the rule applicable to public
field 0. White, 3 Sandf. 545, said: "In officers, professional men and to me-
Spering's Appeal Judge Shaeswood chanics, and such is the rule which
said that directors ' are not liable for must be applicable to every person
mistakes of judgment, even though who undertakes to act for another in a
they may be so gross as to appear to situation or employment requiring
us absurd and ridiculous, provided skill and knowledge, and it matters
they were honest, and provided they not that the service is to be rendered
are fairly within the scope of the gratuitously. These defendants volun-
powers and discretion confided to the tarily took the position of trustees of
managing body.' As I understand the bank. They invited depositors to
this language I cannot assent to it as confide to them their savings, and to
properly defining to any extent the intrust the safe keeping and manage-
nature of a director's responsibility, ment of them to their skill and pru-
Like a mandatory, to whom he has dence. They undertook not only that
been likened, he is bound not only to they would discharge their duties with
exercise proper care and diligence, but proper care, but that they would exer-
§ 228] PEESONAL LIABILITY OF OFFICEES. 365
responsible to it for misfeasance or nonfeasance causing damage
to the bank, upon the same principle that any agent is for like
cause responsible to his principal.* The Chancery Court of New,
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.'
else the ordinary skill and judgment theless, in violation of his 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 V. Gary, (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,
e. 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 V. Wood, 38 Barb. 181; Austin ger and officer, he is to be regarded as
■B. Daniels, 4 Denio, 399; O. & N. R. standing in the relation of ,a stranger
R. Co. V. McPherson, 35 Mo. 13. As to the bank in this transaction. He
to the liability of trustees to restore was a trustee, and, ^s such, bound to
the money illegally invested by them, protect the interests of his cestuis que
see Adair v. Brimmer, 74 N. Y. 553; trust. That obligation involved a
London v. Birmingham R. R. Co., 5 strict adherence to the provisions of
De Gex & Smales, 414. the charter and the regulations of the
''Williams, Receiver, v. Riley, (1881) bank designed for their protection.
84 N. J. Eq. 398. 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 ciple 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 been
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 v. Hearn, 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.'
378. Manifestly he is without excuse president was required to sign all or-
now. Hehasbeenguilty of amisappli- ders drawn upon the treasurer for
cation, at least, of the funds of the bank, appropriations made by the board, the
and where there has been a waste or secretary to keep accurate minutes, to
misapplication of the funds of a cor- attest all orders drawn on treasurer
j^oration by an oiHcer or agent of the for appropriations made by the board,
corporation suit may be brought in the treasurer to pay all orders drawn
equity, in the name of the company, on him by order of the board, if signed
to compel him to account for such waste by the president and attested by the
or misapplication or breach of trust, secretary. The orders upon which
Citizens' Loan Association v. Lyon, 39 these payments were made were in the
N. J. Eq. 110; s. c, affd. on appeal, usual form, and signed by the presi-
30 N, J. Eq, 732, Here the misappli- dent and attested by the secretary,
cation was by one who was not only The [treasurer] having no reason to
an officer of the institution but a trus- suspect or doubt the integrity of either
tee also, Stockton d. Mechanics & the president or the secretary, and
Labor. Sav, Bank, 83 N. J, Eq, 163; acting in good faith, paid them. As
Hannon 11. Williams, 84 N, J, Eq. 255. the [treasurer] served without compen-
And he is bound to indemnify his sation for his services he became a
cestuis que trust, and the receiver may gratuitous bailee, and as such is to be
maintain suit against him to obtain the held liable for gross negligence only,
indemnity." In Tompkins «, Saltmarsh, 14 Serg. &
' Hibernia Building Assn. », Mc- R. 275, it was said: 'Tompkins is
Grath, (1893) 154 Pa. St. 296. The charged, as the bailee of Saltmarsh,
opinion rendered by Thompson, Jus- on an undertaking to perform a gra-
tice, fully presented the facts and the tuitous act, from which he was to re-
by-laws regulating the conduct and ceive no benefit, and the benefit was
acts of ofiBcers, and fully discussed the solely to accrue to the bailor, in which
law applicable to such a case, as fol- case the bailee is only liable for gross
lows : ' ' The ground of liability was negligence, dolo proximus, a practice
negligence in making these payments, equal to a fraud.' This rule thus
although made upon orders signed by stated is repeated in Scott e. Bank of
the president and secretary, who also Chester Valley, 72 Pa. St. 471; Bank
attested the signatures of the payees, of Carlisle 11. Graham, 79 Pa. St. 117.
The money was either paid in cash to His designation as treasurer did not
the secretary, or by cheques payable change the character of the bailment,
to his order. Under the by-laws the As provided in the by-laws the money
§230]
PERSONAL LIABILITY OF OFFICERS.
367
§ 230. Liability on a contract made before complete organ-
ization of the corporation. — In an Ohio case it appeared that
individuals who had undertaken to have an association known as
the " Wool Growers' Exchange " incorporated under the laws of
Ohio obtained a certificate of incorporation, and before the
requirement of the law as to the subscription to the stock of a
certain percentage of the capital stock before doing business had
was deposited with him to be paid out
when required upon orders drawn in
the manner as stated. A treasurer or
a director may become a gratuitous
bailee, and his official position and
designation will not in any degree
change his liability as such bailee. In
Swentzel ». Bank, 147 Pa. St. 153, it
was held that directors who are gra-
tuitous mandatories were only liable
for fraud or such gross neglect that
amounts to fraud. In this case the
[treasurer] had no office or place in
which, as treasurer, he transacted the
business of the association. When
orders were to be paid he testifies he
would get notice from the secretary to
come down and see him; that he had
some that he wanted paid, and that he
would go to the secretary's store and
would there pay them to him. The
[association's] business was managed
principally by its secretary, who came
in contact directly with its members.
In view of the by-law and the modes
of payment, it is very clear that he
was a gratuitous bailee, and is to be
held only to that diligence required as
such. It is true he gave a bond as re-
quired by the by-law for the faithful
performance of his duties, but that did
not change the duty cast upon him by
law as a bailee. The condition of the
bond was that he should perform and
discharge the duties of the office, and
shall keep a just and true account of
the moneys received, and shall pay to
his successor the moneys received, and
shall account for the moneys so re-
ceived. The condition of the bond,
therefore, was that he should faith-
fully perform the duties in regard to
the bailment that the law required
him to perform. It is, however, con-
tended that as the bond provides that
he shall discharge all the duties now
required or may hereafter be required
of him as treasurer by the constitu-
tion, charter, by-laws, rules and regu-
lations of said association, and as the
board passed a resolution that all
applications for withdrawals of stock
must be approved by the board of
directors at regular or special meet-
ings of the association before payments
are made, the [treasurer] was guilty of
negligence, without examining the
minutes and without satisfying him-
self that the board had acted upon the
withdrawals for which the orders in
question purported to have been
drawn. It is established by the proofs
that no entries were made upon the
minutes for [of?] application of [for?]
withdrawals after 1884. In point of
fact the secretary, after this date, kept
no record in the minutes of any with-
drawals. The duty of the president
is to preside at all meetings of the
board and to sign all orders for appro-
priations authorized by the board;
that of the secretary is to keep accu-
rate minutes of all meetings of the
board, the accounts of the association,
and to attest all orders on the treasurer
for appropriations of the board. These
orders in question were signed by the
president and were attested by the
secretary in the usual form. The
president was and is still regarded as-
an upright man; the secretary was
also at this time so regarded; the asso-
368 PEESONAL LIABILITY OF OFFIOEES. [§ 230
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.^ The
elation 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 bona fide
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 ». Hutchinson, 13 Ad. & E.
justified in paying them. It can be 746, it is intimated by Eblb, 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 i>. 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 364a. 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
' Trust Co. 11. Floyd, (1890) 47 Ohio are considering, the agent is liable
St, 535; s. c, 36 N. E. Rep. 110. The upon his implied promise that he pes-
§230]
PERSONAL LIABILITY OF 0FFICEE8.
369
Supreme Court of Kansas affirmed a judgment against alleged
directors of an athletic association upon a contract for goods fur-
nished, holding them individually liable on the ground that the
corporation had not been fully organ'^ed under the law. They
said upon the subject generally : " The rule is well established
sesses the authority he assumes to
have. Smith's Leading Cases, vol. 2,
pt. 1, 408 (8th ed.), and cases there
cited; Lewis v. Nicholson, 83 Eng. C.
L. 513. In White v. Madison, 26 N.
Y. 117, in a learned opinion, it is held
that the liability of the agent in such
cases rests upon the grouM that he
warrants his authority, and not that the
contract is to he deemed his own.
Bartholomew v. 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 suflBciency of the dec-
laration in such an action. They are
stated by Birchard, 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 1 ' 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 relied
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 v. 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 v.
Bentley, 1 Ohio St. 37, that while
mere irregularities in organizing a
corporation would not subject the
officers to private liability, to protect
them from such liability, the provisions
of the act of incorporation must be
substantially pursued. By our stat-
utes, under which the proceedings
370 PEESONAL LIABILITY OF OFFICEES. [§ 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.' And it is con-
ceded in this case that nothing was done to perfect the organiza-
tion after the charter was filed. 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, poTation de facto, and estopped to deny
the corporate powers, business and its liabiUty 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 pearing 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 bylaw;
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 cfo 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
liabiUty 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. at
these securities was provided. Counsel Law, 197, and authorities cited there.
§ 230] PERSONAL LIABILITY OF OFFIOEKS. 371
transact the legitimate business for which it was created. In
this sense the corporation was not fully organized. While it had
an existence, the organization was never completed so that the
corporation could do business: In the case of Hurt v. Salisbury,
55 Mo. 310, 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 ground
that the association 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 the 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. 8M. 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 OFPICEES. [§ 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. Kev. Stat, of "Wis. 1878,
§ 1901.'"
§ 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. T. 117 ; Simons
V. Patchett, 7 E. & B. 568 ; Collen v. Wright, 7 E. & B. 801 ; 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
I Walton V. Oliver, (1892) 49 Kans. 107, 113, 113, 114; s. c, 30 Pac. Eep. 172.
§ 232] PERSONAL LIABILITY OF OFFICEKS. 373
the wool sold. Prima facie, that is the amount of the plaintiff's
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-
sented by the directors, and which the defendants, by assuming
to act lor it, undertook that it did have. It is true the petition
alleges that the corporation is insolvent with an indebtedness
exceeding ten per cent of the capital stock ; 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 plaintiff's claim might have been paid or secured.
If, in such case, the plaintiff could recover no more 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, apphed 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 iu to have their claims
adjusted, before the amount of the verdict could be arrived at.'"
§ 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 amoimt 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 v. Floyd, (1890) 47 OWo St. 535, 542, 543; b. c, 36 N. E.
Eep. 110.
374
PERSONAL LIABILITY OF OFFICBES.
[§233
California held that, assuming the facts to be as contended by the
treasurer and his sureties, they did not constitute a defense to the
action.'
§ 233. County treasurer liable as bailee of county funds. —
In a Colorado ease 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,
' 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. 833) 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. «. 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 malting 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
band. These settlements and state-
ments were made by [this treasurer],
and he ought not no w 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 ent^r
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] PEESONAL LIABILITY OF OFFICEES. 375
the contention by the county authorities being 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 he
is required to give before entering upon the duties of his oflSce is
conditioned that he ' shall faithfully and promptly perform'the
duties of said ojBEice * * * 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 office.' 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 Eowley v. Fair, 104 Ind. 189 ; s. c, 3 IST. E.
Eep. 860, as follows : ' But the title of a township trustee in the
money for which he is held accountable is only recognized to the
extent that is necessary for the better preservation of the various
376 PEESONAL LIABILITY OF OFFIOEES. [§ 234
funds which the money represents, and is, in fact, a legal title
only in a technical and very limited sense. The equitable title
to, and the beneficiary interest in, such money is in the township,
and in that view the money for which the trustee is liable upon
his bond really belongs to the township.' It follows that, if the
money received by the treasurer by virtue of his office belongs to
the county, it constitutes a trust fund, which, if diverted and
misappropriated, may be recovered in an action upon his bond,
or the county may, if it elect, treat it as a trust fund, and follow
it wherever it can be traced." ^
§ 234. County treasurer paying court orders on forged
indorsements. — It appeared in a Minnesota case that a deputy
clerk of the District Court issued false and fraudulent certificates,
in which he certified that certain named persons had served as
jurors in said court, and were each entitled to a stated sum of
money payable to their order as compensation. He obtained the
written order of the county auditor on each, directing the county
treasurer to pay the same. He forged the names of the respec-
tive payees on the back of each certificate, presented the same to
the treasurer, and the latter paid over to him the amounts called
for out of the county funds, without attempting to satisfy him-
self of the genuineness of the indorsements upon the backs of
the instruments. The Supreme Court held that the treasurer
was liable to the county for the sums so paid out.'
' McClure ». Board of Comrs. of La pay to the bearer. This he did -mth-
Plata County, (Colo. 1893) 34 Pac. out knowledge of any defect in the
Eep. 763; citing Sauer «. Town of title of the bearer, and it was held,
Nevadaville, 14 Colo. 54; s. c, 23 such payment being in good faith
Pac. Rep. 87. every way, that the county was ex-
' Board of County Commissioners of onerated from further liability. The
Ramsey Co. v. Nelson, (1893) 51 Minn, conclusion of the court was expressly
79. Arguendo, the court said: "The placed upon the fact that in good
distinction between a case arising on faith the county treasurer had paid
these facts and * * * Sweet n. these obligations precisely as he was
County Commissioners of Carver authorized and directed to do, to the
County, 16 Minn. 106, is obvious, person who presented them, the bearer
There the county orders or warrants thereof. But the cases are not analo-
had been issued and accepted, made gous, for, giving to defendant the ben-
payable to a certain named person or efit of all that is possible, namely,
to bearer. They were transferable by that together the certificates as issued
simple delivery, and, in terms, the and the indorsements thereon as made
treasurer was expressly authorized to by the county auditor amounted to
§ 236] PEBSONAL LIABILITY, OF OFFICEES. 377
§ 235. Arbitration as to liability of a treasurer of a town-
ship.— The treasurer of a township having used the moneys of
the public corporation there was a submission of the question of
the extent of his liability upon his bond to arbitration, and a
settlement made upon the basis of the award, the bondsmen
released and in part settlement of the matter notes given to the
township. In an action upon one of these notes the treasurer
intervened, and the insistment on his behalf was that the arbitra-
tion could not be sustained because the corporation's powers were
only such as were given by statute, and no express power was
given to submit to arbitration. To this the Supreme Court of
orders or warrants upon the county the signatures which he found in-
treasury, the prominent and stubborn dorsed upon the backs of the instru-
fact remains that the amounts said to ments purporting to be those of the
be due thereon were not to be paid to payees therein named. He failed so
a bearer of the instruments, but to the to do, and this of itself is sufficient to
order of the several persons named sustain the charge of negligence in the
therein as payees. As in the case just performance of his official duty. As
referred to, the authority to pay was was said by the learned trial judge,
express and distinct, but instead of had defendant observed the rule of
directing that such payment should law which governs in commercial
be to whomsoever might present the transactions of the same nature, he
orders or warrants, the direction was would have detected the forgeries at
that payment should be made to the the outset, and there coxild have been
order of a person designated by name, no great loss to the county or to him-
And at this time it may be well to self. His disregard of this rule was
state that it does not appear in the negligence, undoubtedly, and it was
complaint, as appellant's counsel seem the immediate and proximate cause
to assume, that fictitious or nonexistent of the loss to the county, for which
persons were named as payees in these defendant must be held responsible,
certificates. It is of no importance, unless the fact that the certificates
probably, but from the language of were fraudulently issued by the dep-
the pleading the presumption is other- uty of another county officer for
wise. Payments were not made to whose malfeasance such officer was
the persons named as payees, or to also responsible to the county can be
their order, in accordance with the allowed to excuse and relieve him.
terms of the certificates, but were The instruments in question were cer-
made to * * * the very person tificates of indebtedness for jurors'
who as deputy clerk had the oppor- services falsely stated to have been
tunity and had fraudulently issued the rendered by the payees therein named,
same, solely upon the false and forged and on whose order payment was to
indorsements ' of the names of the be made. At most, they were the
payees. Common prudence ought to orders of one officer of a municipal
have suggested to [the treasurer] that corporation upon another officer for
before making such payments it was the paying out of municipal funds,
incumbent upon him to ascertain and Although negotiable in form, they
satisfy himself of the genuineness of were not commercial paper in any
48
3Y8 PEKSONAL LIABILITY OF OFFICEES. [§ 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-
senae. That they were in fact fraud- payees must necessarily have been
ulently issued could not relieve the fictitious and nonexistent, we do not
defendant treasurer from the ohliga- quite understand the assertion of
tion which rested upon him to see to counsel that no payees were named,
it that he paid the same to the persons and, therefore, the instruments were
to whom payment was directed. Had payable to bearer; or the pertinency
he done this in gocfd faith, we are un- of the authorities collated by counsel
able to see why his duty would not to the effect that, where a payee's name
have been performed, and in his is left blank in a bill or note when the
failure to pay as directed lies the same issued, such bill or note is in
claim that he was negligent. Had the legal effect payable to bearer, and
certificates been regularly issued pay- until the payee is actually named the
ment upon forged indorsements would paper will circulate as though made
not have excused the defendant treas- payable to bearer in terms. We have
urer, nor could it have relieved the already stated that from the averments
county from a Just indebtedness for of the complaint the presumption is
jurors' services. The liability of the that the payees named were not ficti-
county treasurer for the funds in- tious or nonexistent, but in any event
trusted to his care cannot be allowed the weight of authority is that the
to depend upon the fidelity of some rule cited by counsel applies only to
other county officer, but is with him paper put into circulation by a maker
alone, and to be determined by his with knpwledge that the name of the
actions. Nor can the right of the payee does not represent a real person,
county to require of him that he Shipman s. Bank of New York, 136
account for the public funds be N. Y. 318; s. c, 27 N. E. Rep. 371.
limited or controlled by the fact that The: rule can have no application to
it may also look elsewhere for relief the issuance of county orders or war-
in case of loss. For the bad conduct rants. There is absolutely nothing in
of the deputy in fraudulently issuing the appellant's position that the
the certificates the county may have a county is estopped from saying that
right of action against his principal, the payees named were fictitious and
the clerk of the court; but it is not con- the indorsements forged. The wrong-
fined to that action; it is not obliged fill acts of the officers of a municipal
to look to him alone. Unless it be corporation cannot create an estoppel
upon the theory that as these certifi- against the corporation, the taxpayers,
cates were issued without the rendi- or the people." Citing Mayor ». Ray,
tion of services, and fraudulently, the 19 Wall. 468.
§ 236] PEESONAL LIABILITY OF OFFICERS. 379
ences is just as legitimate a mode of settlement as by action.
Courts, indeed, are disposed to encourage settlements by arbitra-
tion. Zook v. Spray, 38 Iowa, 2Y3. We may add that such
settlements seem to be peculiarly appropriate where arbitrators,
possessing more or less of an expert character, can be called into
requisition. We presume that the intervener could not deny
that private corporations may submit to arbitration. But, in our
opinion, the power may properly enough be exercised by public
corporations also. It was held in Dix v. Town of Dummerston,
19 Yt. 262, that selectmen, having power to audit and allow
claims, might submit to a reference. As haying some bearing
upon the same question, see, also. Inhabitants of Boston v. Brazer,
11 Mass. 4A1; Brady v. Mayor of Brooklyn, 1 Barb. 584.'"
§ 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 fixed 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 coTporation 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.^ And it
' District Township of Walnut «. their entire claims, while others less
Rankin, (1886) 70 Iowa, 65, 66, 67. prompt would not receive anything.
» Bauer ». Piatt, (1893) 72 Hun, 336; If the directors should find that the
s. 0., 35 N. Y. Supp. 426. Pahkek, 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 pref-
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 such
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 while
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 have trusted 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
380 PEESONAL LIABILITY OF OFFIOEES. [§ 236
would be of advantage to the directors to bring tliem 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.*
The trustees, directors or managers of any society or corporation
organized under the provisions of this New York statute," by a
section of that statute are made " jointly and severally Uable 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.' 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 v. 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- ' Pabker, J. , in Bauer v. Piatt,
duce." The court referred to Board (1893) 73 Hun, 336; s. c, 25 N. Y.
of Supervisors v. Deyoe, 77 N. Y. 319; Supp. 436.
"Weeks v. Love, 50 N. Y. 568, which « N. Y. Laws, 1875, chap. 267.
followed Bank of Poughkeepsie v. 'Strauss «. Trotter, (1893) 6 Misc.
Ibbotson, 24 Wend. 473; and Garrison Rep. 77; s. c, 36 N. Y. Supp. 30.
■p. Howe, 17 N. Y. 458; also to Pfohl
§ 236] PERSONAL LIABILITY OF OFFICERS. 381
the action may be maintained against any or all of tlie trustees.^
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 cf the club at the time of the giving of the notes, if they
were given for a past indebtedness, was not sufficient 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.' 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, vnth 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.* 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.' 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 v. Carr, (1894) 79 Hun, Goodrich, (Ct. Com. PI. 1893) 2 Msc.
258; s. c, 29 N. Y. Supp. 410. Rep. 578; 21 N. Y. Supp. 949.
'Ibid. ■'King ®. Union Iron Co., (1891) 58
'State Bank v. Andrews, (Ct. Com. Hun, 601; s. C, 11 N. Y. Supp. 603.
PI. N. Y. 1893) 2 Misc. Rep. 894; s. 'Ibid.
C, 21 N. Y. Supp. 948; Merritt a.
382 PEESONAL LIABILITY OF OFFICERS. [§ 237
tracted with their assent in excess of the paid-up capital and
remain unpaid after the corporate assets are exhausted.'
§ 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 brouglit the directors within the personal
liability clause of the charter.^
' Allison D. Coal Company, (1888) 3 gible statement of it in conformity
Pickie, (Tenn.) 60; s. c, 9 S. W. with the act of assembly. It ivas a
Rep. 236. 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-
corporatlon 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 havfe and until the association was about to
been waived : Uuderhill 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. tlve. It did not set forth with reason-
1049. able particularity the 'nature and
' Grithers ». Clarke, (1893) 158 Pft. St. character of the property of the cor-
616; s. c, 38 Atl. Rep. 333; 88 W. N. poration." It represented the associa-
C. 463. 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-
§ 238] PEESONAL LIABILITY OF OFFIOEKS.
383
§ 238. Statutory liability — California statutes.— To make
directors of a corporation personally liable under the provision of
the Civil Code of California that " the directors of corporations
must not * * * create debts beyond the subscribed capital
stock * * *," and then affixes a liability upon them for its
violation to the full amount of the debt contracted, it must appear
that the corporation must have been indebted at the same time in
an aggregate amount exceeding the amount of the capital stock.
This statute has been held a penal one and subject to a strict con-
struction against the liability. Under that construction the pro-
hibited debts have been held to be ordinary subsisting debts in
excess of the capital stock, and not the aggregate of the debts of
the company created during its entire corporate existence. The
prohibition applies to debts in excess of all the subscribed capital
stock, whether it has all been paid in or only part of it, and
regardless of the disposition which may have been made of it. A
purchase of mines for the full amount of the capital stock, to be
paid for in the stock of the corporation, a portion of which only
is paid in, does not make all debts thereafter created in excess of
the subscribed capital stock. The subscribed capital stock of a
corporation is the fund upon which the transactions of the corpo-
ration are to be made, and is a guaranty to creditors that all obli-
gations to that amount will be met ; but it cannot be considered
as a debt of the corporation, whether paid in or not, in estimating
the amount of indebtedness beyond which the directors of the
corporation may make themselves personally liable. Debts to be
thus considered are only those created by voluntary act of the
directors.^ The directors of a mining corporation are not ren-
dered liable for the penalty imposed by the statute of California
requiring the directors of such corporations, on the fii-st Monday
of each and every month, to post in the office of the corporation
a verified Ijalance sheet for the previous month, and providing
that upon their failure so to do they shall be liable in an action
by any stockholder in the penal sum of $1,000 for each failure to
comply with its requirements. It would seem that under the
provisions of the statute the stockholder or stockholders might,
at their election, proceed against the directors for a single delin-
quency, or might forbear to do so until more than one dereliction
of duty on the part of their trustees had occurred, but in neither
• Moore «. Lent, (1889) 81 Cal. 502; s. c, 22 Pac. Rep. 875.
384 PERSONAL LIABILITY OF 0FFI0EE8. [§ 239
event could more than one penalty be recovered.* The statute
of California requiring the directors and officers of mining cor-
porations to make and post an account or balance sheet on the
first Monday of each month has been held to be mandatory, and
the officers and directors of such corporations must be presumed
to know at all times the condition of the business and property
under their control, and in the absence of a showing of impossi-
bility to have made and posted the account as required, they can-
not avail themselves of any presumption that their duty has been
performed. Nor can they relieve themselves from liability to a
stockholder for liquidated damages under the statute by showing
that the account was posted after the time required by law and
the day before the commencement of the action.^
§ 239. Statutory liability — Colorado statutes. — The direct-
ors of a corporation, coming into office after an indebtedness has
been created against it, and after the previous board's default in
failing to file, as required by the statutes of Colorado, a report
showing the amount of the corporate indebtedness, will not be
held liable under the general statute which provides " that all the
directors or trustees of the company shall be jointly and severally
liable for all the debts of the company that shall be contracted
during the ye'ar next preceding the time when such report should
* * * have been made and filed, and until such report shall
be made." ^ A complaint against directors qf a corporation to
enforce their liability under the statutes of Colorado which makes
directors and trustees of corporations " liable for all the debts of
the company that shall be contracted during the year next pre-
ceding the time when such report should by this section have
been made and filed and until such report shall be made," refer-
ring to the annual report of the amount of its capital and the
proportion actually paid in, etc., must aver the contract of indebt-
edness, the default of the corporation and the directorship of the
defendants, and as of such dates to show the liability of the
defendants under the statute.*
" Loveland v. Gamer, (1887) 71 Cal. ton v. Otis, 21 N. Y. 361; Quarry Co.
541; s. c, 13 Pac. Kep. 616. v. Bliss. 37 N. Y. 399.
' Schenck v. Bandmann, (1889) 81 * Anfenger -o. Anzelger Pub. Co.,
Cal. 331; s. c, 38 Pac. Rep. 654. (1866) 9 Colo. 377; s. c, 13 Pac. Rep.
'AustlnD. Berlin, (1889) 13 Colo. 198; 400. As to construction of the Colo-
s. c, 33 Pac. Rep. 433 ; citing Bough- rado statutes imposing liability upon
§ 240] PERSONAL LIABILITY OF OFFICEKS. 385
§ 240. Statutory liability — Iowa statutes. — It must appear,
in order to render officers -of a corporation liable under the stat-
utes of Iowa for diversion of funds or paying dividends so as to
leave insufficient funds to meet liabilities, that the entire property
of the corporation is not sufficient to pay its indebtedness.' The
word " liability" in this statute means existing indebtedness, the
payment of which can be enforced. It does not include corpo-
rate liability for payments of capital stock, the liability being
remote and contingent.'' There being 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 be held illegal on
a diversion of funds to objects other than those authorized.^ ' 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.* 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.^ Under
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 fixed
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.^
oflBcers of corporations for failure to ' Ibid,
make certain annual reports, and for ' Ibid.
signing a false report knowing it to be * Hoffman v. Dickey, 54 Iowa, 135i
fa)se, see Matthews v. Patterson, (1891) ' White v. Hosford, 37 Iowa, 566.
16 Colo. 215; s. c, 36 Pac. Eep. 813. « Walker v. Birchard, (1891) 83
' Miller v. Bradish, 69 Iowa, 378. Iowa, 388.
49
386 PBESONAL LIABILITY OF OFFICERS. [§ 241
§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.' A tax is a debt within the meaning of
that statute.^ The directors and oflScers 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.' 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.* 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.^ On a bill brought to enforce this liabihty
by a judgment creditor, the plaintiffs may jorove, not only their
judgment debt, but a further sum due them on simple contract.'
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
' Pub. St. Mass. chap. 106, §^ 54, had examined and been misled by the
60. false certificate, as it should be if the
^ Felker v. Standard Yarn Co. , (1889) idea of the defendant were followed
148 Mass. 236; s. c, 19 N. E. Rep. out. It is not even limited to debts
220. and contracts which come into exist-
2 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
wltli 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 suflicient to show that the
false statements contained therein, legislature meant otherwise."
been misled into giving credit to the * Felker d. Standard Yarn Co., (1889)
corporation, and may not in any way 150 Mass. 264; s. c, 22 N. E. Rep.
be in] ured thereby . But in imposing 896.
the penalty of liability for its debts ' Thacher v. 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 * Ibid,
were created in favor of persons who 1 __
§ 242] PEESONAL LIABILITY OF OFFICEKS. 387
and other directors, may be compelled to pay towards the debts
of the corporation in consequence of such excess under this
statute.' The statute of Massachusetts making ofHcers of cor-
porations jointly and severally liable for the debts thereof, when
they exceed the capital, " to the extent of such excess existing at
the time of the commencement of the suit against the corporation
upon the judgment in which the suit in equity to enforce such
liability is brought," has had the consideration of the federal
court for the district of Yermont, 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.'" 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
'Ibid.; citing Potter ». Stevens purpose. Pollard?). Bailey, 20 Wall.
Machine Co., 137 Mass. 592; Thayer 520; Fourth National Bank «. Franck-
«. Umon Tool Co., 4 Gray, 75, 79; lyn, 120 U. S. 747; s. c, 7 Sup. Ct.
Merchants' Bank v. Stevenson, 10 Rep. 757. Such a liability under a
Gray, 233; Cambridge Water Works statute like this, before suit brought
i). 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, 403, and from which, by the prescribed course,
7 Allen, 489; First National Bank v. an obligation to pay may be raised.
Hingham Manufg. Co., 127 Mass. 563. Ripley v. Sampson, 10 Pick. 371;
« Knower v. Haines, (1887) 31 Fed. Bangs «. Lincoln, 10 Gray, 600. This
Eep. 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. Whenso created, it exists remedy. Windham Provident Inst,
only as created, and can be enforced v. Sprague, 43 Vt. 502."
only as provided by such statutes 'Laws Minn. 1873, chap. 11, § 33
when they make provision for that (Gen. Sts. Minn. 1878, chap. 34, § 142.)
388 PEESONAL LIABILITY OF OFFICEES. [§ 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,,
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.' 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 by 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.^
§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 «. Bailey Manufacturing Co., 34 Minn.
Minn. 84; s. c, 43 N. W. Rep. 926. 323; s. c, 25 N. W . Rep. 689; Allen v.
" Ibid. The court commented upon Walsh, 25 Minn. 543 ; Johnson i>.
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; Horner v. Henning,
neaota Plastic Slate Roofing Co., 16 93 U. S. 328.
Minn. 368; Merchants' National Bank
§ 244] PEESONAL LIABILITY OF OFFICEBS.
389
all that should be contracted so long as they continued in office,
etc., 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.' The debts for which
directors of a corporation will be held liable under this Missouri
statute are the debts voluntarily incurred by the directors.^ A
judgment against a corporation for damages for a loss of a steam-
boat, for instance, through the negligence of the agents and serv-
ants of the corporation would not be one of the debts contem-
plated by the statute.'
§ 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
' Anderson v. Blattau, 43 Mo. 43. , tended for the protection of sucli par-
The court distinguished Kritzer e. ties as really held debts against the
"Woodson, 19 Mo. 327, in these words: company. The stockholder, by dis-
" That was a case where a stock- charging an obligation which the law
holder in a corporate company sued imposed upon him, could not make
the directors to recover back an amount himself the creditor of the corpora-
which he had been compelled to pay tion. His claim was in no sense a
to the creditors of the company. The debt due by the company, and hence
law made him liable to the extent of it was not covered by the provisions of
double the amount of stock in the a statute made for a difEerent purpose
company. Its entire assets having altogether. This [claim in suit here]
been exhausted, he was compelled to seems to have been a debt contracted
pay the creditor of the company the by the company in the prosecution of
amount which he sought to recover in its business, and the liability of the
tha't suit upon the ground that the defendants cannot be affected by the
debts of the corporation had been fact that one of the plaintiffs was a
suffered to accumulate to an amount stockholder. Certainly the interests of
in excess of the capital stock actually his copartner ought not to suffer on
paid in. But the court said this account of his relation to the corpora-
statute was given for the protection of tion. The objection differs in no
creditors and not the individual mem- essential particular from any other
bers of the company. It is true that incurred by the company; and if it
for any improper management of the was due and owing to the stockholder
affairs of the company, by which a alone, we can see no good reason for
liability might be incurred on the part depriving him of the protection in-
of the directors to the individual mem- tended to be given to all creditors
bers, an action could be maintained alike."
against them. Such liability, how- ^ Cable v. Gaty, 84 Mo. 573, affirm-
ever, exists independent of this statute, ing Cable v. McCune, 26 Mo. 371.
It is clear that the point decided in ^ Cable v. Gaty, 34 Mo. 573, afflrm-
that case was that the statute was in- ing Cable v. McCune, 26 Mo, 371.
390 PERSONAL LIABILITY OF OFFICEKS. [§ 244
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,' 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
oiSee 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.^ 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.'
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.* Creditors i;esiding 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.' 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
' Laws N. Y. 1875, chap. 611, § 18. 826; citing Buffalo & Allegany Rail-
' Buck V. Barker, (Buffalo Super, road ». Gary, 36 N. Y. 75; Aspinwall
Ct. Spl. Term, 1887) 5 N. Y. St. Repr. «. Sacchi, 57 N. Y. 331-338; Meriden
826; citing Jones ii. Barlow, 62 N. Y. Tool Co. v. Morgan, 1 Abb. N. C. 125,
202; Cameron i). Seaman, 69 N. Y. 396, note.
402; Boughton v. Otis, 21 N. Y. 261; * Victory Webb Printing Co. v.
Garrison ». Howe, 17 N. Y; 464, 465; Beecber, (1881) 26 Hun, 48| affirmed
Quarry Co. i). Bliss, 27 N. Y. 297-300; in 97 N. Y. 651; followed in Carr v.
Chandler ». Hoag, 2Hun, 613; affirmed Risher, fl888) 50 Hun, 147.
in 63 N. Y. 624. s Sears v. Waters, (1887) 44 Hun,
2 Buck V. Barker, (Buffalo Super. 101.
Ct. Spl. Term, 1887) 5 N. Y. St. Repr.
§ 244] PERSONAL LIABILITY OF OFFIOEES. 391
been complied with in filing this report ; that the proceedings of
the board, in the matter of reducing the number of members,
concurred in by all having an interest in the corporation, effected
a practical reduction, and constituted the nine thereafter elected
a de jure 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 be raised in a direct proceeding by one
whose interests were affected. And the trustees as constituted
having complied with the letter and spirit of the law, in iiling the
i-eport, it was not competent in this action against them to enforce
a liability for non-compliance with the statute for plaintiff to show
that some of the acting trustees were not elected or for some rea-
son were disqualified from acting, or to claim that, by reason of a
non-performance or an irregularity in the performance of some
prior duty enjoined upon the stockholders, the board as con-
stituted had no authority to perform the general duties required
of them as agents of the corporation.' In a case 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 Court
for leave to file it and an order of the court that it be filed nunc
fTo tunc. 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.^ Under the construction of this section
of the statute, in Cameron v. Seaman,^ 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 was to
insure a speedy and public disclosure of the contents of the
report, it was said that the law, in the absence of an express pro-
' Wallace & Sons ». Walsh, (1890) '' Butler v. Smalley, (1886) 101 N. Y.
125 N. Y. 26; s. c, 25 N. E. Rep. 71.
1076. 8 69 N. Y. 396.
392 PERSONAL LIABILITY OF OFFICEES. [§ 244
vision on the subject, implies that both ffling 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
ease 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 the company with respect to the
filing of the report.' 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 ofiicial record that neither one of the trustees had resigned.^
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 V. Smalley, (1886), 101 N. = Westerfield v. Radde, (1884) 67
Y. 71, revg. 49 N. Y. Super. Ct. 492. How. Pr. 204. In Whitney i). Cam-
Danporth, 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. 300; aflBrmed
place it in good faith in the hands of in Whitney v. Cammann, (1893) 187 N.
the secretary for deposit in the clerk's Y. 342; s. c, 33 N. B. Eep. 305, the
office and in the office of a newspaper, court referred to Cameron «. Seaman,
is at least equal in significance to a 69 N. Y. 396, and Butler v. Smalley,
delivery of a report to n 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 anything 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-
specttheretoonitspart, 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."
§ 245] PERSONAL LIABILITY OF OFFICERS. 393
its business, is not required to make such a report, and no liability
under the statute attaches to the trustees for failure to make it.'
The statutes of New 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 that defendant was a trustee when the debt
was 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.^ A report made by the
trustees 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
accounts, etc., necessary to the business and for which stock to
the amount of the value thereof has been issued by the company,"
has been held by the Court of Appeals to be a suflicient compli-
ance with the requirement of the act ; further, that it is not neces-
sary, in the annual report required to be filed 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 trustees,
for instance, and the action be brought against two, the non-
joinder of the others would not constitute a defense.* In case a
defendant in such 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 file the report
required by the statute, the court held him liable on any such
default between the time of his election and his resignation ; also
' Kirkland v. Kille, (1885) 99 N. Y. ^ whitaker v. Masterton, (1887) 106
390. N. Y. 277, holding the action against
' Bruce d. Piatt, (1880) 80 N". Y. the trustees not maintainable. Citing
379. As to this statute being a penal Bonnell d. Griswold, 80 N. Y. 128,
statute, see Merchants' Bank D. Bliss, 35 135; Brackett ■». Griswold, 108 N. Y.
N. Y. 412; Garrison ». Howe, 17 N. Y. 425.
•458; Adams v. Mills, 60 N. Y. 536, * Halstead v. Dodge, (.18840 51 N. Y.
553; McHarg v. Eastman, 35 How. Pr. Super. Ct. 169; s. c, 1 How. Pr. (N.S.)
205; s. c, 7 Robt. 137. 170; citing Strong v. Sproul, 4 Daly,
50
394 PERSONAL LIABILITY OF OFFICEBS. [§ 245
that he was not exempted from liabiHty by reason of his not
being a stockholder.' 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.^ 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 aiSrmatively proved.' 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.* 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 trustees
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.'
326; Quigley «. "Walter, 2 Sweeny, (N. Y. Com. PI. Spl. Term, 1893) 5
175. Misc. Rep. 355; Smith v. Sage, (N. Y.
'Ibid. Super. Ct. Spl. Term, 1893) 5 Misc.
« Geisenheimer v. Dodge, (1884) 1 Rep. 357.
How. Pr. (N. S.) 364. * Morey v- Ford, (1884) 32 Hun, 446.
3 Bruce v. Piatt, (1880) 80 N. Y. 381 ; =■ Kraft i). Ooykendall, (1884) 34 Hun,
followed in Tovey -o. Culver, (1887) 54 385; citing Miller ». White, 50 N. Y.
N. Y. Super. Ct. 404. See, also. Mil- 137; Stephens i). Pox, 83 N. Y. 317;
ler ». White, 50 N. Y. 137; Whitney Rorke «. Thomas, 56 N. Y. 565; Jones
Arms Co. v. Barlow, 63 N. Y. 63. As v. Barlow, 62 N. Y. 302-205. Dissent-
to not being necessary to obtain a ing opinion of Danibls, J., in Tyng
judgment against the corporation be- «. Clarke, 9 Hun, 274; Esmond v. Bul-
fore action against trustee, see Green®, lard, 16 Hun, 67; affirmed in 79 N. Y.
Easton, (1893) 74 Hun, 339; s. c, 36 404; Whitney Arms Co. v. Barlow, 63
N. Y. Supp. 553. As to pleading in N. Y. 63. 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 v. Trotter, (Com.
Schwiud, (N. Y. Sup. Ct. Spl. Term, PI. N. Y.,'l894) 6 Misc. Rep. 77; s. c,
1893) 5 Misc. Rep. 305; Straus v. Sage, 36 N. Y. Supp. 30.
§ 246] PBESONAL LIABILITY 01' OFFICERS. 395
§ 246. What are and what are not " debts " for which
liability under this statute may arise. — An unliquidated
claim, arising out of a breach of contract of employment at the
time of the failure of a manufacturing corporation to file the
annual report required by the New York statute, is a debt within
the meaning of the statute imposing a personal liability upon the
trustees for all " debts " of a corporation which fails to file an
annual report.^ And in such 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.^ 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.' A judgment for costs, recov-
ered against 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.^ It seems, however, that in such a case it
would be open to the trustees sued to show that the recovery of
' Green v. Easton, (1893) 74 Hun, 329; to report. It may be inferred that it
s. c, 26 N. Y. Bupp. 553; citing New was the purpose of the lawmakers to
Jersey Ins. Co. v. Meel^er, 37 N. J. require this report to be made, pub-
Law, 300, 301; Frazer ». Tunis, 1 Bin. lished and filed for the information,
254-262; Mill Dam Foundry v. Hovey, -benefit and protection of existing
31 Pick. 417, 454, 455. creditors of the company not only, but
" Green «. Easton, (1893) 74 Hun, 329; of all persons who might thereafter en-
s. c, 26 N. Y. Supp. 553. ter into contract relations with it. It
^ Kirkland v. Kille, (1885) 99 N. Y. may also have been the purpose of the
390. lawmakers to require the report from
* Allen v. Clark, (1888) 108 N. Y. 269, every manufacturing corporation as a
revg. 43 Hun, 377. Eakl, J., said: check upon extravagance and misman-
"TMs judgment clearly was one of agement of its affairs by its trustees,
the debts which the company was by constantly keeping before them the
bound to include among its ' existing reminder that at least once a year the
debts ' in the report which it was re- affairs of the company are to be ex-
quired to make, file and publish within posed to the public view. It may also
twenty days after the 1st day of Janu- be supposed that the reports were re-
ary, 1886. The section requires the quired so that information might be
report to state the amount of all of its readily obtained by assessors for the
existing debts of every nature, and it purpose of taxation, and by other pub-
is the clear meaning of the section that lie officials who might have occasion to
if such report be not made the trustees supervise the conduct of the corpora-
shall be personally liable for all debts tion, or to proceed against it for any
which the company was thus bound purpose whatever; and, therefore, to
396 PEESONAL LIABILITY OF OFFICEES. [§ 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.' 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."^ 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.' 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.^ 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 j udgment, hy say^
these important purposes, the trustees ing : "The reason upon 'which that
are made personally liable for all the decision is based can hav6 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-
' Allen V. Clark, (1888) 108 N. Y. pendently of the judgment."
369. The court distinguished Miller « Allen v. Clark, (1888) 108 N. Y.
1). White, 50 N. Y. 137, where the judg- 269, 375.
ment was upon a debt antecedently ex- ^ Victory Webb Printing Co. v.
isting, in which case it was held that Beecher, (1881) 36 Hun, 48; citing Ovi-
the judgment was neither conclusive att i>. Hughes, 41 Barb. 541; Whitney
nor prima facie evidence of the debt. Arms Co. ■». Barlow, 68 N. Y. 34.
and that it was the duty of the plain- * Cornell v. Roach, (1886) 101 N. Y.
tiff to prove and establish his debt in- 373.
§ 247] PEESONAL I.IABILITT OF OFFICEES. 397
for what may, at a later date, by the terms of the contract with
the corporation, become a debt under that contract.' Under the
provision of the statute of New York that, for failure to file the
annual report of the capital and indebtedness of any corporation,
as therein prescribed, the trustees snail be liable for all debts of
the corporation then existing, or contracted before such report
be filed, the trustees 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.^ 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.*
Where the annual report required to be filed under the ISTew
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.* 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.'
§ 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,
■ Gold ». Clyne, (1890) 58 Hun, 419; « National Park Bank v. Eemsen,
s. c, 13 N. Y. Supp. 531; affirmed in (1890) 43 Fed. Rep. 226.
Gold «. Clyne, (1892) 134 N. Y. 362; s. ' Ibid.
c, 31 N. E. Rep. 980. For another il- ^Witherow v. Slayback, (1895) 11
lustration of circumstances as to the Misc. Rep. 536; s. c, 33 N. Y. Supp.
debt under which the trustees could 746.
not be held liable, see Sherman v. Slay- » Brandt i>. Godwin, (1889) 3 N. Y.
back, (1890) 58 Hun, 35.'^; s. c, 12 N. Supp. 807.
Y. Supp. ,391. Also, Chapman v. Corn-
stock, (1890) 58 Hun, 325; s. c, UN.
Y. Supp. 930.
398 PBESONAL 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 plaintifE ; 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
above stated.^
' Chase v. Curtis, (1885) 113 TJ. S. 453; against the defendants, but that every
s. c, 5 Sup. Ct. 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 ». Howe, 17 N. T. 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. i). 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. v. Hubbard, 101 IT. S. 188; Flash,
to be subjected to its liabilities." Mer- v. Conn, 109 U. S. 371. In the case
chants' Bank v. Bliss, 35 N. T. 413; last mentioned, this court, following
"Wiles V. Suydam, 64 N. Y. 173; East- the Court of Appeals of New York in
erly «. Barber, 65 N. Y. 252; Knox r. the case of Wiles'!). Suydam, 64 N. Y.
Baldwin, SON. Y. 610; Veeder ®. 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 v. 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 a,jnount
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. Piatt, 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 «a; coniracte, 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]
PEESONAL LIABILITY OF OFFICBES.
399
§ 248. Statute of New York — liability for creation of
debts in excess of capital stock. — Under the ISTew York
statute making the trustees of manufacturing corporations who
assent to the creation of an indebtedness exceeding the amount
of the capital stock personally liable for the excess/ the liability
strued liberally in furtherance of the
remedy; that the latter was for the
enforcement of a penalty, and subject
to all rules' applicable to actions upon
statutes of that description. The
distinction is illustrated and enforced
in Hastings v. Drew, 76 N. Y. 9, and
Stephens v. Pox, 83 N. Y. 313. The
present question involved here was
decided by the Court of Appeals of
New York in the case of Miller r.
White, 50 N. Y. 137. In that case the
complaint set forth the recovery of a
judgment against the company, but not
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 j udgment 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 Peckham, 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
trustees 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-
trustees 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 the
judgment prima facie evidence of the
debt as against the defendants.' "
This doctrine was repeated and reaf-
firmed by the same court in Whitney
Arms Co. r. Barlow, 68 N. Y. 63-72.
In that case 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 res
inter alios acta; 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 v. 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
and expressly cited and approved, and
either followed or distinguished from
the case under decision in the follow-
ing cases: Rorke v. Thomas, 56 N. Y,
559-565; Hastings v. Drew, 76 N. Y.
9-15; Stephens v. Pox, 83 N. Y. 813-
317; Knox V. Baldwin, 80 N. Y. 610-
618; Bruce v. Piatt, 80 N. Y 379-
381.
' Laws N. Y. 1848, chap. 40, § 28.
400
PBESONAL LIABILITT OF 0FFICEE8.
[§248
is one of contract and not of penal liability.^ And the trustees
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.^ 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, maltes 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
iiagitiousness 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."
^ Ibid. ; affirming, and reaffirming on
a rehearing, Patterson «. Robinson',
(1885) 36 Hun, 633. The court dis-
guished flornor v. Henning, 93 IT. S
328; Merchants' Bunk of Newburyport
V. Stevenson, 10 Gray, 333; Anderson
V. Speers, 31 Hun, 568. In Patterson
V. Robinson, (1885) 36 Hun, 632, the
court reasoned well to this conclusion,
and citeij as in harmony with their
views Wiles «. Suydam, 64 N. Y. 173;
Corning ». McCullogh, 1 N. T. 47;
Story «. Furmau, 25 N. Y. 233, and
Veeder «. Mudgett, 95 N. Y. 295; In
Patterson v. 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 ta
the contract liability of the company
for such excess of indebtedness the
personal and individual liability of the
§ 248] PERSONAL LIABILITY OF OFFIOEES. * 401
question was whether or not a director of a corporation organized
Tinder the statute^ 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 ofiicers 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.^ 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.' In a
case before the Supreuje 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
trustees assenting thereto, it added it confidence in this construction, he-
to the liability of the company where cause of our opinion that section 33,
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,
seemed to imply that the Mability of with safety to the creditors, be per-
the assenting trustees for such excess mitted to the company."
of indebtedness should be diverted ' Laws N. Y. 1875, chap. 611.
from the creditors to whom the com- ' Torbett v. Eaton, (1888) 49 Hun,
panyowed such excess, and be devoted 209; s. c, 1 N. T. Supp. 614.
to, or conferred upon, or shared among 'Patterson ». Kobinson, (1885)36
the creditors to whom the company Hun, 633,
did not owe it. And we had the more
51
402 PEESONAL LIABILITY OF OFFIOEES. [§ 249
to the management of its business, or participated in its afEairs,
except to sign its annual 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.^ 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 New 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.^ 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.^
§ 249. Liability for incurring indebtedness in excess oi
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 coi»-
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
■Ibid. As to what is a properly & Wright Co., (1891)61 Hun, 619; s.
stated cause of action against directors c, 15 N. Y. Supp. 378.
under the statute of New York (Laws ' MoClave e. Thompson, (1885) 36
N. Y. 1875, chap. 611, § 22), which Hun, 365.
imposes a personal liability for an '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 v. Barber, 65 N. Y. 355;
any time exceed the amount of its Knox v. Baldwin, 80 N. Y. 610.
capital stock, see Loveland r. Doran
§ 249] PERSONAL LIABILITY OF OFFICEES. 403
by the creditors of these directors.' The same court, in a com-
paratively recent 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.
This 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 v. Taylor, (1890) 133 debts beyond the amount of Its capital
111.197. Arguendo, it -was saiA: "In stock. [The quoted section] of our
the absence of statutory prohibition it statute does not prohibit the contract-
is not unlawful for the officers of a ing of indebtedness in excess of capital
corporation to contract debts in excess stock; neither does it in terms inflict a
of its capital stock. Unless restricted penalty for so doing. Therefore, a
by statute, corporations, as Individ- prohibition cannot be implied, and to
uals, may contract debts to the full say, as counsel insist should be done,
extent of their credit, without refer- that the assenting is made unlawful by
ence to the amount of their capital the infliction of a penalty, is to assume
stock. Neither is it, under all clrcum- the very question controverted. While
stances, bad management in a corpo- it is true that statutes of other states
ration to contract debts in excess of the making officers of corporations indi-
amount of its capital stock. Its assets vidually liable for contracting debts
may be of such value as to give it beyond a prescribed limit have been
credit, and warrant the incurring of held to be penal, the language of those
liabilities far beyond that amount, statutes will be found materially dif-
While statutes in some states, by dif- ferent from ours, and so far as we have
ferent forms of language, limit the been able to ascertain expressly pro-
right of such officers to contract in- hibit the incurring of liabilities bey ond
debtedness beyond prescribed limits, certain limits fixed. In Hornor et al.
in others no restriction whatever has v. Henniug etal., 93 TJ. S. 228, theSu-
been enacted, and in many of those in preme Court of the United States, in
which a limit is prescribed the indebt- passing upon an act of congress regu-
edness which may be contracted is not lating corporations in the District of
limited by the amount of capital stock, Columbia, the language of which is
but may equal twice or three times almost identical with that of our stat-
that amount. If, therefore, such en- ute, it was held that the act was not
actments are to be understood as indi- penal, for reasons which we think un-
cating that it is deemed unwise to allow answerable. We followed that decis-
corporations to incur liabilities beyond ion in Low v. Buchanan, 94 111. 76, in
a prescribed limit, it must be admitted holding that the liability created by
that the sentiment is by no means har- [our statute] could only be enforced in
monlous as to where the limit should be chancery, and this is, in effect, decid-
placed. These statutes do not, there- ing that the action is not for the recov-
f ore, indicate, as contended by counsel ery of a penalty. ' It is a universal
for appellees, that legislatures have rule in equity never to enforce either a
considered it bad management in the penalty or a forfeiture.' 2 Story's Eq.
affairs of a corporation to contract Jur. § 1819; Queenan v. Palmer 117
404:
PEESONAL LIABILITY OF OFFICEES.
[§24^
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. "^ In a case where it was sought to enforce
may be founded on sound principles of
justice and expediency.' In Neal v.
Briggs, 13 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."
' 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 afEairs. Purchases and sales were
HI. 619. In Morawetz on Corporations
(Vol. 3, § 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 arose 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, n. 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,
I 249] PERSONAL LIABILITY OF OFFIOEES. 405
the 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 held 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 hy application to them of the maxim
him at his discretion. The directors, respondeat superior, and to make his
having full confidence in him, and acts and assent the acts and assent of
recognizing the preponderating influ- the directors. This position is clearly
ence to which the ownership of three- untenable. The directors, though the
fourths of the stock of the corporation governing body of the corporation, are
seemed to entitle him, allowed him to only its officers and agents, and any
manage the business substantially as subordinate agent appointed by them
he pleased, and failed to keep them- or acting by virtue of their sufferance
selves informed as to the financial situ- or recognition, does not thereby be-
ation. That in all this they were come their agent but the agent of the
grossly recreant to their legal duties as corporation. His acts are the acts of
directors and officers of the corpora- the corporation so as to make it liable
tion goes without Saying. But whether for debts or obligations incurred by
they thereby incurred the statutory him on its behalf, but they are not the
liability for the debts of the corpora- acts of the directors unless commanded
tion in excess of the amount of the or authorized by them. The fact that
capital stock presents quite another the directors might have interfered to
question. The provisions of the stat- prevent [this manager] from running
ute are as follows: 'If the indebted- the corporation in debt beyond the
ness of any stock corporation shall amount of its capital stock, or that
exceed the amount of its capital stock they failed in other respects to perform
the directors and officers of such cor- their appropriate functions, may be
poration assenting thereto shall be per- charged against them as negligence,
sonally and individually liable for such but it fails to establish their assent to
excess to the creditors of such corpo- the indebtedness thus contracted. In
ration.' It should be observed that the Woolverton v. Taylor, 133 111. 197, the
statutory liability is not predicated statute sought to be invoked here was
upon the negligence of the directors or under consideration, and we there held
officers in the discharge of their official that while the liability imposed is not
duties, but upon the fact of their ha v- penal but contractual, it is like that of
ing ' assented ' to the indebtedness a surety, and, therefore, stricti juris.
which constitutes the excess over the This being the case, the statute should
amount of the capital stock. The con- receive a construction in consonance
tention of the complainants seems to with the nature of the obligation im-
be that as the board of directors is the posed. The words employed should
governing body of the corporation, be interpreted according to their plain
their constituting [one of their num- and obvious meaning, and should not
ber] its general financial agent, either be extended by construction so as to
by appointment or by sufferance, made embrace cases not clearly within the
him their agent so as to warrant an terms of the statute. The liability is
406 PEESONAL LIABILITY OF OFFICEES.^ [§ 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 time 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.'
§ 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 sucli 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.^
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 ore- so far as is in their power, provide for
ation. Manifestly, a recognition of the its payment."
indebtedness by the directors after it ' Lewis i>. Montgomery, (1893) 145
has been so contracted as to become 111. 30.
binding upon the corporation, should ' Hornor 11. Henning, (1876) 93 U. S.
not have the effect of charging them 328. Mr. Justice Milleu, speaking
■with this statutory liability. After for the court, said; "We are of opinion
§ 251] PEESONAL LIABILITY OF OFFICERS. 407
§ 251. New York statute — liability for false statements
in certificates, etc., filed. — It is entirely immaterial whether
the creditor of the corporation relies upon the certificate filed by
the officers or not. As long as the trustee knows the certificate
to be false, and the debt is thereafter contracted while he is an
officer of the company, it comes within the provisions of the stat-
ute making the trustees liable on account of the false statement
in the certificate.' The plaintiff in such actions must establish that
the certificate filed was in point of fact false, and that the trus-
tees signed it with knowledge of its falsity.^ Renewal notes
given after the filing 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 directors
and officers liable for the debts of the corporation.* 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.* The constitutionality of
that the fair and reasonable construe- number and names of the creditors,
tion of the act is that the trustees who fhe amount of their several debts, to
assent to an 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 had 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-
for the benefit of all the creditors who eqiial 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 Ue at the
debts. The remedy for this violation foundation of the statute."
of duty as trustees is in its nature ' Ferguson «. Gill, (1893) 64 Hun,
appropriate to a court of chancery. 284; s. c, 19 N. Y. Supp. 149.
The powers and instrumentalities of 'Ibid,
that court enable it to ascertain the ^ Ibid,
excess of the indebtedness over the " Richards c. Crocker, (N. Y. City
capital stock, the amount of this Court, Spl. T. 1887) 19 Abb. N. C.
which each trustee may have assented 73. Judge Rapallo in Pier v. Han-
to, and the extent to which the funds more, 86 N. Y. 101, says of the p'ur-
of the corporation may be resorted to pose of this statute: "The purpose
for the payment of the debts; also the for which the annual reports are re-
408
PEESONAL LIABILITY OF OFFICERS.
[§251
the New York statute has been sustained by the Court of
Appeals.* 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.^ 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 thattbe 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 ®. 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 afEeot 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 ». God-
win, (1891) 62 Hun, 407, 411; s. c, 17
N. T. Supp. 46; 37 Abb. N. C. 444,
Bakrett, J. , as to the construction to
be given to the section imjiosing 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 false-in any material ' representa-
tion.' Representation implies an ob-
ject addressed. Representations to
whom, then? Plainly to apy 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 xmMic notice given by the officers
of theicompany. 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.
' Huntington «. Attrill, (1890) 118
N. Y. 365; s. c, 23 N. E. Rep. 544.
' Ibid.
§ 251] PEESONAL LIABILITY OF OFFICEES. 409
sense applicable to criminals. They may be governed in reach-
ing a satisfactory result by the fair preponderance of evidence.-'
The false representation alleged in this case was that the direct-
ors had represented in their report that the whole capital stock,
$700,000, had been paid in. The whole stock v^as 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 Ifew Tork 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.^ 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.^
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.* 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 be violated in respect to the issuing
of stock in payment for property unless such persons in bad faith
' Ibid. " Hatch v. Attrill, (1890) 118 N. Y.
' Ibid. 383; s. c, 23 N. E. Kep. 549.
» Ibid.
62
410 PEESONAL LIABILITY OF OFFICEES. [§ 252
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, he would be liable.' 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 rep-
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.^ 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.*
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.*
§ 252. Illustrations. — A statement in such a report that cer-
tain persons are stockholders in the corporation, and that the
1 Van Vleet ». Jones, (1894) 75 Hun, ' Arthur ». Griswold, (1874) 55 N.
340; s. c, 36 N. Y. Supp. 1086. Y. 400.
« Wakeman v. Dalley, (1873) 51 N. " Ibid.
Y. 27; s. c, 10 Am. Eep. 551, affirm-
ing 44 Barb. 498.
§ 262] PEESONAL LIABILITY OF OFFIOEES. 411
amount of their stock has been already paid, when in fact such
persons are not stockholders at all, woaJd be " false in a material
representation."^ That defendant signed such report 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 appeared in a New York
case that one who was named in the annual report made by the
corporation under the requirements of the statute as one of the
stockholders was riot 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 th^t 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 been 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 v. Godwin, (City Court N. upon the transactions or dealings of
T., Spl. Term, 1889) 3 N. Y. Supp. creditors with the corporation And
807. for that reason these statements could
' Ibid. not be assumed to be, as^ they appear
' Walton V. Godwin, (1890) 58 Hun, to have been in the charge of the court,
87; s. c, 12 N. T. Supp. 436. Dan- materially false statements rendering
iBLs, J., said: "This slight discrep- the officers who signed the report
ancy or difference in so large an liable for its debts."
amount would have no effect whatever
4] 2 PEESONAL LIABILITY OF OFFICEES. [§ 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.^ In
an action against trustees of a manufacturing corporation to
enforce the liability imposed by the statutes of New York ^ 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,' 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.'' 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." ' The trustees of a manufacturing corporation
'Blake v. Griswold, (1886) 103 N. T. «Bonnell ». Griswold, (1882) 89 N.
439. The court distinguished Lake Y. 122; rule declared in Pier «. Han-
Superior Iron Co. «. Drexel, (1892) 90 more, 80 N. Y. 128.
N. Y. 87. s Ihid., in which it was held that
* N. Y. Laws 1848, chap. 40, § 15. where the stock of the corporation
' N. Y. Laws 1853, chap. 333. was actually paid in in cash, the mere
§ 252] PEBSONAL LIABILITY OF OFFICERS. 413
would not incur the liability imposed upon them by the stat-
utes of New York * 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
time the report was made.^ The liability of a director of a cor-
poration formed under the New York statute^ 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.* 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.' The
officers of a corporation 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 the
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 «. Thurber, (1888) 50 Hun,
value did not call for or authorize a 359 ; following Brackett v. Griswold,
statement in the report that the stock 103 N. Y. 435.
had been paid for in property. See, " Attrill v. Huntington, (1889) 70
also, Wickens v. Foster, (1885) 33 N. Md. 191; s. c, 16 Atl. Rep. 651; citing,
Y. Wkly. Dig. 436. in support of the holding, Flash v.
' N. Y. Laws 1848, chap. 40, § 15. Conn, 109 U. S. 376; "Wisconsin v.
'Butler ». Smalley. (1885)101 N. Y. Pelican Insurance Co., 127 U. S. 390.
71.
414 PERSONAL LIABILITY OF OFFICERS. [§§ 253, 264
certificate as to the stock was held to be a false one withm the
letter and the spirit of the statute.'
§ 253. Statutory liability — Rhode Island statutes. — The
statutes of Khode 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.^ So, aU
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 excess, nor for judgments
against the corporation founded on such torts.^
§ 254. Statutory liability — various states. — The statutes
of Indiana provided, as to such corporations as the one involved
" Chittenden -o. 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, §§ 3, strued, covered a liability incurred by
3, 4. the infringement of a patent, or, in
'Pub. St. R. 1. 1882, chap. 155, § 15; other words, a liability for tort. Judge
Leighton v. Campbell, (1890) 17 R. I. Stout, 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-
1). Hovey, 21 Pick. 417, 455, and Carver ing the liability was to be regarded as
1). 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 v. 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.
§254]
PERSONAL LIABILITY OF OFFICEES.
415
in a case before the Supreme Court of that state, as follows:
" The capital stoct, as i&xed hy such company, shall be paid into
the treasury thereof within eighteen months from the incorpora-
tion of the same." " If any coinpany organized and established
under the authority of this act, and of the act to which this is
supplementary, shall violate any of the provisions thereof, and
shall thereby become insolvent, the directors 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.* A protest, not in writing, by a
director of a gravel road company, before the board against the
contracting of debts in excess of its solvent stock, will absolve
Justice Story stand unsupported by
any direct authority, either before or
since.' There are cases of other states
in which it has been held that the
words ' debts contracted ' do not sub-
ject the corporators to liability for the
torts of the corporation. Heacock v.
Sherman, 14 Wend. 58; Bohn«. Brown,
33 Mich. 257; Cable «. McOune, 26
Mo. 371. In the case at bar, however,
the question relates not to the cor-
porators, but to officers, under pro-
visions relating to them exclusively as
such, imposing duties on them, and
making them liable in case they reject
or refuse to perform them. These pro-
visions, as contradistinguished from
the provisions in regard to corpora-
tions, are deemed to be penal, and for
that reason to be strictly construed.
Chase v. Curtis, 113 U. 8. 452. We do
not think that any court would hold
that tlie words ' debts contracted,' if
strictly construed, would cover un-
liquidated claims for damages arising
ex delicto. Child d. Boston & Fair-
haven Iron Works, [187 Mass. 516]."
As to the contention that the claim had
been reduced to judgment, and thus
become a debt of the corporation, it
was said: " The New York cases, under
statutory provisions similar to ours,
hold that, in that state, the trustees of
corporations are liable, if at all, only
on the original claim, and that a judg-
ment against the corporation thereon
has no effect as against them. Miller
!'. White, 50 N. Y. 137; Whitney
Arms Co. «. Barlow, 63 N. Y. 62; Es-
mond V. Bullard, 16 Hun, 65. It has
been held in other states that the re-
duction of a claim for damages against
a corporation arising ex delicto to a
judgment does not chaiige its char-
acter as against the delinquent officers,
so as to charge them thereon as for a
debt contracted by the corporation.
Cable «. Gaty, 34 Mo. 573; Bohn «.
Brown, 33 Mich. 257; so, also, by the
Supreme Court of the United States,
Chase v. Curtis, 113 U. 8. 452;" citing,
also, Whitaker v. Masterton, 106 N.
Y. 277, 280, upon some points.
' Clow V. Brown, (1892) 134 Ind. 287;
s. c, 33 N. E. Rep. 1126.
416 PBKSONAL LIABILITY OF OFFICERS. [§ 254
him from liability on account of such contracting of debt.^ 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.' The failure of a
majority of the directors of a corporation to iile 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.' 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 tiling 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.* Officers of a corporation certifying that the capital
' Schofleld V. Henderson, (1879) 67 future period; something which might
Ind. 358. be the subject of a suit as a debt, and
' Aimen «. Hardin, (1877) 60 Ind. 119. not something to which the party may
' Van Etten a. 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. 317. 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 * Gans v. Switzer, (1890) 9 Mont. 408;
which one person is bound to pay s. c, 34 Pac. Rep. 18.
another, either presently or at some
§ 254] PEESONAL LIABILITY OF OFFICEKS. 417
stock of the company is paid in, when in fact it is paid in prop-
erty of an uncertain value, will be liable under the JSTew Jersey
statute making them liable for the debts of the corporation in
case they falsely certify that the capital stock has been paid in.'
The statute of Yermont making the directors of a private corpora^
tion liable for all " debts contracted " before the publication of its
articles of association, has been held not to embrace all contracts
entered into by the corporation before such 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 indebtedness
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 excess to
the creditors of the corporation.' A statute of Vermont (R. L.
Vt. § 32T9) 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 3278
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 ease 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 organized, and that he was
a director, he was held to be estopped from making this defense
' Waters v. Quimby, 3 Dutch. (N. * Cady v. Sanford, 53 Vt. 633.
J.) 198; afflnned in 4 Dutch. 533. * National Banlc v. Paige 58 Vt 452
58
418 PEESONAL LIABILITY OF OFFICEES. [§ 255
and to be liable under the statute.' "Debts contracted" for
which negligent officers of corporations, under Connecticut stat-
iites, may be held liable, must be debts of the corporation in favor
of some one who gave it credit.^ 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
80 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.^
The United States Supreme Court has held that the remedy in
the courts of the United States to enforce the personal liabihty
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.*
§ 255. Liability of directors or ofificers under an English
statute. — An English statute provided that if it appears, in the
' Corey ». Morrill, (1889) 61 Vt. 598; amount of the capital stock actually
s. c, 17 Atl. Rep. 840. paid in; facts wMch the directors, upon
^ 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,
^ Slaymaker's Admr. v. JafiEray & in a proceeding which shall conclude
Co., (1886) 83 Va. 846. all who have an adverse interest, and
* Stone «. Chisolm, (1885) 113 U. S. a right to participate in the benefit to
302; s. c, 5 Sup. Ct. Eep. 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 lia- mined differently by juries in several
toility 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 v. Henning, 93 U. S. 328.
§ 255] PERSONAL LIABILITY OF OFFICKES. 419
course of wmding up any company, "that any past director,
manager, official or other liquidator, or any officer of such com-
pany, has misapplied or retained in his own hands, or become lia-
ble or accountable for any moneys of the company, or been guilty
of any misfeasance or breach of trust in relation to the 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 account-
able, together with interest, aftef^such rate as the court thinks just,
or to contribute such sums 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 conffict with his plain duty, and the burden of proof lies on
the party making the charge, but in considering the question of
the director's liability, there 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
idlyra vires the company, and that their liability was not depend-
ent upon any question of honesty of intention.^ 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 loltra 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 investment 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. He was, also, in the
chair at the next general meeting of the company, and then
' 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 uli/ra
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.' It was held that as
to one idtra vires investment these directors, being considered in
these matters of liability, by the courts, in the light of trustees,
were entitled to the benefit of the English Statute of Limitations
with reference to trustees.^ 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 seveuty 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 thei-e 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.^ In another case of
a winding up of an English company, it appeai-ed 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
• In re Lands Allotment Co. . Law ' In re "Washington Diamond Mining
Bep. (1894), 1 Ch. 616. Co., Law Rep. (1893), 3 Ch. 95.
'Ibid.
§ 255] PERSONAL LIABILITY OF OFFICEBS. 4:21
was one of the first directors. The agreement between the four
and the trustee 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
the 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 on the ground of the directors, or any of them, being
vendors or promoters of the company, nor should they be account-
able for benefits secured to them. The trial justice held that this
director was liable to contribute to the assets of the company a
sum equal to the nominal amount of the shares issued to him and
to the other party, on the ground of his misfeasance as a director
in accepting the shares allotted to himself, and in allowing the
shares of the other party to be issued to him. The Court of
Appeal held, affirming the decision of the trial justice, that,
although if these parties had been honafide owners of shares in
the leased quarry, and had agreed to sell their interests for shares
in the company, the transaction could not have been impeached,
the insertion of their names as vendors, when they had no real
interest in the property sold, was a device for enabling them to
get fully paid-up shares for their services in the promotion of the
company, and that the issuing of those shares was a misfeasance
on the part of the directors, and that, as it was not known to the
company that these parties were not really vendors, the clause in
the articles was no protection to the director.' In another Eng-
lish case it appeared that the directors of a company having power
to lend money and to promote other companies, passed a resolu-
tion that a cheque for £250 should be drawn in favor of a third
party, for a loan to him of that amount, on certain security. The
cheque was drawn and handed to the solicitor of the company,
who gave it to the payee without receiving the security. The
directors passed a second resolution that a cheque for £1,000
should be drawn in favor of the same party for a loan to him of
that amount on security of {inter aUa), a contract, the date of
which and the names of the parties to which, were left in blank
' In re Westmoreland Green & Blue Slate Co. , Law Rep. (1893), 2 Ch. 612,
422 PERSONAL LIABILITY OF OFFICERS. [§ 255
in the resolution. This cheque was, also, drawn and handed to
the solicitor of the company, who gave it to the payee without
obtaining the security. The directors knew the nature of the
contract, and that it related to a company which the payee of the
cheque was bringing out, and the existence of which the directors
believed to be for the beneiit of their own company, and they
advanced the £1,000 to assist him in bringing out the new com-
pany. The company afterwards sued this party for the amount
of the loans, recovered judgment against him, but never realized
anything on the judgment. In the winding up proceedings of
the company, it becoming insolvent, the liquidator, under the
English statutes, sought to charge the directors with the sums
loaned. Yaughan "Williams, Justice, held that the directors,
having exercised judgment and discretion, were not liable for
misfeasance or breach of trust in relation to the company.^ One
who was requested by the promoter of a projected company to
become a director, agreed to do so upon the terms that, if he
should at any time desire to part with the shares which he was to
take in order to qualify him as director, the promoter should pur-
chase them from him at the price he should pay for them. The
company was subsequently formed and he became a director,
took the qualification shares, and paid for them at par out of his
own money, and from time to time acted as director, but he
never disclosed to his co-directors or to the company, the exist-
ence of his agreement with the promoter. He afterwards
resigned his office as director, and subsequently to his resignation,
the promoter, at his request, paid to him the sum which he paid
for the shares, and accepted a transfer of them. At this time
the shares were valueless in the market. The English Court of
'In re New Mashonaland Explora- such directors are guilty of misfeasance
tion Co., Law Rep. (1892), 3 Ch. 577. To use [counsel's] words, if the direct-
Referring to the statute, section 10 ors did not bona fide exercise their dis-
(Winding Up) Act, 1890, the justice cretion and judgment as agents of the
said: "It has been said that you can- company, that is misfeasance within
not bring directors within the section, the meaning of the section. I shall
unless they have been guilty of a mis- adopt that construction with the ex-
feasance in the nature of a breach of ception of the words bona fide, and
trust; but, be that as it may, it is plain hold that, in oi'der to make the directors
that if directors are guilty of such neg- liable, you must be able to deny that
ligence that it cannot be said that in do- they did really exercise their judg-
ing what they did they attempted to ment and discretion in this way."
perform their duty as directors, then
§ 255] PEESONAL LIABILITY OF OFFICEES. 4:23
Appeal, in a proceeding under the Winding D p Act, to charge
him as director, held that, having regard to his position as director
of, and, therefore, agent for, the company, whatever henefits or
profits accrued to him under the indemnity constituted by his
secret agreement with the promoter belonged to the company,
and that the retention by him of the proceeds of the indemnity
occasioned a loss to the company for which he was accountable,
with interest.'
' In re North Australian Territory to its promoters, under an agreement,
Co., Archer's Case, Law Rep. (1893), fully paid-up shares. Some of these
1 Ch. 322. LiNDLET, Lord Justice, shares were given by one of the pro-
In his opinion quotes from Mbl- moters to Sir Edwin Pearson, one of
LiSH, Lord Justice, in Hay's Case, the directors, on his qualification.
Law Rep., 10 Ch. 593, 601, these The company, therefore, got all they
words: "There is no douht about the stipulated for, all the shares that they
rule of this court, that an agent can- issued and which were in Sir Edwin
not, without the knowledge and con- Pearson's hands, having been, by
sent of his principal, be allowed to agreement, issued as fully paid up,
make any profit out of the matter of and yet, because he ought not to have
his agency, beyond his proper remu- taken those fully paid-up shares, but
neration as agent. It is perfectly-set- ought to have paid the amount which
tied law that that rule applies, with was not payable by reason of the bar-
peculiar stringency, to the directors of gain between the company and the
joint-stock companies, who are the promoters, he was held liable to make
agents of the company for effecting good, and treat the shares as if they
the sales or the purchases made by the had not been paid up at all. It might
company." Fbt, L.- J., in his opinion, be said in both these cases (in Hay's
said: "In Hay's Case [Law Rep., 10 case the payment was by the vendors,
Ch. 593], the company agreed to pay and in Pearson's case the payment
a sum of money to the vendors of the was by a promoter), that the company
property. On one day they were pay- lost nothing by the money in the one
ing a sum of £58,000, in part paj'ment case, and the shares in the other,
of that purchase money; cheques reaching the hands of the director,
were drawn in favor of the agent of but the court said in each case that,
the vendors, and one of these cheques because the director was accountable,
was indorsed over to Sir John Hay, the company were losers to that ex-
and cashed by him. The company, tent. * * * On principle, I think
therefore, were making a payment the two cases to which I have referred
which they were bound to make, and are not distinguishable from the pres-
they lost nothing, in one sense, by Sir ent." As to the liability, under this
John Hay receiving that money. The English statute, of a trustee or man-
only loss they sustained was by Sir ager of a savings bank, to pay an
John Hay not accounting for it when adequate sum towards the assets of
he got it. It appears to me there was, the bank by way of compensation for
therefore, exactly the same loss in any loss occasioned to the bank by his
that case as there is in the present neglect or omission, see In re Cardiff
case. Again, in Pearson's Case [5 Ch. Savings Bank, Davies' Case, (1890) 45
Div. 336], the same observation can Ch. Div. 537.
be made. The company there Issued
CHAPTER VII.
ULTRA VIRES — PUBLIC CORPORATIONS.
256. Issue of negotiable securities.
357. Borrowing money by school
districts.
358. 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.
360. Employment of an agent to
negotiate bonds.
861. Investment of sinking funds.
262. Contract with corporation at-
torney for legal services.
363. Discount of its warrants by a
corporation.
264. Illustrations of ultra vires
contracts.
365. Estoppel of a public corpora-
tion to deny its liability on
an ultra vires contract.
366. 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.^ 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.^
' People ex rel. v. Johnson, 100 111. city were discussed by the courts, and
537; People ex rel. v. Kingsbury, 100 the powers thereunder given were de-
111. 509; People ex rel. v. La Salle clared in the opinion. Thateb, J.,
County, 100 111. 495. said: " [The city] had [the] right [to
' Bangor Savings Bank v. 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
§257]
ULTKA VIEES PUBLIC COEPOKATIONS.
425
§ 257. Borrowing money by school districts. — As a gen-
eral rule a corporation, either public or private, has an implied
power to borrow money for objects expressly authorized by the
statute by which it was created and endowed with corporate
powers and privileges, but if such power is expressly or by
city council * * * 'to open, es-
tablish, vacate and widen streets, 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 contract with [the firm]
to purchase the lands in question, and
to render the services 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
agree with them, that the sn-called
' certificates of indebtedness ' are in
reality negotiable bonds or notes,
which, 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 is ex-
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 com-
mercial paper and put the same on the
market from the fact that it is ex-
pressly authorized to borrow money.
' To borrow money,' say the court,
'and to give a bond or obligation
therefor which may circulate in the
market as a negotiable security, freed
54
from any equities which may be set
up by the maker of it, are, in their
nature and in their legal effect, essen-
tially different transactions. Merrill
«. Town of Monticello, 138 U. 8. 673;
s. c, 11 Sup. Ct. Rep. 441, 448. See,
also, Claiborne Co. v. Brooks, 111 U. S.
400, 486; s. c, 4 Sup. Ct. Rep. 489;
Police Jury v. Brittou, 15 Wall. 566;
Toung V. Clarendon Township, 133
U. S. 340; s. 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, 1887,' which is notice to the holder
of the provisions of that contract.
No question of estoppel or touching
the superior rights of a transferee for
value can arise in this case. The
point to be determined is simply
whether the city of Stillwater had any
authority, under its charter, to issue
negotiable bonds to [this firm] for the
land to be procured and the services
to be rendered, and this question we
think must be answered in the nega-
tive. By [a 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 the current
revenue only.' It is obvious, we
think, that the issue of bonds to [this
firm], under the circumstances acdfor
426
TJLTEA VIBES PBBLIO COEPOEATIONS.
[§25T
implication denied by such statute, then no sach 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.* 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 cqn-
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? [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 schoot houses.
These provisions do undoubtedly con-
fer broad and comprehensive powers
upon township trustees, and were
there no restrictive ijrovisious 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
i-eceive 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]
TTLTEA VIRES PUBLIC COEPOEATIONS.
427
money is thus borrowed for a school township district by its trus-
tee, and actually and rightfully expended for the benefit of the
school corporation it will be liable for the amount.^ In a later
case the Indiana Supreme Court adhered to the ruling that the
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 whicli school
revenues are derived are created and
defined by law, and it is from these
sources only that the trustee has a
right to secure money for school
purposes."
'Wallis V. Johnson School Town-
ship, (1881) 75 Ind. 368. See, also,
Bicknell «. Widner School Township,
73 Ind. 501. Where the money hor-
rowed was actually used in paying for
a school house, the township was held
liable as " for money had and received,
which was applied to the lawful use
of the township."
'Union School Township «. First
National Bank of Crawfordsville,(188o)
103 Ind. 464; citing in addition to
the two cases last cited. First National
Bank ». Union School Township, 75
Ind. 361; Pine Civil Township «.
Huber Manufacturing Co., 83 Ind.
131; Eeeve School Township v. Dod-
son, 98 Ind. 497. Upon this point it
is said by the court in Union School
Township v. First National Bank of
Crawfordsville, (1885) 103 Ind. 464,
475: " It is true that we have held
that where the money received on
notes executed in the name of the
school corporation goes to pay for
property received by it, the person
advancing the money will be subro-
gated to the claim of the person who
actually furnished the property, but
we have steadily held that it is only in
cases where the school corporation
actually received the property pur-
chased, that subrogation can take
place. It is well known that subroga-
tion arises, not by contract, but by
force of equitable principles, and only
in cases where good conscience re-
quires that it should take place in
order to prevent injustice." Upon the
subject of estoppel, it was said: " It
is a fundamental principle that a gov-
ernmental corporation is not estopped
by the act of an officer in cases where
the act is beyond the scope of his au-
thority. Public corporations stand ou
an essentially different ground from
private ones, and other rules which
apply to the one class do not apply to
the other in cases where the doctrine
of ultra vires is invoked. Driftwood
Valley Turnpike Co. v. Board, etc., 73
Ind. 336; Cummins ». City of Seymour,
79 Ind. 491, 497; s. c. 41 Am. Rep.
618. But the power of a school cor-
poration is much more limited than
ordinary public corporations, for there
is no general power to incur debts or
execute evidences of indebtedness,
and, certainly, no such power exists
where the school trustee is provided
with money from the school revenues.
The school corporation is, in truth,
one of unusually limited powers, for
the only source from which it can
derive money is the school fund or
school revenues, and, strictly speak-
ing, its only power is to receive and
disburse the funds allotted to it."
428 ULTEA YIEBS PUBLIC COEPOEATIONS. [§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 and 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 file when the con-
tract is made imder 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.^
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 sufiicient to cover all the liability incurred by the
contract and payable during 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.^ The United States Circuit Court for
' Rogers v. 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, 37 Minn. 64; s. c, here involved is disposed of in the
6 N. W. Rep. 411. cases of Johnston ». County of Becker,
''Kiiciili V. City of Minneapolis, 37 Minn. 64; s. c, 6 N. W. Rep. 411,
(Minn. 1894) 59 N. W. Rep. 1088. and Rogers «. 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.
§ 259] ULTEA VIEES PII8LI0 C!OEPQEATION& 429
the western district of Missouri has held that the charter pro-
vision forbidding the council of a city to appropriate 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 shall first be appropriated for the hquidation of all
liability flowing therefrom, did not apply so as to prevent the
council accepting a devise of lands for a public park, subject to
an annuity to the widow of the devisor 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 devise,
or by actual purchase, to be paid for out of the general funds in
annual installments.*
§ 259. Incurring a debt w ithout provision by taxation for
interest and sinking fund. — A city in Texas contracted for the
building of a bridge, agreeing to pay a certain sum therefor, one-
half on delivery of the material and the remainder on comple-
tion and acceptance of the bridge. This contract was held in the
United States Circuit Court to create a debt within the constitu-
tional provision that no city shall create any debt unless at the
same time provision be made by taxation for payment of interest
and creation of a sinking fund. The contract was, therefore, in i
case no such provision was made for interest and sinking fund,
held invalid, notwithstanding payment of the contract price was
secured by the proceeds, paid into the city treasury, of bonds
issued for that purpose in accordance with the provisions of the
charter of the city requiring creation of a fund for payment of
interest and as a sinking fund by special tax ; also, it was held
that a debt created by such contract could not be regarded as a
current expense of the city payable out of current revenues.
And there could be no recovery upon a contract void as in con-
travention of the constitutional provisions of the value of the '
bridge as upon an implied contract.* *
Here the limitation is more stringent. ' Berlin Iron Bridge Co. v. City of
It limits the city council, in incurring San Antonio, (1894) 63 Fed. Rep. 883. \
liability, to the amount of the tax See City of Corpus Christi v. Woess-
'actually levied' at the time the ner, 58 Tex. 462; Biddle v. City of
liability is incurred." Terrell, 83 Tex. 333; s. c, 18 S. W. ;
'Budd 1). Budd, (1894) 59 Fed. Rep. Rep. 691; City of Terrell v. Dessaint^
735. 71 Tex. 773; s. c, 9 S. W. Rep. 593;
430
FLTEA VIEES POBLIO COEPOEATIONS.
[§260
§ 260. 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 coxinty 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.^
Bell V. Live Stock Co., (Tex.) 11 S. W.
Eep. 344; City of Bryan v. Page, 51
Tex. 533.
' Smith V. County of Los Angeles,
(1893) 99 Cal. 628; s. c, 84 Pac. Kep.
489. Upon the power of the county
bqard to make this contract, the court
in discussing the point states the folio w-
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.
I * * * He shall also keep a record
of bonds sold or exchanged by him,
I * * * 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 85 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
g 261] ULTRA VIEES PUBLIC COEPOEATIONS.
431
§ 261. Investment of sinking funds.— The Supreme Court
of Illinois refused a writ of mcmdamus to compel the treasurer of
a county to invest funds of the county, held as a sinking fund, to
pay legally issued bonds of the county, in certain other securities
of the county, as directed by a resolution of the board of county
commissioners. In the opinion they state that the contention of
the petitioner was, that there was an impUed power in the board to
order such investment, embraced in the provision conferring upon
county boards power " to manage the county funds and county
business, except as otherwise* specially provided." Of this con-
tention, the court said : " This cannot be understood to give to
county boards the absolute and unlimited power of management
of county funds, where there is the absence of any specific pro-
vision of law to the contrary. It hardly means more, we think,
than a power to manage the county funds and county business
according to law. See Rothrock v. Carr, 55 Ind. 334. We cer-
tainly cannot allow to it any such scope as giving a general power
to county boards to invest surplus funds in the county treasury
in such manner as they shall see fit. 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 39, '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-
to the treasurer for sale or exchange other words, the bid for the bonds is
under the law was not in any way solicited and obtained upon the ad-
necessary to the fiiU discharge of the vertisement by the treasurer for such
legislative authority of the county bid, and the law recognizes no other
government, no such implied authority mode of procurernent. The treasurer
to make such a contract was conferred alone procures the bid, the mode and
tipon 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 contract in ques-
That power is expressly conferred by tion by the board of supervisors was
statute on the county treasurer, and is an unw^arranted, 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 TJLTEA VIEBS PUBLIC OOEPOEATIONS. [§ 261
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 Eailroad Co. v. The United States, 99 U.
S. YOO, 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 he
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 aflSrmed 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.'' ' A Texas city, having dtetermined
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 i/psofcbcto 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.'^
' Cook County v. McCrea, (1879) 93 by the debtor in the same capacity in
m. 236, 389, 340. -which he owes the debt, but even in
' Elser e. City of Fort Worth, (Tex. such cases, it is very easy to keep the
Civ. App. 1894) 37 S. W. Bep. 739. security alive by having the creditor
Argvsndo, the court said: "It must be make a transfer to a third party. 1
conceded that [the statement of the Jones' Mortg. 948-946. 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 iu which the purchase is made chase its own bonds as an investment.
§ 262] -DLTKA VIEES PUBLIC COEPOEATIOlfS. 433
§ 262. Contract with corporation attorney for legal
serviced. — The question of whether the commissioners of a
county in Pennsylvania were authorized to make a contract with
the county solicitor to take proceedings to obtain credit for the
county in its accounts with the commonwealth for all unpaid
taxes on personal property, for which he was to have as compen-
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 ullyra
vires} The Supreme Court of Kansas has held a contract made
and reissue them. If the facts show funds, held by the state; in its own
that there was no intention of paying bonds, and by the different counties
the bonds, but they were regarded in their own obligations. "We believe
and reputed by the company as still that it has never been contended that
outstanding, they are valid in the a purchase of this kind cancels the
hands of a subsequent purchaser, and bonds thus acquired. We do not re-
are secured by the lien of the mort- gard the opinions in the cases of Bank
gage.' But, be this as it may, it will «. Grace, 103 N. Y. 313; s. c, T^fT. E.
hardly be contended that if the pur- Kep. 162, and Wilds ». Kailroad Co.,
chase be made in a different capacity 103 N. Y. 410; s. c, 7 N. E. Rep.
than that in which the debt is owed 290, as conflicting herewith. Those
(for instance, if A. , as trustee, should, decisions were controlled' entirely by
with the trust fund, purchase a debt the statutes and ordinances therein
which he owes as an individual), the construed, which were quite dissimi-
rule would apply, and we are of opin- lar to the provisions contained in the
ion that as to those funds set apart charter of this city."
for special purposes, both by the law ' County of Lancaster «. Fulton,
and by the ordinances passed by the (1889) 128 Pa. St. 48. The court,
city council, as in this case, the city speaking through Stbkbktt, J., said:
must be regarded as a trustee pur- " In substance, the defense interposed
chasing with the trust fund a debt by the county was, that at the time the
which it owes as an individual, and resolution [referring to the contract]
that the debt so purchased is not can- was adopted plaintiff below ' was the
celed, but is kept alive for all pur- duly elected and qualified solicitor ' of
poses, and becomes the property of the county, serving under the act of
the ceitui que truit — 'Cas, special fund February 18, 1870, at a salary of five
— just as the house and lot taken hundred dollars, fixed by that act; and,
from a defaulting collector was said for that reason, neither he nor the
by our Supreme Court, in the case of county commissioners had any power
City of Sherman v. Williams, 84 Tex. or authority to enter into the contract,
431; s. c, 19 S. W. Rep. 606, to be- under which the services were ren-
come the property of such a fund, dered and on which the claim is
We think this view receives striking founded. It is conceded that when
illustrations in numerous provisions the contract was made and for a con-
of our Constitution and laws, author- siderable time thereafter plaintiff be-
izing the investment of special funds, low was the duly elected and quali-
such as the university and public schoo. fled solicitor of the county The
55
434 ULTRA VIEES PUBLIC COEPOEATIONS. [§ 263
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.'
§ 263. Discount of its warrants by a corporation. — A
county in Nortn DaTiota created from portions of two other
4tli section of the act under whicli he the office of county solicitor, provid-
■was elected declares: 'The salary of ing for his election and fixing his
the officer elected as hereinbefore pro- salary, etc., was to take the power out
vided shall be five hundred dollars per of the hands of the county commis-
annum, payable quarterly; and the sioners and place it beyond their
officer so elected shall be the legal reach. But, be that as it may, we
adviser of the board of commissioners think the contract was ultra vires and
of Lancaster county, and shall repre- void. * * * " Further on, referring
sent the said board in all proceedings to the trial j udge's charge, it is said:
in law or equity wherein the said "In saying, as he correctly did, that
county is a party or has any interest.' if the services of plaintiff below ' had
He was undoubtedly a public officer been rendered while he was county
within the meaning of the Constitu- solicitor, then there could be no
tion, Wticle III, § 13, and article XIV, recovery,' the learned judge rightly
§§ 1 and 5, the first of which declares: assumed that the contract in question
' No law shall extend the term of any was unauthorized and illegal. All
public officer or increase or diminish such contracts, whether intended tobe
his salary or emoluments after his so or not, are in effect evasive and
election or appointment.' The services subversive of law, contrary to public
for which the contract in question policy, . and, therefore, void. They
undertakes to provide are clearly are no more capable of ratification
within the sphere of the duties of the than was the contract in Hunter v.
' solicitor of Lancaster county ' as Nolf, 71 Pa. St. 282. Speaking of the
defined by the act of February 18, illegal contract under consideration in
1870. He ' shall be the legal adviser that case, Mr. Justice Shabswood said:
of the board of commissioners of ' It is undisputed law that such a con-
Lancaster county and shall represent tract is illegal as against public policy
the said board in all proceedings in and cannot be enforced. Even if
law or equity wherein said county is there had been an express contract on
a party or has any interest.' What entirely different terms than those
authority then had either the plaintiff agreed upon before, it ought to be
below or the county commissioners to viewed with a considerable degree of
enter into a contract to compensate the suspicion as an attempt to evade a
former for services within the sphere sound and salutary rule of public
of his duties as solicitor of the county? policy.' A case more nearly parallel
We are of opinion that they had none; with this in some of its features is
that the act of the commissioners in Chester County ?■. Barber, 97 Pa. St.
undertaking to bind the county to pay 455. Barber, one of the plaintiffs
the compensation provided for in the below, was attorney for the county of
contract was ultra mres. Doubtless Chester, but it did not appear whether
the very object of the act in creating he was«serving under an^nnual salary
1 Waters «. Trovillo, (1891) 47 Kans. 197.
§ 263] ULTRA VIEES PUBLIC COEPOEATIONS.
435
counties, though its board of commissioners, made a contract with
one to make a transcript of the records of those two counties 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 prevaihng 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.' One of the warrants sued on in this case repre-
fixed by act of assembly or under a bis previous engagement as solicitor to
special agreement with the commis- the commissioners.' If it had ap-
sioners. The county commissioners, peared in that case that Barber was
however, made a contract with him acting under a salary, fixed by act of
and two other attorneys to pay them assembly (as was Mr. Fulton in this '
fifty per centum of the amount they case), and that his defined duty was
recovered from the state for taxes to act as a legal adviser of the com-
improvidently paid into the state missioners and represent them in all
treasury. Speaking for the court, the proceedings at law or in equity
present chief justice said: 'The com- wherein the county had any interest,
missioners had no power to bind the it is not likely that any doubt as to hia
county by such a contract. * * * legal status would have been sug-
It was against public policy, and, gested. According to the reasoning
therefore, null and void. * * * of the opinion the contract as to him
These commissioners were acting in a would have been declared illegal, con-
fiduciary character. They were but trary to public policy, and absolutely
trustees of the money when received void. We are, therefore, of opinion
for the use of the county. When, that the learned judge erred in hold-
therefore, they contracted to give one- ing that plaintiff below might recover
half of it to the plaintiffs for their If the commissioners recognized his
services they exceeded their power, services after the expiration of his
They were giving what did not belong term of office as county solicitor;
to them. As well might a trustee that such recognition would be a rati-
contract to give away one-half of the flcation of the oiigiual illegal agree-
trust estate as compensation to counsel ment, etc."
for services in connection therewith. 'Erskine v. Steele County, (N. D.
And, if he may give away one-half, 1894) 60 N. W. Eep. 1050. The holders
why not three-fourths, or even a of the warrant cited specially in sup-
greater proportion? Can it be doubted port of their position the case of
that a court of equity would strike Kilvington «. City of Superior, 83 Wis.
down such a contract as improvident 233; s. c, 53 N. W. Rep. 487. The
and a legal fraud? * * * Whether Supreme Court of North Dakota
the plaintiff Barber can recover any- referred to that case in these words :
thing will depend upon the terms of "In [that case] the court held that
436
ULTRA VIEES PUBLIC CORPORATIONS.
[§263
sented entirely the discount of the warrant wliich 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.'
the general power conferi'ed 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
anj' such contract was, in our opinion,
clearly ultra mres 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.
Easmusson b. County of Clay, 41 Minn.
283; s. c, 43 N. W. Eep. 3; Pugh
V. Good, 19 Or. 85; s. c, 23 Pac. Rep.
827."
'Erskine i). Steele County, (N. D.
ISH"* 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. 378, 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
§ 264]
ITLTEA VIEES PUBLIC OOEPOEATIONS.
437
§ 264, Illustrations of ultra vires acts.— Furnishing aid to
a gravel road or 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 board of com-
missioners of a county have no authority to make contracts for
such purposes.^ "Without enabhng 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.^ But where a municipal
board, has no more conclusive effect
tlian such an adjustment would have
if made "by private persons. See
Commissioners v. Keller, 6 Kans. 511.
In a recent case clearly in point, the
Supreme Court of the state of Wash-
ington, in referring to the act of a
municipality in discounting its own
warrants, uses the following language :
' Such a proceeding is manifestly be-
yond the scope of legitimate cor-
porate power, and a practice of that
character might lead to various
results. City warrants are evidence
of indebtedness, or promises to pay,
and are payable with interest pre-
scribed by law ; and the corporation
cannot cast upon the taxpayers any
further burden in respect thereto,
and the courts have uniformly, as far
as we are advised, disapproved of any
effort to do so.' Arnott ®. City of
Spokane, 6 "Wash. St. 443; s. c, 33Pac.
Rep. 1063. See, also, Clark v. Des-
Moines, 19 Iowa, 199; Bauer v. Frank-
lin County, 51 Mo. 205; Shirk v. Pu-
laski County, 4 Bill. 209: s. c, Fed.
Cas. No. 12,794." See Pugh v. City
of Little Rock, 85 Ark. 75.
' Driftwood Valley Turnpike Co. ■».
Board of Comi-s. of Bartholomew
County, (1880) 73 Ind. 236. The court
said: "In the case of Hariiey v.
Indianapolis, etc., R. R. Co., 32 Ind.
244, it was held that a county had no
power, without afiSrmative legislation,
to make an appropriation from its
treasury by way of donation to a rail-
road company to aid in the construc-
tion of its road. The court, among
other things, said: ' The counties are
corporations created for the purpose
of convenient local municipal govern-
ment, and possess only such powers as
are conferred upon them by law.
They act by a board of commissioners
whose authority is defined by statute.
One of the powers conferred is to col-
lect taxes levied upon the people and
property within the county. In the
disposition of the money thus col-
lected into the general treasury the
board has not unlimited discretionary
choice as to the objects upon which it
shall be expended. It can only be ap-
plied to certain specified objects, and
the building of railroads is not one of
these objects, or necessary to carry
into effect any of the purposes for
which such corporations were created.'
In Burnett v. Abbott, 51 Ind. 254, the
county board made a contract con-
ditionally to pay certain expenses of
boring wells for oil and digging for
minerals. The contract was held void
for want of authority to enter into it.
Nor can the board appropriate the
funds of the county to the payment
of the debts of a county agricultural
joint-stock company or to the build-
ing of school houses. Warren County
Agricultural Joint-Stock Co. v. Barr,
55 Ind. 30; Rothrock v. Carr, 55 Ind.
834."
' City of Champaign v. Harmon,
(1881) 98 111. 491. It was said by the
438 ULTKA VIEES PUBLIC COEPOEATIONS. [§264:
corporation is vested with general autliority 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.' In a case before the Supreme
Court of Alabama, an action to enforce a penal bond given by a
court: "Municipal corporations are New York held that it was beyond
creatures of the statutes, and can only the power of the corporation to as-
exercise such powers as are expressly sume the defense of suits brought
conferred, or such as arise, by impli- against the county supervisors indi-
cation, from general powers granted, vidually for the penalty incurred by
In this case the plaintiff corporation is them for neglecting the duty of audit-
empowered by its charter to buy and ing the salaries of certain judges ap-
hold real property, but that must be pointed under a statute which they as-
understood to be purchases made in sumed to be unconstitutional, and was
the ordinary way, and only for corpo- afterwards held to be unconstitutional,
rate purposes, and a grant to purchase or to pay the judgments and costs re-
real property for particular purposes covered against those supervisors, upon
would seem to be a limitation on the the principle that such corporations are
powers of such corporations, and creatures of limited powers, especially
would exclude, by necessary implica- upon the subject of the appropriation
tion, all purchases for mere specula- of the funds of the people, as settled
tion or profit. Power to purchase real in Hodges v. City of Buflfalo, 2 Den.
estate for speculative purposes is not 110. Ultra vires contracts of munici-
among the usual powers bestowed palities: Bourdeaux ». Coquard, 47
on municipal corporations, nor does 111. App 254; Sang i). City of Duluth,
such power arise, by implication, from (Minn.) 59 N. W. Kep. 878; City of
any of the ordinary powers conferred Aberdeen®. Honey, 8 Wash. 251; s.
on such corporations. Authority to c, 35 Pac. Rep. 1097; Penley ». City
buy and hold real estate is only given of Auburn, 85 Me. 278; s. c, 27 Atl.
to them to that extent that may be Rep. 158; East St. Louis Gas Light &
necessary to carry into effect corporate Coke Co. v. City of East St. Louis, 47
powers granted. Under a general 111. App. 411; Hay ward v. Board of
grant of power to buy and hold real Trustees of Town of Red CliflE, (Colo.)
property, it is understood municipal 36 Pac. Rep. 795; Town of Newport
corporations may buy and hold such «. Batesville & B. Ry. Co., 58 Ark.
property, within the corporate limits, 370; s. c, 24 S. W. Rep. 437; Lamar
as may be necessary for corporate pur- Water & Electric Light Co. ®. City of
poses, and may even buy and hold Lamar, (Mo.) 26 S. W. Rep. 1025;
real estate beyond the corporate limits, Griswold ». City of East St. Louis, 47
for the location of cemeteries, pest III. App. 480; Hamilton «. City of
houses and other purposes connected Shelbyville, 6 Ind. App. 588; City of
with the sanitary condition of the Nashville v. Sutherland, 93 Tenn. 335;
municipality." State ». City of Bayonne, 55 N. J.
' City of Champaign ». Harmon, Law, 268; Hintrager ». Richter, 85
(1881) 98 111. 491. In Halstead ii. Iowa, 232; Bateman ». City of Coving-
Mayor, etc., of New York, (1850) 3 N. ton, 90 Ky. 390.
Y. 430, the Court of Appeals of
§ 266] TJLTEA VIBES PUBLIC OOEPOEATIONS. 439
private corporation to a 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 construction 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 tlie 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.'
§ 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 scliool 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 tha.t the furniture had been in use by the school
district for a period of nearly five 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 bo maintained
on either or both of th^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
' City Council of Montgomery v. need argument to overturn it. S6e on
Wetumpka Plank Road Co., (1857) 31 this point Pennsylvania, Delaware &
Ala. 76. The court said: If the [doc- Maryland Steam Nav. Co. v. Dan-
trine contra the text] be established, dridge, 8 Gill & J. 248, 319, 330, and
these corporations, no matter how authorities cited; Albert v. Savings
limited their powers, may make them- Bank of Baltimore, 1 Md. Ch. Dec.
selves omnipotent. They have only 407-413; Smith ». Ala. Life Ins. &
to induce persons to. contract with Trust Co., 4 Ala. 558; Hodges v. City
them beyond the scope of their powers of Buffalo, 3 Denio, 110; Life & Fire
and their very usurpations have the Ins. Co. «. Mechanic Fire Ins. Co., 7
effect of confening powers on them Wend. 31; New York Firemen Ins.
which the legislature have withheld. Co. i>. Ely, 5 Conn. 560.
A proposition so erroneous can scarcely "
440 tJLTEA VIEES — PUBLIC C0BP0EATI0N8. [§ 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 thp 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 of
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 y. 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, and by insuring the same." ' A bill was filed 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.' A corporation which has enjoyed the provis- ■
' Union Scbool 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-
Couuty. (1893) 50 Kans. 727, 730, 731. tion, that, where the consideration
''Turner v. Cruzen, (1S86) 70 Iowa, received by a corporation under an
302; s. c, 30 N. W. Rep. 483. The wWra ^jrcs contract can be restored, a
§265] ULTEA VIEES PUBLIC COEPOEATIONS. 441
ions of a lease from a city, cannot, in an action for rent, claim
that neither it nor the city had power to execute the lease.' It
was insisted in an Indiana case that as a county had received the
full benefit of a contract which it was beyond its power to make,
it was estopped to set up that it was ultra vires, and to sus-
tain this position counsel relied upon State Board of Agriculture
V. Citizens' Street Eailway Company, 47 Ind. 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-
ized 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 Christi v. Central
the consideration. Pratt v. Short, 53 Wharf & Warehouse Co., (Tex. Civ.
How. Pr. 506; Leonard v. City of App. 1894) 37 S. W. Rep. 803. The
Canton, 35 Miss. 189; Argentic. San court said: "There was nothing [in
Francisco, 16 Oal. 355, 383; Moore v. 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 i\ Hunt, 5 Ohio tive prohibition of law, in the action
St. 488." Afterwards it was said: of either party. At most, their action
"We are aware that there is ^ class of was in excess of the powers conferred,
cases where courts of equity declare a The restrictions upon the powers of
contract ultra vires, 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 lie
the cancellation of such bonds, or en- in the mouth of the party who re-
join payment, without decreeing re- ceived their benefits to urge the de-
payment to the bondholders of the fense of ultra mres." See Bigelow
money received by the corporation Estop. 465; 7 Am. & Eng. Encycl.
on the bonds. But this results from Law, 39; Beach Priv. Corp. §§ 431-
the necessity of the case. If the 426, 433, 433. As to a taxpayer hav-
courts should decree repayment, the ing no right to complain of an illegal
56
442 ULTKA VIBES PUBLIC COEPOKATIONS. [§ 266
1 Dillon Munie. 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
defrtise its own want of power under its charter, or constituent
statute, to enter into the contract.' " ^ A county id not estopped
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, with 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 ultra
vires or void because of some irregularity or want of power in
their creation, but not void because made in violation of express
law, or good morals, or public policy, and where the corporation ,
retains such benefits, it must pay for them." ' 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.*
§ 266. Estoppel of contractor w.ith 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-
contraot on the part of a city, suoli contend that a contract by the hoard
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. «. City of Waco, (Tex. Civ. county, was ultra vires the society
App. 1894) 37 S. W. Rep. 675. and did not bind its members.
' Driftwood Turnpike Co. ii. Board ^ Board of Comrs. of Hamilton
of Comrs. of Bartholomew Co., (1880) County «. Webb, (1891) 47 Kans. 104,
72 Ind. 236. 105, 106; citing City of Ellsworth t.
"Webster County v. Taylor, 19 Rossiter, (1891) 46 Kans. 237, 342;
Iowa, 117. In Woodruff v. Commis- Comrs. of Leavenworth Co. v. Brewer,
sioners of Noble County, (Ind. App. 9 Kans. 307; Huffman v. Comrs. of
1894) 37 N. E. Rep. 733, it was held Greenwood County, 33 Kans. 281.
that a county physician could not * McPherson v. Foster, 43 Iowa, 48.
§266] ULTRA VIEES — PUBLIC COEPOEATIONS. 443
ment against the town obtained by default and to restrain the town
and its officers from paying this contractor anything upon his
alleged contract upon which the judgment was rendered, it being
alleged in the complaint that 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.' 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 v. 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 been applied
^Newbery v. Pox, (1887) 37 Miun. ing the sustaining of a deram-rer to
141: s. c, 33 N. W. Rep. 333, affirm- the answer of defendant.
iii ULTEA VIEES — PUBLIC COEPOEATIONS. [§ 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
has been no authority for making such. a contract.^ A different
rule of law would, in effect, vastly enlarge the power of public
agents to bind a miinicipality 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 such 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 oflScer 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.^
' Citing Mayor v. Ray, 19 Wall. 468; The court referred to the cases of
Brady v. Mayor of New York, 20 N. Argenti ». City of San Francisco, 16
Y. 313; Hague v. City of Philadel- Cal. 255; Nelson v. Mayor, 63 N. Y.
phia, 48 Pa. St. 527; 1 Dill. Mun. 535, quoting from the opinion of
Corp. 457; Nash «. City of St. Paul, Folger, J., in the latter, and cited
8 Minn, (172). further, McDonald v. Mayor, 68 N. Y.
' Smith Canal or Ditch Co. v. City of 28; Smith c. City of Newburgh, 77N.
Denver, (Colo. 1894) 36 Pac. Rep. 844. Y. 130; McCoy ». Briant, 53 Cal. 247;
§267]
TJLTEA VIBES PUBLIC COEPOEATIONS.
445
§ 267. Injunction of public officials — rules.— The Supreme
Court of Washington has lield in a taxpayer's action against the
commissioners of a county, that the taxpayer was entitled to an
injunction to restrain them from issuing certain bonds as the debt
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 lat-
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.^
People v. May, 9 Colo. 80; s. c, 10
Pac. Eep. 641. When one benefited
by a contract witli a municipality can-
not object that it was ultra vires the
municipality, see City of Buifalo v.
Balcom, (1892) 134 N. Y. 533; s. c, 33
N. E. Rep. 7.
' Hunt «. Fawcett et al., County Com-
missioners, (Wash. 1894) 36 Pac. Rep.
818. In Avery v. Job, (Ore. 1894) 36
Pac. Rep. 393, the Supreme Court af-
firmed the granting of an injunction
in a taxpayer's suit, restraining the
mayor, etc., of the city from purchas-
ing a plant of a waterworks company
for 138,000, worth only $10,000, and
inadequate and unsuited to the pur-
pose, though the purchase or erection
of waterworks was a matter within the
discretion of the city council. In In-
tendant & Town Council of Living-
ston V. Pippin, (1858) 31 Ala. 543, an
action against the municipality to re-
cover the price agreed to be paid for
the boring of an artesian well, it was
held that the municipal corporation
could not set up the defense that
though its corporate authorities had
power to contract for the procuring of
■a supply of water on the public square
of the town, they ought to have
adopted some less expensive means of
procuring it. The court said: "The
coi'porate authorities, having the power
to procure the supply of water, were
themselves the judges of the mode and
manner best calculated to accomplish
that object. Lawless v. Reese, 4 Bibb,
309. The propriety of their election
and the binding efficiency of their con-
tract cannot be questioned collaterally.
If their proposed expenditure was an
abuse of their powers, any of the cor-
porators have an ample remedy by in-
junction. See Christopher v. Mayor
of New York, 18 Barb. 567, and au-
thorities cited." For a full discussion,
of the subject of injunctions against
public boards of commissioners, etc.,
see Stevens «. St. Mary's Training
School, (1898) 144 111. 336. That per-
sons dealing with a municipal corpo-
ration through its officers must know
and are charged with a knowledge of
their powers in contracting, see Mc-
Donald 1). Mayor, etc., of New York,
68 N. Y. 33; Cornell v. Guilford, 1
Den. 510; Sutro v. Pettit, 74 Cal. 333;
Hodges V. Buffalo, 3 Den. 110; Lowell
Savings Bank v. Winchester, 8 Allen,
109; Merchants' Bank «. Bergen
County, 115 U. S. 384; Wallace v.
Mayor, etc., of San Jose, 39 Cal. 181;
Dorsey County «. Whitehead, 47 Ark.
305; Barton 11. Swepston, 44 Ark. 437;
Schumm v. Seymour, 34 N. J. Eq.
143; Alton v. Mulledy, 31 111. 76;
Cleveland v. State Bank of Ohio, 16
Ohio St. 336; Chicago i>. Shober, etc.,
Co., 6 Bradw. (111.) 560; Craycraft v.
Selvage, 10 Bush (Ky.), 708; Perkin-
son V. St. Louis, 4 Mo, App. 332;
446
TJLTEA VIRES PUBLIC COEPOEATIONS.
[§267
Clark V. Polk County, 19 Iowa, 348;
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, 93
U, S. 569; Maupin v. Franklin County,
67 Mo. 337. As to when a municipal
corporation is not estopped to set up a
plea of ultra mres in actions brought
upon contracts entered into by its offi-
cers, see Sioux City «. Weare, 59
Iowa, 95; Stidger v. Redoak, 64 Iowa,
465; State v. Haskell, 30 Iowa, 376;
East Oakland v. Skinner, 94 U. S. 355;
Post V. Kendall County, 105 U. S. 667;
McClure «. Oxford Township, 94 U.
S. 439; Bates County ii. Winters,97 U.
S. 83; South Ottawa v. Perkins, 94 U.
S. 260; Daviess County v. Dickinson,
117 IT. S. 657; Burrill v. Boston, 2
Cliff. 590; Fox v. New Orleans, 13 La.
Ann. 154; Seibrecht ». New Orleans,
18 La. Ann. 496; Cheeney v. Brook-
field, 60 Mo. 53; McCaslin «. State, 99
Ind. 438; State v. Bevers, 86 N. C. 588;
Dill V. Wareham, 7 Met. 438; Yancey
®. Hopkins, 1 Munf. (Va.) 419 ; Nalle
«. Fenwick, 4 Rand. (Va.) 585; Ship-
man ». State, 43 Wis. 381; Perry ».
Superior City, 36 Wis. 64; State v.
Hastings, 13 Wis. 596; Nash v. St.
Paul, 8 Minn. 173; Donovan v. Mayor,
etc., of New York, 33 N. Y. 291; Ap-
pleby ». Mayor, etc., 15 How. Pr. 428;
Martin v. Mayor, etc., of Brooklyn, 1
Hill, 545; Albany ». CunlifE, 3 N. Y.
165; Overseers of Norwich v. Over-
seers of New Berlin, 18 Johns, 382;
Cowen B. West Troy, 43 Barb. 48;
Trustees of Paris Township «. Cherry,
8 Ohio St. 564; Western College of
Medicine b. Cleveland, 13 Ohio St.
375; Mitchell «. Rockland, 41 Me. 363
Fluty !). School District, 49 Ark. 94:
Halbut V. Forrest City, 34 Ark. 246;
Mitchell V. Rockland, 45 Me. 496
People V. Baraga Township, 39 Mich,
554; Taft 1). Pittsford, 38 Vt. 280
Haynes v. Covington, 13 Sm. & Marsh
(Miss.), 408; Treadway -o. Schnauber,
1 Dak. 236; Neely v. Yorkville, 10 S.
C. 141; Bryan i>. Page, 51 Tex. 582;
Trustees of Belleview «. Hohn, 83 Ky.
1; 8. c, 4 Am. &Eng. Corp. Cas. 524;
Murphy v. Louisville, 9 Bush CKy-)>
189.
CHAPTER Yin.
ULTRA "vires — PRIVATE CORPORATIONS.
268. The doctrine of ultra virea as
explained by English courts.
269. These rules applied by English
courts to special acts of cor-
porations.
The doctrine of ultra vires as ex-
plained by United States courts
Illustrations of acts not ultra
vires the corporation.
Illustrations of acts ultra vires
the corporation.
Leasing corporation's property
and franchises for a term of
years.
Loaning funds of a corporation.
Investing funds of corporation
in stock of others.
Directors of an insurance com-
pany raising a guaranty
capital.
270.
271.
273.
273.
274.
275.
276.
§ 277. Converting common into pre-
ferred stock.
278. The effect of laches on the part
of complaining stockholders
in such cases.
279. Rules declared 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 to
estopuel of parties to con-
tracts 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,
Tinder their corporate seal, and that regularly af&xed, 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 enactments, that the deed was ultra vires — that is, that
the legislature meant that such a deed should" not be made," was
stated to be the rule by Baron Paeke.* Lord Chancellor Cean-
woKTH has observed in a case that he thought the statement of
the rule by Baron Paeke " 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 enter into contracts as to matters not
connected with its corporate duties, or that it is impliedly pro-
' South Yorkshire Railway v. Great way v. Stewart, 3 Macq. 382, 415, by
Northern Railway, 9 Bxch. 55, 84. Lord Wensleydale.
See, also, Scottish Northeastern Rail-
448 ULTEA VIEES PEIVATE COEPOEATIONS. [§ 269
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."' Lord St. Leonaed 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."^ Lord Chancellor Ceanwokth 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."^
§ 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 roiling 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 difiiculties 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 ullyra vires. The House of Lords unanimously held
the contract not to be within the scope of the memorandum, of
' Shrewsbury & Birmingham Bail- ^ Eastern Counties Railway 0.
way V. Northwestern Railway, 6 H. L. Hawkes, 5 H. L. Cas. 331.
Cas. 113, 135-137. "Ibid.
269] ULTKA VIEES PEIVATE OOEPOEATIONS.
449
association and, therefore, void and incapable of being ratified,
and that the action could not be maintained.* In an English case
it was held that no action could be maintained by one railway
company against another upon an agreement made by the latter
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.* In a
' Ashbury Railway Carriage & Iron company in its corporate name upon a
Co. V. Richo, L. R., 7 H. L. 653; intlie contract under the common seal. No
lower courts, L. R., 9 Exch. 224. agreement of shareholders can make
Lord Selborne of the House of that a contract of the corporation
Lords said: "The action in this case which the law says cannot and shall
is brought upon a contract not directly not be so."
or indirectly to execute any works, 'East Anglian Railways ■». Eastern
but to find capital for a foreign railway Counties Railway, 11 C. B. 775. It
company in exchange for shares and was said by Chief Justice JekVis, in
bonds of that company. Such a con- delivering the judgment of himself
tract, in my opinion, was not author- and Justices Maule, Williams and
ized by the memorandum of aaso- Talpodrd: "This act is a public act
ciation of the Ashbury Company. All accessible to all and supposed to be
your lordships and all the judges in known to all, and the plaintiffs must,
the courts below appear to be so far therefore, be presumed to have dealt
agreed. But this, in my judgment, is with the defendants with a full
really decisive of the whole case, knowledge of their respective rights
* * * I think that contracts for whatever those rights may be. It is
objects and purposes foreign to or in- clear that the defendants have a lim-.
consistent with the memorandum of ited authority only and are a corpora-
association are ultra vires of the cor- tion only for the purpose of making
poration itself. And it seems to me and maintaining the railway sanctioned
far more accurate to say that the by the act; and that their funds can
Inability of such companies to make only be applied for the purposes
such contracts rests on an original directed and provided for by the stat-
limitation and circumscription of ute. Indeed, it is not contended that
their powers by the law, and for the a company so constituted can engage
purposes of their incorporation, than in new trades not contemplated by
that it depends upon some express or their act; but it is said that they may
implied prohibition, making acts un- embark in other undertakings, how-
lawful which otherwise they would ever various, provided the object of
liave had a legal capacity to do. This the directors be to Increase the profits
being so, it necessarily follows * * * of their own railway. This, in truth,
that where there could be no mandate is the same proposition in another
there cannot be any ratification; and form, for if the company cannot carry
that the assent of all the shareholders on a trade merely because it was not
can make no difference when a contemplated by the act, they cannot
stranger to the corporation Is suing the embark in other undertakings not
57
450 tTLTEA VIEES PRIVATE OOEPOEATIONS. [§ 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 Wigj-
EAM 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.'
§ 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 purchase money exceeded their authority.*^ Speak-
sanctioned by the act merely because some remote period may be highly
they hope the speculation may ulti- beneficial to the line. The public also
mately increase the profits of the has an interest in the proper adminis-
shareholders. They cannot engage in tration of the powers conf eixed by the
a new trade because they are a cor- act. The comfort and safety of the
poratiou only for the purpose of mak- line may be seriously impaired if the
and maintaining the Eastern Counties money supposed to be necessary and
Railway. What additional power do destined by parliament for the main-
. they acquire from the fact that the tenance of the railway be expended in
undertaking may in some way benefit other undertakings not contemplated
their line? Whatever may be their when the act was obtained and not
object or the prospect of success, expressly sanctioned by the legisla-
they are still but a corporation for the ture.'' See, also, Macgregor «. Dover
purpose only of making and main- & Deal Railway, 18 Q. B. 618.
taining the Eastern Counties Railway; ' Bagshaw v. Eastern Union Rail-
and if they cannot embark in new way, 7 Hare, 114; s. c, 2 Macn. &
trades because they have only a lim- Gord. 389; 3 Hall & Twells, 301. In
ited authority, for the same reason Caledonian & Dumbartonshire Rail-
they can do nothing not authorized by way v. Magistrates of Helensburgh, 3
their act and not within the scope of Macq. 391, the House of Lords held
their authority. Every proprietor, that no action would lie against a rail-
when he takes shares, has a right to way company on an agreement of its
expect that the conditions upon which projectors to advance money to cou-
the act was obtained will be per- struct a pier and harbor at the end of
formed ; and it is no sufBcient answer a proposed branch of the railway,
to a shareholder expecting his divi- ^ Pearoe v. Madison & Indianapolii
dend that the money has been ex- Railroad, 31 How. 441.
pended upon undertakings which at
§ 270] ULTEA VIBES PEIVATE COEPOEATIONS. 451
ing of the decision in Ashbury Railway Carriage & Iron Co. v.
Eiche, 7 H. L. 653, as establishing " the broad doctrine that a
contract not within the scope of the powers conferred on the
corporation cannot be made valid by the assent of every one of
the shareholders, nor can it by any partial performance become
the foundation of a right of action," Mr. Justice Millee, of the
Supreme Court of the United States, expressed the opiiiion that
that decision " represents the decided preponderance of authority
both in this country and in England, and is based upon sound
principles." ' 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
held 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-
fu], 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.^ The Court of Appeals of Maryland
' Thomas v. Railroad Co., 101 U. light of a common partnership and as
S- '^' subject to no greater vigilance than
' Davis V. 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
" In the leading case of Colman v. powers which ttiey exercise of inter-
Eastern Counties Railway, 10 Beav. 1, f erence, 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
profitsto, and to secure the capital of, a is to be presumed and hoped, on the
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 Langdalb, M. R., said: 'To dividuals, and to defend them from aU
look upon a railway company in the liabilities beyond those necessarily oc-
452 TJLTEA VIEES PEIVATE COEPOEATIONS. [§ 270
have decided that corporations are not only incapable of naaking
contracts which are forbidden by their charter, but in general
they can make none which are not necessary, either directly or
indirectly, to e£fect the objects of their creation, and that the cor-
poration itself may, in an action brought against it upon snch
contract, deny its power to enter into it.^ In a New York
case, involving the issue of preferred stock by a corporation to
certain of its stockholders who advanced money for the purposes
of the corporation, Folgee, 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 itj 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 not 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 witUout 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-
vlded the object of their liability is to dridge, 8 Gill & Johns. (Md.) 248.
increase the traffic upon the railway
§ 271] TJLTBA TIEES PEIVATE OOEPOEATIONS.
453
with them. When the public is concerned, to restrain the corpora-
tion within the limits of the power given to it by its charter, an
assent by the stockholders to the use of unaiithorized power by the
corporate body will be of no avail. When it is a question of the
right of a stockholder to restrain the corporate body within its
express or incidental powers, the right of the stockholder may, in
many cases, be denied "on the ground of his express 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 maluin. prohihitfum.
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., E. R. Co., 22 IST. 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 would 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 confirmed 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.' If the term for which a corporation is authorized to
1 Kent V. Quicksilver Mining Co., 'Madison, etc.. Plank Road Co. v.
(1879) 78 N. Y. 159, 185, 186. WatertownPlankRoadCo.,5 Wis. I73!
454 ULTEA VIBES PRIVATE COEPOBATIONS. [§ 271
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.^ 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.' It does not fol-
' Germantown F. M. Ins. Co. v. such property as the purposes of the
Dheln, 43 "Wis. 420. corporation should require, and it
'Kelly V. Mobile Building & Loan was objected that the property in
Association, (1879) 64 Ala. 501. In controversy was not of that de-
Cooper D.Frederick, (1846)9 Ala. 738, it scription, and that the corporation
was held that a resolution by the direct- had no power to purchase it. The
ors of a railroad corporation, that the court overruled the objection, saying:
stockholders might relinquish one-half "Whether or not the premises in con-
of their stock and the payments pre- troversy are necessary for those pur-
viously made accounted for as if made poses, it is not material to inquire;,
on the stock retained, provided the that is a matter between the govern-
stockholders paid all the calls subse- ment and the corporation, and is no
quently made by the directory, was in concern of the defendant." The rea-
the nature of a contract, entered into son of the rule is obvious. As he-
between the corporation and its mem- tween the parties the purchase is valid
bers, and was not on its face illegal and it must be so as to third persons,
and improper. until, by a proper proceeding, a for-
5 California State Telegraph Co. ». f eiture has been declared. It is well
Alta Telegraph Co., (1863), 22 Cal. settled that a cause of forfeiture can-
398. A purchase by a corporation in not be inquired into collaterally."
the face of a positive prohibition In his concurring opinion Cope,
would be void; but that is not this Ch. J., said: "As to the capacity
case. There was no provision of law of the corporation to purchase, the
forbidding the purchase; and, admit- defendant is not the party to ob-
ting that the corporation had no ject. If the corporation, in making
power to make it, the want of power, the purchase, has acquired property
in the absence of an express prohibi- which, under the law of its incorpoi'a-
tion, is not sufficient to avoid it as to tion, it had no right to acquire, all
third persons. The rule in such cases that can be said is that it has exceeded
was laid down by this court in Na- its powers, and may be deprived of
toma Water & Mining Co. ». Clarkin, the property by a judgment of for-
14 Cal. 544. In that case the corpo- feiture. The question is one which
ration was empowered to purchase the state alone can raise."
I 271] TILTEA VIRES PEIVATE COEPOEATIONS. 455
low from the prohibition in a charter of a. corporation of dealing
in commercial paper that the corporation may not receive and
sell notes given for the sale of its lands.' A corporation sncceed-
ing to the business of an individual in its line of manufactures,
for instance, may accept from the individual whom it succeeded
an order accepted by him upon particular terms.^ Though tlie
articles of an incorporated college may not expressly give it power
to raise and control funds by taking endowment notes, it may
accept and enforce paymeiit of such notes.' A contract entered
into by a railroad corporation before the completion of its line of
road, for the transportation of freight after the completion of its
line, is not ultra vires, but is binding and enforceable.^ 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.^
A railroad corporation, under the statutes of Indiana, may pay in
advance for the use of another railroad thus aiding in its con-
struction.' It is not beyond the power of a corporation author-
ized by its charter to purchase " any real estare or other prop-
erty," etc., to purchase its own stoek.'' 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 not
incorporated in that state, the taking of a note payable in such bills
was an act ultra vires a Massachusetts banking institution and the
' Buckley i>. Briggs, (1860) 30 Mo. « Aurora & Cincinnati R. Co. v.
453. In "Western Organ Co. v. Red- City of Lawrenceburgh, (1877) 56 Ind.
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
man ufacture and sale of musical instru- it, see City Bank ». Bruce, 17 N. Y.
ments, with no power to engage in the 507; C, P. & S. "W. R. R. Co. ii. Mar-
business of loaning money, might still seilles, 84 111. 145, 643; L. S. I. Co. «.
take from its agent in payment of in- Drexel, 90 N. Y. 93; State Bank v.
debtedness by him to the corporation Pox, 8 Blatchf . 434; Otter v. Brevoort
the note of a third party belonging to P. Co., 50 Barb. 256. As to the power
him. of a corporation to purchase shares of
^ Cook Manufacturing Co. v. Ran- its own stock in good faith, and not in
dall, 63 Iowa 344. fraud of its creditors, see Chicago,
2 Simpson Centenary College v. Pekin & So. Western R. R. Co. d. Presi-
Bryan, 50 Iowa, 393. dent, etc.. Town of Marseilles, (1876)
'' Louisville, New Albany & Chicago 84 111. 145; on rehearing, 84 111. 643;
Ry. Co. V. Flanagan, (1887)113 Ind. Clapp ». Peterson, (1883), 104 111. 26.
498. ' Iowa Lumber Co. i>. Foster, 49
'Ibid. Iowa, 25.
456 ULTRA VIEES — PEIVATE COEPOEATIONS. [§271
note was void.^ A manufacturing corporation may take shares
of another corporation in payment of a debt.' An academy
being incorporated for the purpose of holding funds to be applied
to the eaucation 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.' 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 pajment pro tanto of its debt.* 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.^ 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.* 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-
' President, Directors, etc., of (1892) 50 N. J. Eq. 656, the defendant
Springfield Bank d. Merrick, (1817) 14 corporation being authorized by char-
Mass. 332. ter to issue bonds for proper corporate
^ Howe v. Boston Carpet Co., (1860) purposes, and the validity of the cod-
16 Gray, 493; citing Hodges ». New tract being established, the Court of
England Screw Co. , 1 R. I. 313, and Chancery declined to interfere to regu-
3 R. I. 9; Treadwell ». Salisbury Mfg. late the character of the payments, or
Co., 7 Gray, 393. of the instruments to be issued there-
' Phillips Academy «. King (1815), for, as long as the same were not ex-
12 Mass. 546. pressly unauthorized.
■* EUerman i). Chicago Junction ' Greensburgh, Milford & Hope
Railway & Union Stock Yards Com- Turnpike Co. ®. McCormick, (1873)45
pan,y, (1891), 49 N. J. Eq. 217. In Ind. 239.
Willoughby v. Chicago Junction Rail- ' Morrison ». Eaton & Hamilton R.
ways& Union Stock Yards Company, R. Co. (1860) 14 Ind. 110.
§ 271] ULTEA VIEES PEIVATE COEPOEATIONS,
457
cumbered real estate," will not commit an act ultra vires by
making a loan of money to one, accepting Ms notes and mortgage
to secure them.' The charter of a Massachusetts corporation
authorized it to purchase and hold " in fee simple or otherwise "
real and personal estate to the amount of $50,000, which was
increased 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
otlier 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 «. National Life Insurance for carrying out this provision,
Co., (1878)64Ind. 1. not inconsistent with any other pro-
" Eichardson«. 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-
over and 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- else of the powers conferred upon it."
ion of the charter is beyond the pow.er In Seymour «. Spring Forest Cemetery
of the corporation. The charter fail- Association, (1893) 64 Hun, 633; 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 such associa-
there are many ways in which it might tions by statute to ' ' purchase such real
be executed. An exhibition open to estate as the purposes of the associa-
the public at a proper charge, at tion may require " were held not to be
which mechanics may display their void as ultra vires. See Fuld «. Burr
inventions and improvements, and Brewing Co., (Ct. Com. PI. N. Y. City,
compete for premiums and gratuities, 1893) 18 N. Y. Supp. 456, for an
would seem to be a reasonable method illustration of what guaranty was
58
458 ULTKA VIEE8 PRIVATE COErOEATIONS. [§ 271
Where a railroad corporation agreed to load steamers chartered by
a cotton compress company with cotton on terms named in their
contract for shipment, and the compress company had, by the
delay of the railroad corporation in delivering the cotton for
shipment, to pay a large sum for demurrage and brought its
action against the railroad corporation for its recovery, the Court
of Appeals of Virginia held that the contract on the part of the
railroad corporation was not ultra vires} A loan of money
upon mortgage security by a corporation organized for the pur-
pose of' constructing ditches for the conveyance and sale of water,
the California Supreme Court has held, was not necessarily an act
exceeding its corporate powers ; fiirther, such a contract, if neces-
sary to attain its general objects and made as an incident to the
exercise of its granted powers, was valid, and in the absence of
proof it would be presumed.^ A corporation, organized under
not ultra mres this corporation, and, to deliver a certain number of bales of
if so, the plea of ultra mres was cotton, at a specified time, at Norfolk,
not available, in which case Schm-r for shipment to Liverpool by char-
■!). Investment Co., (Ct. Com. PI. tered steamers for that purpose. It
N. Y. City, 1893) 18 N. Y. Supp^ was not contrary to or forbidden by
454, was distinguished. Illustration their charter, and it was for the iuter-
of a contract not ultra vires the corpo- ests of commerce and in the line of
ration, see United Lines Telegraph their business." Citing additionally,
Co. D. Safe Deposit & Trust Co., (1893) as authority, 1 Wood Ry. Luw, § 170,
147 U. S. 431; s. c, 13 Sup. Ct. Rep. pp. 474, 479, 480, 533; §§ 179, 183;
396. What class of contract by a rail- Pierce on Railroads, 499-501, 508-510.
road corporation is not ultra vires, see * ' Union Water Co. ■». Murphy's Flat
Union Pacific Ry. Co. v. Chicago, R. Fluming Co., (1863) 38Cal. 621. "For
I. & P. Ry. Co., (1892) 51 Fed. Rep. instance," said the court, "it might be
309; 8. c, 2 C. C. A. 174; 10 U. S. necessary for such a corporation to
App. 98. make advances, in the nature of a loan,
' Norfolk & Western R. R. Co. d. to enable a contractor to construct
Shippers' Compress Co., (1887) 83 Va. their works, or it might be very nec-
273; s. c, 2 S. E. Rep. 139. The court essary for such a corporation to pro
said: "The contract was incident to cure an additional supply of water,
and for the benefit of their business as and a loan of money to another water
common carriers, and it was but a company who may be engaged in con-
part of a long-established and system- structing ditches which will bring such
atic policy of these railroads compos- additional supply, may be the direct
ing the air lines to induce and control and necessaiy means to attain that
the transportation of cotton for the object. So, too, it might become nec"
interior west and southwest over their essary for a corporation engaged in a
line for shipment to England from the large enterprise, such as the construc-
port of New York. It was not a con- tion of large canals, railroads, turn-
tract to buy or sell cotton, but simply pike roads, and the like, to borrow
271] TTLTEA VIEES PRIVATE OOEPOEATIONS.
459
the laws of Illinois, through its stockholders and officers entered
into an agreement with other persons owning patents, etc.,
adapted to its business, by which a new corporation was organ-
ized, the former as a part of its agreement transferring to the
new one 10,000 of its shares of stock, which had been prop-
mouey on favorable terms and at a low as an Incident to the other powers con-
rate of interest; it might be necessary ferred by the charter. Farmers' L. &
to borrow it upon long time, providing T. Co. i). Clowes, 4 Edw. Ch. 575;
a sinking fund for its payment, by s. c, 3 Comst. 470; Farmers' L. & T.
setting apart a certain portion of the Co. ■». Perry, 3 Sandf . Ch. 839. So,
corporate revenues, to be loaned out too, an insurance company was incor-
on interest, sufiEering the principal and porated without any special provision
interest to accumulate to an amount in relation to the mode of investing its
sufficient to repay the borrowed money capital, and it was held that it had the
when due. Such is the usual mode of power to invest the whole or any part
conducting the business of corpora- of its capital by way of loans on bond
tions of that character, and there can and mortgage and to reinvest it in the
be no objection to it so long as the same way whenever it should become
legitimate business of the corporation necessary or convenient to do so.
is not changed into that of a loan com- Mann ». Eckford, 15 Wend. 513.
pany. So long as the loans are a mere Where a bank was authorized to take
incident to the exercise of its legiti- mortgages in security for debts pre-
mate powers they are rightful and viously contracted, It was held that if
vaUd. So numerous other cases of a the loan and mortgage were concur-
like character might be suggested rent acts it was not a violation of the
where loans by a corporation might be restraining clause of the statute,
very proper and necessary in con- Silver Lake Bank v. North, 4 Johns,
ducting its business operations; and if Ch. 870; Baird v. Bank of Washing-
all corporations are to be considered as ton, 11 Serg. & R. 411. A plankroad
absolutely prohibited, or not permitted, company was not authorized to loan
to ma,ke any loan of money except in money, but if necessary it can legally
the few classes of cases of corporations loan a sum of money to one of its con-
where it is expressly allowed by the tractors to enable him to build a
statute, and all such contracts are to portion of its road. Madison, etc.,
be held void, a result would be pro- Plank Road Co. i). Watertown Plank
duced which certainly never was in- Road Co., 5 Wis. 173. A corporation
tended by the legislature, nor is it was prohibited from deaUng in goods,
sustained by the rules of law. A cor- wares and merchandise. Held, that a
poration had power to insure lives and loan made, secured by a quantity of
grant annuities, and it was held that, cotton, which was to be shipped and
as it must have funds to apply to sold and the proceeds credited to the
those purposes, it might loan its debtor on the loan, was not a violation
money, and the loan by it would be of the charter. Bates ». State Bank,
presumed to have been made in the 2 Ala. 465. So, too, a sale by a bank
ordinary course of its business, and, of a quantity of butter which it had
therefore, valid, although it had no taken in settlement of a debt was
express power to loan money. The deemed no violation of a similar
authority to loan money was upheld clause in its charter. Sacketts Harbor
460 ULTKA VIEES — PRIVATE COEPOEATIONS. [§ 2Y1
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 ratiiied
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., Eailroad 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 pleaded. 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 of the stock, was devised by the defendant himself. He
was an ofiicer and director of the corporation and took an active
part in the management of its business, and he is, therefore, in po
position to claim that he was overreached or in any way deceived
Bank V. Lewis County Bank, 11 Barb, prohibit a supply of goods to those
213. A glass company, not authoi-- 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. ii. Dewey,
that the legislature did not intend to 16 Mass. 103."
ITLTEA VIEES PRIVATE COEPOEATIONS.
461
§271]
in the purchase of the stock or in the execution of the notes.'" In
a Kansas case the Supreme Court held that a contract entered
into by a town company incorporated " for the purchase of land,
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 the
town site, the town company would convey to him certain lots in
the town and pay him the sum of $1,000, tended directly to
enhance the value of the remaining property of the corporation,
and was not necessarily vltfra vires? A contractor for construc-
tion of a railroad in Wisconsin was stopped from his work with
• ' Bggmann ». Blanke, (1890) 40 Mo.
App. 318.
'Sherman Center Town Company
■0. Russell, (1891) 46 Eans. 383; s. c,
26 Pac. Rep. 715. Arguendo, the court
said, upon the insistment 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, 1 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-
tract 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,
his barn and restaurant at the town of
Sherman Center no doubt tended di-
rectly and proximately to build up the
town and give it prestige in that com-
munity," thus enhancing the value of
the remaining lots and promoting the
legitimate objects of the corporation.
In Whetstone ». Ottawa University,
13 Hans. 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 oiitside 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 Bkbwer,
who pronounced the judgment of the
court, remarked tbat ' Town-site com-
panies are 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. * * * jf
by the donation of one lot they can
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
i62 ULTEA VIEES — PEIVATE OOEPOEATIONS. [§ 2Y1
the company largely in debt to him. He brought action and
obtained judgment. Execution had beeE returned nulla bona.
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 tjnited States
Supreme Cpurt 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.' 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.''
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 mres.' "
hanced in value. And if the lots were ' Angle ». Chicago, St. Paul, Minne-
donated to secure the erection of a apolis & Omaha Ey. Co., (1894) 151
hospital or school at a remote place, as U. S. 1.
suggested by counsel, there would be ' Commonwealth «. Suffolk Trust
no resultant benefit to the corporation Co., (Mass. 1894) 37 N. B. Kep. 757.
of enhanced value of its unsold lots.
§ 2Y2] ULTRA TIBES — PEIVATE COEPOEATIONS. 463
§ 272. Illustrations of acts ultra vires the corporation.— A
corporation confined by its charter to one business cannot law-
fully engage in enterprises foreign to that business. For instance,
a railroad corporation, the purposes of which are strictly confined
to the completion and maintaining of a railroad, cannot lawfully
engage in banking.^ IlTeither can a corporation engaged in insur-
ing property.' While a railroad corporation may adopt any con-
venient means, proper in themselves, tending directly to the exe-
cution of the powers conferred upon it by its charter, and not
amounting to the transaction of any distinct unauthorized busi-
ness,' it cannot engage in such business as banking, manufactur-
ing, speculating in land, or the like, as a means of raising funds
to build or operate its road.* A provision in the charter of an
insurance 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 been held not to authorize the corporation to issue
certificates of deposit to circulate as money, and with the intent
that they shall so circulate.' A railroad corporation, chartered
for the specific purpose di 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
' People 0. Eiver Raisin & Lake add to its granted powers by an in-
Erie R. R. Co., (1864) 12 Mich. 389. genious device, and obtain by subter-
" Blair ». Perpetual Insurance Co., fuge an authority which legislative
(1847) 10 Mo. 559. caution withheld from it." In Phila-
' Clark e. Farrington, 11 Wis. 306. delphia Loan Co. v. Towner, (1889) 13
■• Waldo «. Chicago, St. Paul & Pond Conn. 249, a provision of the charter of
du Lac R. R. Co., 14 Wis. 575. the corporation that "nothing therein
' Bliss V. Anderson, (1858) 31 Ala. contained should be construed to au-
613. 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-
posltory, but not in such manner and curing of the interest on that sum in
form as will accomplish that and advance, for the period of the loan,
another 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
464 TJLTEA VIBES PRIVATE COEPOEATIONS. [§ 272
paper, if executed, would be void in the hands of an assignee.^
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.' Though
corporations created 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.' It is
not within the powers of a manufacturing corporation, limited by
its charter in the use of niercantile paper to that necessary for the
convenient prosecution of its business, to accept paper drawn by
third parties for accommodation.* 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.^
' Smead v. Indianapolis, Pittsburgh ' Davis ®. Old Colony R. R. Co.,
& Cleveland R. R. Co., (1858) 11 Ind. (1881) 131 Mass. 258; Davis «. Ameri-
104. In Abbott -o. Baltimore & Rap- can Urgan Co., (1881) 131 Mass. 258.
pabannock Steam Packet Co., (1850) 1 " National Bank of Republic of New
Md. Cb. 542, the object of the corpora- York ». 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 ■* Webster ». Howe Machine Co.,
and places on the Rappahannock, and (1886) 54 Conn. 894; s. c, 8 Atl. Rep.
on the rivers and waters of the 483.
Chesapeake bay, for the conveyance '^ Pacific Postal Telegraph Cable
of passengers and transportation of Co. xi. Western Union Telegraph Co.,
merchandise and other articles." The (1892) 50 Fed. Rep. 493. Hanpord,
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
§272]
TJLTEA VIEES — PEIVATE COEPOEATIONS.
465
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-
sideration paid.' The court, in its opinion, said : " It is well
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 contract by which a street
use of such. By the plaintiff's own
shdwing 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 the 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 organized 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 maniier
abridged." Citing Lakin ». Willamette
Valley, etc., R. R. Co., 13 Or. 436; s.
c, 11 Pac. Rep. 68; Braslin «. Somer-
ville Horse R. R. Co., 145 Mass. 64;
s, c, 13 N. E. Rep. 65; Palmer v.
Railway Co., (Idaho) 16 Pac. Rep.-
553; Railroad Co. v. Brown, 17 Wall.
445; Railroad Co. v. Crane, 113 U. S.
433, 434; s. c, 5 Sup. Ct. Rep. 578;
59
Oregon Railroad & Navigation Co. «.
Oregonian Co., 130 U. S. 1; s. c, 9
Sup. Ct. Rep. 409; Van Dresser b. Navi-
gation Co., 48 Fed. Rep. 303; U. S. v.
Western Union Tel. Co., 50 Fed. Rep.
28. That contracts beyond the power
of a corporation to make cannot be
made binding by a ratification, see
Brady «. Mayor, etc., of New York,
(1859) 20 N. Y. 312. Case holding a con-
tract of sale of the property of a corpo-
ration 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 ultra
vires : People v. Ballard, (1892) 134 N.
Y. 269; s. c, 32 N. E. Rep. 54, re-
versing People V. Ballard, 56 Hun,
125.
' National Park Bank of New York
V. German-American Mutual Ware-
housing & Security Co., (1889) 116
N Y. 281, reversing Same ®. Same, 21
J. & S. 367.
^ Citing Central Bank v. Empire
Stone Dressing Co., 36 Barb. 23;
Bridgeport City Bank a. Empire Stone
Dressing Co., 30 Barb. 421; Farmers
& Mechanics' Bank v. Empire Stone
Dressing Co., 5 Bosw. 275; Morford v.
Farmers' Bank of Saratoga, 26 Barb.
568; Bankof Genesee ».Patchin Bank,
13 N. Y. 309; ^tna National Bank v.
Charter Oak Life Ins. Co., 50 Conn.
167; Monument National Bank v.
Globe Works, 101 Mass. 57; Davis v.
Old Colony R. R. Co., 131 Mass. 258^
466
ULTRA VIRES 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, lias been held to be ultra
vires and void.' 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.^ There
Culver V. Reno Real Estate Co., 91 Pa.
St. 367; Hall v. Auburn Turnpike Co.,
27 Gal. 255. As to a manufacturing
corporation discounting a note, see
Lawrenceville Cement Co. v. Parker,
(1890) 10 N. Y. Supp. 831.
' Middlesex R, R. Co. i\ Boston &
Chelsea R. R. Co., (1874) 115 Mass.
347; citing Richardson v. Sibley, 11
Allen, 65.
' 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 defined 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 Qorporatiou 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 i>. Thompson, 19 N. Y. 207-222;
Relfe i\ Rundle, 103 U. S. 232-226;
Davis V. Old Colony R. R. Co., 131
Mass. 358-260; Leonard r, A. Ins. Co.,
97 Ind. 399. 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 tue powers conferred by its
charter. People, etc., -b. M. & T. S.
Inst., 93 N. Y. 7-9; Sistare v. Best, 88
N. Y. 537-531. 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 proldbitum, 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
•sires should prevail unless it would de-
feat justice or accomplish a legal
wrong." The court then applied the
§272]
ULTEA VIEES PEIVATE COEPOEATIONS.
467
was a contention in this case that the contract had been exe-
cuted on the part of the plaintiffs, and that the corporation
was estopped from setting up the defense of uliyra vires. The
Court of Appeals held, however, that, under the circumstances
of this case, the defense was still available to the corporation.'^
principles to the case at bar: "As we
have seen, the defendant was chartered
for the purpose of receiving on deposit
orin trust such gums of money as may
from time to time he offered by trades-
men, merchants, clerks, laborers, serv-
ants and others. It was authorized
to loan these moneys according to the
Constitution and laws of the state and*
to discount in accordance with bank
usages, taking such security therefor,
either real or personal, as the directors
may deem sufficient. In addition
thereto the defendant was given power
to borrow money, buy and sell ex-
change, bullion, bank notes, govern-
ment stocks and other securities. The
authority here given to buy and sell
exchange, bulli&n, bank notes, gov-
ernment stocks and other securities .
does not embrace or include specula-
tive contracts in cotton futures any
more than it does hay, oats, provisions
or dry goods. The exchange, bullion,
bank notes, securities, etc., author-
ized are those of fixed value, current
in the market and not subject to the
control of speculators. Whilst the
buying and selling of cotton to be
delivered in the future may not ordi-
narily be immoral or prohibited by
any statute, it is not included in the
powers given to the defendant by its
■charter. The transaction in question
was prejudicial to its stockholders
and tended to endanger and destroy
the safeguards provided for the de-
positors. The stockholders and de-
positors had the right to have their
funds invested in accordance with the
provisions of the charter and the Con-
stitution and laws of the .state, and in
so far as this right was violated by the
transaction in question it was a misap-
propriation of the funds and immoral."
'Jemison v. Citizens' Savings Bank
of Jefferson, Texas, (1890) 133 N. Y.
135. The court reviewed leading cases
pertinent to this question, saying:
"In the case of Whitney Arms Co. v.
Bariow, 63 N. T. 63, the plaintiff was
a corporation organized for the pur-
pose of manufacturing every variety
of firearms and other implements of
war, and all kinds of machinery
adapted to the construction thereof.
It entered into a contract with the
American Seal Lock Company to
manufacture and deliver ten thousand
locks. The locks having been de-
livered, it was held that the contract was
fully executed, and the plea of ultra
vires would not prevail as a defense to an
action brought to recover the contract
price." Citing Huntington «. Savings
Bank, 96 U. S.' 388; Thomas ». R.
R. Co., 101 U. S. 71; Nassau Bank «.
Jones, 95 N. Y. 115; Leslie «. Lorillard,
110 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 «. Wheeler, 32 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 «. Jones, supra ;
P. C. & 8. L. R. Co. «. K. & H. B.
Co., 131 U. S. 371-889. In the case at
468
ULTEA VIEES PEIVATE COEPOEATIONS.
[§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.' The
court also held that the contract of suretyship being utterly void
there was no estoppel of the corporation to plead vZi/ra vires as to
the undertaking.^
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 opii;iion that under
the circumstances of this case, the de-
fense of ultra mrea is still available to
the defendant."
' Lucas «. White Line Transfer Co.,
(1886) 70 Iowa, 541; s. c, 30 N. W.
Eep. 771. • The court, through Eoth-
llOCK, 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 oiBcers of defendant
any power to jeopardize its capital in
i^y 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, 352; Madison, etc., Plank
Eoad Co. «. Waterman, etc.. Plank
Road Co., 5 Wis. 59."
^ Lucas ». 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 Rothkock, 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 makesi
§ 273] ITLTEA VIEES PRIVATE COEPOEATIONS. 469
§ 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 of years, with the privilege of renewal of the same, to
another corporation of the same kind in consideration of the latter
■with the officers of a corporation an jected to what they termed an ultra
illegal contract beyond the powers of m'»'«s contract were charged with knowl-
the corporation, as shown by its char- edge of and participation in the act
ter, such third party cannot recover, they claimed to be illegal and were in
because he acts with knowledge that no condition to complain. A corpors,-
the officers have exceeded their power, tion cannot retain benefits derived
and between him and another corpora- from an ultra vires contract ; and at the
tion, or its stockholders, no amount of same time treat the contract as entirely
ratification by those authorized to void, unless, perhaps, in cases where
make the contract will make it valid, the other party has assisted willfully
(4) Where the officers of a corporation in putting it beyond the power of the
make a contract with third parties in corporation to return what is received
regard to matters apparently within on such contract. (6) Where the cor-
their corporate powers, but which, poratiou has permitted its officers to
upon the proof of extrinsic facts (of engage in ultra vires transactions, the
which such parties had no notice), lie officers commit a wrong or tortious act
beyond their powers, the corporation without the fault of the injured party,
must be held, unless it may avoid lia- the corporation is estopped from tak-
bility by taking timely steps to pre- ing advantage of the ultra vires char-
vent loss or damage to such third party; acter of the original undertaking."
for in such cases the third party is inno- As to the doctrine that charters not
cent, and the corporation stockholders expressly or by implication authoriz-
less innocent, for having selected offi- ing an act prohibit it and render such
cers not worthy of the trust reposed in act void, see SafEord v. Wyckoff, 1
them. (5) This class of cases may be Hill, 11; Leavitt v. Palmer, 3 Comst.
illustrated by that where the officers 19; Talmage v. Pell, 3 Seld. 328;
of a corporation empowered to build Tracy «. Talmage, 14 N. T. 162, 179;
and operate a certain line of railroad, Bissellt). Michigan So., etc., R. R. Co.j
purchased iron to be used for another 22 N. Y. 358, 289; Whitney Arms Co.
line without the knowledge of the «. Barlow, 63 K Y. 62, 68; Alexander
vendee. 80, in case of Humphrey v. «. Cauldwell, 83 N. Y. 480, 485; Nas-
Patron's Mercantile Assn., 50 Iowa, sau Bank «. Jones, 95 N. Y. 115, 133;
607, the debts of the corporation New York Firemen Ins. Co. ». Ely,
were, by its articles, limited to 5 Conn. 560, 573; Hood v. New York
a certain amount; but the officers & New Haven R. R. Co., 32 Conn,
of the association, in dealing with 502; Elmore v. Naugatuck R. R. Co.,
Humphrey, exceeded that amount 23 Conn. 457; Mutual Savings Bank
without his knowledge or means of i>. Meriden Agency Co., 24 Conn. 159;
knowledge, and the corporation was Naugatuck R. R. Co. ®. Waterbury
held. Thompson «. Lambert, 44 Button Co., 24 Conn. 468. Contracts
Iowa, 339, belongs to the same class of held ultra vires and void: Twiss v.
cases, with the addition that in the Guaranty Life Assn. of Iowa, (1893)
last case the stockholders who ob- 87 Iowa, 733; s. c, 55 N. W. Rep. 8
470
TJLTEA VIEES PRIVATE COEPOEATIONS.
[§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.^ The court held that the contract for lease
following Lucas i). Transfer Co., 70
Iowa, 542; s. c, 30 N. W. Rep. 771.
See on ultra vires Wardner, Busbnell &
Glessner Co. i). Jack, 82 Iowa, 435;
Carson City Sav. Bank«. Elevator Co.,
90 Mich. 550; Seymour v. Association,
64 Hun, 633; Richelieu Hotel. Co. v.
Encampment Co., 140 111. 348; s. c,
39 N. E. Rep. 1044, affirming 41 111.
App. 368; Dewey v. Railway Co., 91
Mich. 351; Helms Brewing Co. v.
Plannery, 137111. 309; Buckeye Marble
& Freestone Co. v. Harvey, (1892)
93 Tenn. 115; s. c, 20 S "W. Rep. 437;
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. 1087. When a plea of ultra
vires will be held sufficient. Gillespie
«. Davidge Fertilizer Co., 66 Hun,
627; s. c, 20 N. Y. Supp. 833. When
a contract will not be declared ultra
vires. Nashua & Lowell Railroad
Corp. V. 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 V. Ferd Heim Brewing Co., 47
Mo. App. 608; Glass v. Ferd Heira
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 K Y. Supp.
643, in which Abbot v. Rubber Co.,
33 Barb. 578, was distinguished;
Ashenbroedel Club v. Finlay, 53 Mo.
App. 356. As to liWra was generally,
see Oelbermann v. New York & N. Ry.
Co., 77 Hun, 332; s. c, 39 N. Y.
Supp. 545; Pauly v. Coronado Beach
Co., 56 Fed. Rep. 438; 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. 1089;
Kadish v. Garden City Equitable
Loan & Bldg. Assn., 47 111. App. 603;
Smith V. White (Tex. Civ. App.) 25 S.
W. Rep. 809; Head «. Cleburne Bldg.
& Loan Assn., (Tex. Civ. App.) 25 S.
W. Rep. 810; Cameron «. First Nat.
Bank, 4 Tex. Civ. App. 809; s. c. , 33
S. W. Rep. 334; Butte Hardware Co.
V. Schwab, (Mont.) 34 Pac. Rep. 34;
Magee v. Pacific Improvement Co., 98
Cal. 678; s. c, 33 Pac. Rep. 772.
' Board of Commissioners of Tippe-
canoe Co. V. La Payette, Muncle &>
§ 273] ULTRA VIEES PEIVATE COEPOEATIONS. 471
of this road was made without authority of law ; that the board
of directors and agents of the corporation had no power to make
it ; and that it was in violation of the rights of the stockholders
and in contravention of public policy.' The court said, how-
ever : " We do not decide that railroad companies cannot become
lessors or lessees of other railroad companies, or make other con-
tracts with other railroad companies, for the purpose of running
their lines in conjunction, facilitating commerce, travel and trans-
portation, or for any of the legitimate purposes for which i-ailroad
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 stockholders or contravene
public policy.^ It was contended in this case that the Indiana
statute of February 23, 1853, entitled an " act to authorize rail-
road companies to consolidate, etc.," had removed this disability
which these principles of law imposed upon such corporations.
The Supreme Couri; held adversely to the contention.' It
Bloomington R. R. Co., (1875) 50 Madison, etc.. Plank Road Co. v. Wa-
Ind. 85. tertown, etc., Plank Road Co., 7 Wis.
' Ibid. ; citing in support of these 59; Eldridge v. Smith, 34 Vt. 484; Per-
conclusions: 1 Redf . on Railways, 226, rine v. Chesapeake, etc., Co., 9 How.
594, 616, 641, 644, 650; Boston, etc., 173; Bedford R. R. Co. '». Bowser, 48
R. R. Corp. V. Salem, etc., R. R. Co., Pa. St. 39; Pearcen. Madison, etc., R.
2 Gray, 1; Black v. Delaware, etc., R. Co., 21 How. 441; European, etc.,
Canal Co., 7 C. E. Green (N. J.), 130; Ry. Co. v. Poor, 59 Me. 277; Wright «!
Bissell «. Michigan Southern, etc., R. Bundy, 11 Ind. 398; Eaton & Hamilton
R. Co., 22 N. Y. 258; Fall River Iron R. R. Co. v. Hunt, 30 Ind. 457; Board of
Works Co. V. Old Colony, etc., R. R. Comrs., etc., o. Reynolds, 44 Ind. 509;
Co., 5 Allen, 221; Great Luxembourg Sparrow ». Evausville, etc., R R. Co '
Ry. Co. V. Magnay, 25 Beav. 586; 7 Ind. 369; Fisher «. Evansville etc '
Beman v. RufEord, 1 Sim. (N. S.) 550; R. R. Co., 7 Ind. 407; Booe v. Junction
BagshawB. Eastern Union Ry. Co., 2 R. R. Co., 10 Ind. 93; McCray v
Macn. & G. 389; Bank of Middlebury Junction R. R. Co 9 Ind 358- Shel
V. Bdgerton, 30 Vt. 188; Marsh v. Ful- byvilb, etc., Turnpike Co. v Barnes
ton Co., 10 Wall. 676; Colman«. East- 42 Ind. 498.
eru Counties Ry. Co., 10 Beav. 1; ^ Board of Commissioners of Tippe-
Township of Pine Grove 1,. Taloott, canoe Co. ». La Payette, Muncie &
19 Wall. 666; East Anglian Ry. Co. i>. Bloomington R. R Co (1875) 50 Ind
Eastern Counties Ry. Co., 11 C. B. 85, 115.
775; Richardson v. Sibley, 11 Allen, 'Ibid. The court said- "That act
65; Eidman v. Bowman, 58 111. 444; is ' to authorize railroad companies to
Stewart's Appeal, 56 Pa. St. 413; consolidate their stock with the stock
472 ULTEA VIKES PRIVATE COEPOEATIONS. [§273
appeared in a case before the United States Supreme Court that
a corporation oi'ganized 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 hii'ing 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
§273]
ULTEA VIEES — PEIVATE COEPOEATIONS.
473
of the lessor corporation and to pay a fixed sum annually, during
the term of ninety-nine years, unless the contract was sooner
terminated as provided in its terms. The lessor corporation
brought this action to recover of the lessee corporation a large
sum of money claimed to be due from it on this contract. The
Supreme Court 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.^ In the United States
' Central Transportation Co. v. Pull-
man's Palace Car Co., (1891) 139 U. S.
24; s. c, 11 Sup Ct. Rep. 478. Mr.
Justice Gray in the opinion which he
delivered for the court quoted from
and reviewed the following cases:
York & Maryland Railroad v. Wiuans,
17 How. 30; Pearce -o. Madison & In-
dianapolis Railroad, 21 How. 441;
Zabriskie «>. Cleveland, etc., Railroad,
28 How. 881; Thomas d. Railroad Co.,
101 TJ. S. 71; Branch r. Jesup, 106 U. S.
468; Pennsylvania Railroad d. St. Louis,
etc., Railroad, 118 U. 8. 390; Salt Lake
City v. Hollister, 118 TJ. S. 256; Willa-
mette, etc., Co. T. Bank of British
Columbia, 119 U. S. 191; Green Bay &
Minnesota Railroad v. Union Steam-
boat Co., 107 TJ.' S. 98; Pittsburgh,
etc., Railway v. ICeokuk & Hamilton
Bridge, 181 U. S. 371; Oregon Rail-
way ®. Oregouian Railway, 180 TJ. S.
1. TJpon 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. V. North American Oil Com-
pany, 66 Pa. St. 375; Treadwell i).
Salisbury Manuf. Co., 7 Gray, 393.
But the purpose of its corporation, as
60
defined in its charter, and recognized
and confirmed by the legislature, being
the ti'ansportation of passengers, the
plaintiff exercised a public employ-
ment, and was charged with the duty
of accommodating the public in the
line of that employment, exactly cor-
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 plaintiff 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 v. Pullman Southern Car Co.,
117 TJ. S. 34; York & Maryland Rail-
road «. Winans, 17 How. 30, 39; Rail-
road Co. «. Lockwood, 17 Wall. 857;
Liverpool & Great Western Steam Co.
r. PhcBnix Ins. Co., 129 U. 8. 397."
After referring to the express pow-
474
TJLTEA VIEES PRIVATE CORPORATIONS.
[§273
Circuit Court for the northern district of Washington it has been
held that a raih'oad 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.' The Supreme Court of New
ers coufen-ed 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 plaintifE'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 plaintifE's covenapt 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 plaintifE'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 i). 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-
gress 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 it 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 437), 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 worldng the
§ 273] ULTEA VIEES — PEIVATE OOEPOEATIONS. 'iTS
York, in General Term, affirmed the denial of a motion to con-
tinue an injunction restraining the directors of a corporation
from transferring its property, assets and business to another
corporation, where it appeared from affidavits of the directors
that they did not contemplate such action, but merely the leasing
of important rights and functions to the other corporation.'
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 lease 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 New
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 what-
All such arrangements, whatever ever. No consolidation has been
their form, however disguised, are attempted, and yet the transaction is
ultra vires 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 be
' 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 was
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 has gained control of the this subject is thus stated in 3 Mor.
Seattle, Lake Shore and Eastern Com- Priv. Corp. § 951 : ' A corporation
pany's franchise and business are cannot consolidate with another com-
ultra mres 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 unauthorized
There has been no sale and convey- consolidation may be prevented by
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 bis con-
this state relating to the manner of nection with the company, by a
transferring titles to such property, rescission of his subscription.'"
As the parties have not done what the ' Small v. Minneapolis Electro-
statute authorizes to be done, I do Matrix Co., (1890) 10 N. Y. Supp. 456.
not think that the deal between them
470 ULTEA VIKES PEIVATE COEPOEATIONS. [§ 274
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.'" 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."*
§ 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-
' Citing Abbot ». Rubber Co., 33 'Citing Beveridge v. Railroad Co.,
Barb. 578, 591. 113 N. T. 1; s. c. 19 N. E. Rep. 489.
§274] XTLTEA VIEES PEIVATE COEPOEATIONS. 477
ing ; and iti case the corporation is not created, as may appear
from its articles of incorporation, for pecuniary profit, this decla-
ration would exclude the power of loaning its funds.'- And
where a corporation has no power to loan its funds, a promis-
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 moneys
received in trust,, may be invested in stocks, loaned to any city,
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.^ 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.*
' Chambers D. Falkner, (1880) 65 Ala. s. c, 11 Sup. Ct. Eep. 484, in these
^^- words: " The charter of a corporation
' Il'i'i- read in the light of any general laws
= 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 delusion 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 ». Alabama Life Ins. & Trust yond the scope of those powers are
Co., (1848) 13 Ala. 579. unlawful and void, and no action can
^Pauly V. Coronado Beach Co., be maintained upon them in the courts;
(1893) 56 Fed. Rep. 428. The court and this, upon three distinct grounds!
placed its ruling upon the doctrine on The obligation of every one contract-
this subject as summed up by the Su- ing with a corporation to take notice
preme Court of the United States, in of the legal limits of its powers; the
Central Transportation Co. v. Pull- interest of the stockholders not to be
man's Palace Car Co., 139 U. S. 48; subjected to risks which they have
478 TTLTEA VIEES PEITATE COEPOEATIONS. [§ 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 paj 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 secui-ity for the payment of the
notes. The Supreme Court of Judicature of that state held that
upon priiiciple, 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.'
never undertaken; and, above all, the Earle, 13 Pet. 519; TombigbeeE. R.
interest of the public, that the corpo- Co. v. Kneeland, 4 How. 16; Rimyan
ration shall not transcend the powers v. Coster's Lessee, 14 Pet. 122; Dart-
conferred upon it by law." In Riche- mouth College «. Woodward, 4 Wheat,
lieu Hotel Company 1). International 318, 636; Hood v. New York & N. H.
Military Encampment Co., (1892) 140 Railroad, 23 Conn. 1 and 503; Berry,
111. 348; s. c, 29 N. E. Rep. 1044, a Receiver, v. Yates, 24 Barb. 199 ;
subscription by this incorporated Mutual Savings Bank v. Meriden
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-
' Franklin Company v. Lewiston In- ment of funds that might afterwards
stitutiou 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
powersof corporations, to wit: Beatyw. future acquisitions a proceeding of
Lessee of Kuowler, 4 Pet. 153; s. c. , 1 very questionable convenience ; that
McLean, 41 ; Perrine ». Chesapeake & in the great majority of cases it would
Delaware Canal Co., 9 How. 173; be likely to prove, as it did in this case,
Farnum v. Blackstone Canal Co., 1 very inconvenient. But it is suffl-
Sumner, 46 ; Bank of Augusta v. cient answer to say that the law Im-
§276] TJLTEA VIEES — PKIVATECOEPOEATIONS. 479
It was f urtlier held in tWs case that the lender of the money, the
corporation plaintiff, having participated in the illegal transac-
tion, could not claim the privileges of a lonafide holder of cem-
mercial papei-; and that the savings institution, having received
no benefit from the transaction, was not estopped to set up the
defense of ultra vires} In an action brought by one Ohio cor-
poration, an iron company,, against another, a railway company,
for goods sold and delivered to the latter, the defense made was
that there had been a contract between the two corporations, by
the terms of which the iron company was to sell to the railway
company goods to a certain amount, and to receive in payment
thereof so many shares of stock in the latter. This involved the
question of the authority of the iron company to take stock in
the railway company. Upon this subject the Supreme Court of
Ohio 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 vires, 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 has 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
V. Eagle Ins. Co., 5 Ohio St. 59, and has been lirmly 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. «. Lewiston Institu-
formed when they have provided safe tion for Savings, (1887) 68 Me. 43.
Investments for the funds already com- 'Citing Railroad Co. «. Eailroad
mittedto their care. To hold that they Co., 31 N. J. Eq. 475; Franklin Co. ti.
may create debts binding upon exist- Lewiston Savings Inst., 68 Me. 43;
ing depositors whose money, after all, Railroad Co. «. Collins, 40 Ga. 583.
480 TTLTEA VIEES PEIVATE COEPOEATIONS. [§ 2T6
to in this court. Eailroad Co. v. Hinsdale, 45 Ohio St. 556, 5T3.
In'o 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 subscri'ption 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 Eevised
Statutes, that, 'ISTo 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 * * * ."i
§ 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,
' Railway Co. «. Iron Co., (1888) 46 Ohio St. 44. 49, 50.
/ / / /
§276] ULTRA VIBES ~ PRIVATE COEPOEATIONS. 481
which has been but re-enunciated by our statute (Nixon, 138,
§ 3), that no corporation shall possess or exercise any corporate
powers, except such as shall be expressly given in its charter, or
which shall be necessary to the exercise of the powers so enumer-
ated and given. "Was it within the scope of the powers of this
corporation to provide any other capital or fund as the basis of
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 fire. 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 up
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 t'he 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." '
' Trenton Mutual Life & Fire Insur- corporation incur a loss, and not have
ance Co. ®. McKelway, (1858) 12 N. J. the available means promptly to
Bq. 133, 135, 136. Arguendo, the meet it, it would not be illegal for
chancellor further said: "It was ad- them to make a loan to meet the
mitted, 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 giving
other than that for which the charter credit to the company. The question
provides. It was attempted to escape is as to the Una fides of the transac-
the consequences of such an act by tion. It matters not what you call it,
the argument that this was nothing the name does not affect its real char-
more than a contract for a loan of acter. "Was this a bona fide loan of
money, out of which the corporation money, or a contract for a loan, made
might be enabled to meet the losses in the ordinary course of .business,
that might be incurred. It cannot be and to meet an exigency which would
denied but that the corporation might bring such a contract within the com-
borrow money under some circum- pass of the legitimate powers of the
stances, and that a contract bona fide company? Or was it a contract to
made for such loan would be illegal provide a capital or fund for the pur-
[legal ?], and not in contravention of pose of giving a credit and character
tie charter. For instance, should the to the company which is entirely for
61
482
TTLTEA VIEES — PEIVATE COEPOEATIONS.
[§277
§ 277. Converting " common " into " preferred " stock. —
In a leading Jfew 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 was
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.' A manufacturing corporation
eign to its charter? Can this bo 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 in 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
1150.000. The simple question then
is presented, could this corporation
lawfully adopt any scheme or device
by which they could create a capital
of 1130,000, 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 ». 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." Folgkr, 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] TJLTEA VIRES PEIVATE COEPOEATIONS. 483
organized under the laws of ]S"ew York was organized with a
capital stock of 7,500 shares. At a certain time it owed
$300,000, and for the purpose of paying it, stockholders repre-
senting all the stock, except that mentioned hereafter, and the
corporation executed under their hands and seals a contract hy
which the shareholders agreed to surrender to the corporation
without consideration forty per cent of their stock, which
it might deem proper consistent with New York, 5 Cow. 538. So it is said
the Constitution and law; and to issue in Grant on Corporations, page 80, in
certificates of stock representing the a qualified way. Thereby, and by the
■ value of the property. We know of certificate, as between it and every
nothing in the Constitution or the law stockholder, the capital stock of the
that inhibits a corporation from begin- company was fixed in amount in the
ning its corporate action by classify- number of shares into which it was
lug the shares in its capital stock with divisible, and in the peculiar and rela-
peculiar privileges to one share over tive value of each share. The by-law
another, and then offering its stock entered into the compact between the
to the public for subscriptions thereto, corporation and every taker of a share;
No rights are got until a subscription it was in the nature of a contract be-
ismade. Each subscriber would know tween them. The holding. and own-
f or what class of stock he put down ing of a share gave a right which could
his name, and what rights he got when not be divested without the assent of
he thus became a stockholder. There the holder and owner; or unless the
meed be no deceptioft or mistake; there power so to do had been reserved in
would be no trenching upon rights some way. Mech. Bank v. N. Y. &
previously acquired; no contract, ex- N. H. E. R. Co., 13 N. Y. 599-627.
press or implied, would be broken or Shares of stock are in the nature of
Impaired. This corporation did other- cTioses in action, and give the holder a
wise. A by-law was duly made which fixed right in the division of the
declared the whole value of its prop- profits or earnings of a company so
erty and the whole amount of its capi- long as it exists, and of its effects when
tal stock and divided the whole of it it is dissolved. That right is as in-
into shares equal in amount and violable as is any right in property,
directed the issuing of certificates of and can no more be taken away "or
stock therefor. It is not to be said lessened against the will of the owner
that this by-law authorized anything than can any other right unless power
but shares equal in value and in right; is reserved in the first instance when it
or that the taker of one did not own as enters into the constitution of the right;
large an interest in the corporation, its or is properly derived afterwards from
capital, affairs and profits to come, as a superior law given. The certificate
any other holder of a share. Certifi- of stock is the muniment of the share-
cates of stock were issued under this holder's title and evidence of his right,
by-law that gave no expression of any- It expresses the contract between the
thing different from that. When that corporation and his co-stpckh6lders
l)y-law was adopted it was as much and himself; and that contract ca,nnot
the law of the corporation as if its he being unwiUing,' be taken away
provisions had been a part of the char- from him'or changed as to him with-
ter. Presbyterian Church v. City of out his prior dereUction or under the
484
ULTEA VIKBS PEIVATE COEPOKATIONS.
[§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 atove stated. Now it is
manifest that any action of a corpora-
tion which takes hold of the shares of
its capital stock ali-oady 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 efEect 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 pointy 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 ». Mex. Rw., 13
Eng. Rep. 793j ; or the amount of
the capital has not been reached and
such stock is issued therefrom (Hazel-
hurst ». Savannah R. R., 43 Ga. 53:
Totten V. Tison, 54 Ga. 189); or there
was legislative authority (Davis v.
Proprietors, 8 Met. 331; Rutland E.
R. Co. V. Thrall, 35 Vt. 545); or a re-
striction to authorized capital and
there was unanimous consent of the
stockholders (Prouty o. M. S. & N. I.
§ 278] TILTEA VIEES PEIVATE COEPOEATIONS. 485
the treasurer's office, entitled to first lien on net profits to the
amount in such agreement provided. [Signed.] Edw. L. Wood,
Treasurer^ The shares so issued 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 power
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 tlie 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.*
§ 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 ult/ra vires the corporation, the findings of the court
on the trial showed that the by-laws empowering the creation
K. R., 1 Hun, 663; 43 Ga. 53, supra); necessary for the disposal of the case
or there was power to redeem, which (Williston ». M. S. & N. I. R. R. Co.,
-was a transaction in the nature of a 18 Allen, 400); or the issue was author-
debt (Westchester, etc., R. R. Co. 11. ized by the articles of association (In
Jackson, 77 Pa. St. 821); or the opinion re A'D. St. Nav. & Col. Co., 30 L. R.
•was outer (Bates v. Androscoggin R. [Eq.] 389) 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 v. Van Alstyne, 31 Mich,
dition for interest until the corpora- 81); or the power in the corporate
tion was in operation (Richardson v. body was conceded, and it was denied
Vt. &Mass. R. R. Co., 44 Vt. 613); or that it pxisted in the directors. Me-
lt was an action on a subscription Laughlin «. D. &W. R R., 8 Mich,
more favorable to defendant than to 100."
other subscribers, and it was held that ' Campbell v. American Zylonite Co.
defendant could not set up the lack of (1890) 123 N. Y. 455. Follbtt, Ch!
equality (Bvansville R. R. Co. ®. J., very fully discusses the rights of
Evansville, 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 tTLTEA VIEES 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 ofEered 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 kinas 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. FoLGBE, 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."'
'Kent V. Quicksilver Mining Co., a lease of the franchises, etc., of a
(1879) 78 N. Y. 159, 18i, 185. As to the railroad corporation to another, see St.
effect of laches in seeking to invalidate Louis, Vandalia & Terre Haute R. B.
$i> 279] ULTEA YIEES PEIVATE OOEPOKATIONS. 4:87
§ 279. Rules declared by courts as to estoppel of corpo-
rations to plead ultra vires.— If a contract by a corporation be
not in violation of some public law, or contrary to public policy,
iLieems that only the immediate parties to it, as the corporation
itself, or the stockholders, who are parties by representation, hold
such a legal position in relation to the contract as to entitle them
to raise the question of its validity on account of the alleged
want of capacity to make ; but if the contract be in violation of
some public law or against public policy, in such 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 undoubtedly set up and insist
on such fatal vice in it, for the purpose of clearing himself from
the consequences of its being carried into effect.' In a fully con-
sidered case upon how far a corporation is estopped to set up the
invalidity of an ultra vires contract, where fully performed on
the part of the plaintiff, and the benefits of it received by the
defendant as a defense to an action, the, view of the United States
Supreme Court thereon has been 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 upon 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 compHed with the legal formahties which are prerequisites
to its existence or to its action, because such requisites might in
Co. ». Terre Haute & Indianapolis E. ^ 65 111. 453; City of East St. Louis v
R. Co., (1892) 145 U. S. 393; s. c, is' East St. Louis Gas Light & Coke Co
Sup. Ct. Rep. 958. 98 111. 415; Peoria & S. R. R. Co. v.
'Vermont & Canada R. R. Co. v. Thompson, 103 III. 187; Millard® St
Vermont Central R. R. Co., 34 Vt. 2. Francis Xavier Academy, 8 Bradw!
As to estoppel to plead ultra vires, see 341; Thomas v. Citizens' Horse Ry
Chicago Building Society*. Crowell, Co., 104111. 462.
488 TJLTEA VIEES PEIVATE OOEPOEATIONS. [§ 279
fact have been complied with. But wlien 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. * ^t » j^ 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, wliile 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 Millee, 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
' Central Transportation Co. «. Pull- be secm'ed 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 Millbk citing West v. Menard County Agri-
are in Pennsylvania Railroad v. St. cultural Board, 83 111. 206; Maher v.
Louis, etc.. Railroad, 118 U. S. 317. As Chicago, 38 111. 266; Railway Co. ».
to a bank being estopped to interpose McCarthy, 96 U. S. 267; San Antonio
the defense of M&ra tires to defeat the v. Mehafly, 96 U. S. 815; Morris R.
execution of a trust in favor of its de- R. Co. v. Railroad Co. , 20 N. J. Eq.
positors in and lenders to its investment 542.
department, by which they were to
§ 279] ULTRA VIEES — PEIVATB COEPOEATIONS. 489
vires where the contract has been, in good faith, fully performed
by the other party, and the corporation has had the benefit of the
contract and the performance." Though a contract of a corpora-
tion may be strictly ultra vires, yet, if not interfered with by the
Btoctholders or the state, and it be not of a class of contracts
expressly prohibited, and there be reasonable ground to suppose
thai the agents of the corporatioQ 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 advantage,
will not be 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 be held
liable unless it take timely steps to prevent loss or damage to the
third parties.' A corporation will be estopped to take advantage
of the ultra -aires character of an original undertaking where its
ofiicers have been permitted by it to engage in such transactions,
and in prosecution of them the ofiicers commit a wrong or torti-
ous act without the fault of the injured party.* The benefits,
derived from an ^^ltra vires contract cannot be retained by the
corporation and the contract treated as entirely void, unless, per-
haps, in cases where the other party to the contract has assisted
willfully in putting it beyond the power of the corporation to
'Darst e. Gale, (1876)83 111. 136; N. Y. Supp. 909. "When an allegation
citing Ex parte Cliippendale,4 DeGex, in an answer that the contracts are ul-
M. & G. 19; Whitney Arms Co. v. Bar- tra lyires the corporation is a sufficient
low, 63 N. Y. 62; Bradley «. Ballard, defense, see Gillespie ». Davidge Pertil-
55 111. 413. izer Co., (1892) 66 Hun, 627; s. c, 20
= Noyes v. Rutland & Burlington R. N. Y. Supp. 833. "When estoppel to de-
R. Co., 27 Vt. 110; Rutland & Burling- fend on the ground that act was ultra
ton R. R. Co. V. Proctor, 29 "Vt. 93; vires, see Homestead Bank «. Wood,
Sturges V. Knapp, 31 Vt. 62. As to (Ct. Cm. PI. N. Y. City, 1892) 20 N. Y.
who may or may not set up the de- Supp. 640; s. c, 1 Misc. Rep. 145. Es-
f ense of ultra vires, see Western Organ toppel of corporations to plead ultra
Co. V. Reddish. 51 Iowa, 55. As to es- vires. Carson City Savings Bank v.
toppel of a stockholder to complain of Carson City Elevator Co., (1892)90
an act MiJmwres on the part of the cor- Mich. 550; s. c, 51 N. W. Rep. 641;
poration or its officers, see Des Moines citing Day «. Buggy Co., 57 Mich.
Gas Co. V. West, 50 Iowa, 16, involv- 151; Steel Works v. Bresnahan, 60
ing a fraudulent issue of bonds. Under Mich. 837.
what circumstances a stockholder can- a Lucas v. "White Line Transfer Co.,
not object to a plan of reorganization 70 Iowa, 541; s.c, 30 N. W. Rep. 771.
of a corporation as ultra vires, see Hoi- * Ibid,
lins «. St. Paul, M. & M. R. Co., (1889) 9
62
490
TTLTEA VIEES — PEIVATE COEPOEATIONS.
[§279
return what it received on the contract.' 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 uli/ra mres? 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.*
In like 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.*
It is not beyond the powers of a corporation organized for the
purpose of owning ditches for the conveyance and sale of water
> Ibid.
' Steger ®. Davis, (Tex. Ct. App.
1894) 37 S. "W. Rep. 106a 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. Repu
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 «. 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 j u-
dicial redress. Sheldon, etc., Co. b.
Eickemeyer Hat Blocking Machine
Co., 90 N. Y. 607, 614.'" See, also.
Bond v. Manufacturing Co., 82 Tex.
309; s. c, 18 S. W. Rep. 691; Russell
■e. 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. As to pri-
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 GrofE ii. American
Linen Thread Co., (1860) 21 N. Y. 124,
Sherman Center Town Company ».
Fletcher, 46 Kans. 524; Town Co. o,
Morris, 43 Kans. 282; s. c, 28 Pac.
Rep. 569; Town Oo. v. Swigart, 43
Kans. 292; s. c, 23 Pac. Rep. 569;
Tootle ». First National Bank of Port
Angeles. (1893) 6 Wash. St. 181; s. c,
S3 Pac. Rep. 345; Heims Brewing
Co. ». Flaunery, (1891) 137 111. 309:
Watts- Campbell Co. «. Yuengling,
51 Hun, 302; s. c, 3 N. Y. Supp.
869. The right to object to such
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
1). Edson, 112 N. Y. 206; s. c, 19
N. E. Rep. 670. In Main v. Casserly,
(1885) 67 Cal. 127, a corporation wliich
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 nres.
'Humphrey ». Patrons, etc., Associ-
ation, 50 Iowa, 607,
■• Ibid.
§ 279] ULTEA VIEES PRIVATE COEPOEATIONS. 491
to sell and convey all its corporate property, provided the sale be
made for corporate or lawful purposes, and strangers taking a
conveyance of such property have a right to assume, as against
the corporation, that the sale was for a lawful purpose. And if
the validity of such a sale be contested by the corporation on the
ground that it was made for an unlawful purpose it would
devolve upon the corporation to show that the party making the
purchase knew of such unlawful purpose.* 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 itself
cannot receive back the property sold or set aside the contract
on account of its illegality.'
' Miners' Ditch Company v. Zeller- second sense, the right of the corpora-
bach, (1869) 37 Cal. 543. tion to avail itself of the plea -will de-
'Ibid. Sawtbk, Ch. J., said: "The pend upon the circumstances of the
term ultra mres, 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 ^dtra class of circumstances under which the
■vires when it is not within the scope of plea of ultra vires would not be avail-
the powers of the corporation to per- able to the corporation, to wit: Bissell
form it under any circumstances or for ■». Michigan Southern <& Northern In-
auy purpose. An act is also sometimes diana R. R. Cos., 33 N. Y. 363; Mayor
said to be ultra mres with reference to of Norwich «. Norfolk Railway Com-
the rights of certain parties, when the pany, 30Eng. L. &Eq. 128; McGregor
corporation is not authorized to per- i). Dover & Deal Railway Co., 17 Jur.
form it without their consent; or, with 31; s. c.,16Eng. L. & Eq. 180; Simp-
reference to some specific purpose, son ». Denison, 10 Hare, 51; Simpson
when it is not authorized to perform it i). Denison, 13 Eng. L. & Eq. 359;
for that purpose, although fully within Eastern Counties Railway Co. v.
the scope of the general powers of the Hawkes, 35 Eng. L. & Eq. 9; Edwards
corporation, with the consent of the v. Grand Junction Railway Co. , 1 My 1.
parties interested, or for some other & Cr. 674; Tread well ». Salisbury
purpose. And the rights of strangers Manufacturing Co., 7 Gray, 398. Es-
dealing with corporations may vary toppel to plead ultra mres : Pauly v.
according as the act is ultra vires in Pauly, (Cal. 1895) 40 Pac. Rep. 39;
one or the other of these senses. ,A11 Farmers' Loan & Trust Co. v. Toledo,
these distinctions must be constantly A. A. & N. M. Ry. Co., (1895) 67 Fed.
borne in mind in considering a ques- Rep. 49; Roy & Co. i>. Scott, Hartley
tion arising out of dealings with a cor- & Co., (Wash. 1895) 39 Pac. Rep. 679
poration. When an act is ultra vires (stockholders estopped); Central Build-
in the first sense mentioned it is gen- ing & Loan Association v. Lampson,
erally, if not always, void in toto, and (Minn. 1895) 63 N. W. Rep. 544 (one
the corporation may avail itself of the receiving the benefit of a loan es-
plea. But when it is «Wra wre« in the topped); Bensiek «. Thomas, (1895) 66
492 TJLTEA VIEES PEIVATE COEPOEATIONS. [§§ 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 hot 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 «. Doran Wright Co. (Lim-
Miller «. Washington Southern Ry. ited), (1890) 10 N. Y. Supp. 401.
Co., (Wash. 1895) 39 Pac. Rep. 673
(corporation estopped).
§ 281] TTLTEA VIRES — PRIVATE COEPOEATIONS. 493
who lias received from a corporation the full consideration of his
agreement to pay money cannot avail himself of the objection
that the contract is uliyra vires} As corporations are created by
public acts of the legislature, and all their powers, duties and obli-
gations are declared and clearly defined by public law, parties
dealing 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.^ 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 can-
not invoke the plea of ultra vires as a defense against the enforce-
ment of a chattel mortgage to secure the corporation against its
liability upon the notes.* The defense cannot be made, in an
' Chiicago & Atlantic Ry. Co. «. ing by the state against the corporation,
Derkes, (1885) 103 Ind. 530. and not in a collateral proceeding by
'Franklin Company v. Lewiston another, except when the charter of
Institution for Savings, (1877) 68 Me. the corporation not only specifies, and,
43; citing Pearce v. Madison & Ind. therefore, limits it to the business in
Railroad, 31 How. 441; Andrews «. which it may engage, but, by express
Insurance Co., 87 Me. 356. Parties terms, or by a fair implication from its
receiving benefit of contract cannot in- terms, invalidates transactions outside
sist that contract was ■Kftrasires. Shelby of its legitimate corporate business.
V. Chicago & Eastern Illinois R. R. Mclndoe v. St. Louis, 10 Mo. 577;
Co., (1893) 143 111. 885; s. c.,33]Sr. E. Chambers ». St. Louis, 39 Mo. 543;
Rep. 438, affirming 43 111. App. 339. Pacific B. R. Co. v. Seely, 45 Mo. 313;
'St. Joseph Fire & Marine Insurance Land ». Coffman, 50 Mo. 343. Since
Co. v. Hauck, (1880) 71 Mo, 465. Matthews v. Skinker, supra, was de-
■•St. Louis Drug Co. v. Robinson, cided announcing a different doctrine,
(1881) 10 Mo. App. 587 ; affirmed in in the following cases this court re-
St. Louis Drug Co. v. Robinson, (1883) turned to the doctrine of the earlier
81 Mo. 18, in which case the Supreme cases : A. & P. R. R. Co. v. St. Louis,
Court said: " Conceding that [the cor- 66 Mo. 338; St. Jos. Fire & M. Ins.
poration had no authority to indorse Co. v. Hauck, 71 Mo. 465; Thornton
notes for the accommodation of others] b. National Ex. Bank, 71 Mo. 231;
it is sufBcient on this point to say that Union Nat. Bank v. Hunt, 76 Mo. 439.
in a line of decisions of this court un- The judgment of this court in Mat-
broken, except in the case of Matthews thews «. Skinker, supra, was on ap-
V. Skinker, 63 Mo. 839, it has been peal reversed by the Supreme Court
held that the question of ultra vires of the United States, and the doctrine
can only be raised in a direct proceed- then announced by that court is in
494
TTLTEA VIRES PEIVATE COEPOEATIONS.
[§281
action by a corporation upon a contract ma^e 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.' 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 corporatipn, 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.'' 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.' 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
been uniformly, and has since been
repeatedly, declared by this court."
See, also, Franklin Ave. Ger. Sav.
Inst. V. Board of Education, (1882) 75
Mo. 408; First National Bank s.^ Gil-
lilan, (1880) 72 Mo. 77. It has been
held in Brown «. Donnell, (1860) 49
Me. 421, an action against the maker
by the indorsee of a note given to an
Insurance company and by the cor-
poration transferred in payment of
bank stock purchased by it, the maker
of the note could not controvert the
rights of the corporation to purchase
the stock.
' Union Water Co. v. Murphy's Flat
Fluming Co., (1863) 22 Cal. 621. It
was said by the court : "In numerous
cases it has been held that a contract
made by a corporation which is not
authorized by its charter is not to be
held void, and that a defendant sued
thereon cannot refuse payment; but
the legislature may inquire into any
violation of the charter, or the govern-
ment may institute suit for that pur-
pose. The investigation must be in
a direct proceeding instituted by the
government for that purpose, and it
cannot be had in a collateral way by
individuals. Grand Gulf Bank v.
Archer, 8 Smedes & M. 151, 173;
Wade V. American Colonization So-
ciety, 7 Smedes & M. 663; Nevitt «.
Bank of Port Gibson, 6 Smedes & M.
513: Chester Glass Co. ». Dewey, 16
Mass. 102; Moss v. Rossie L. M. Co., 5
Hill, 140; The Banks v. Poitiaux, 3
Rand. 142, 146; Vidal i). Girard'sExrs.,
2 How. 191; Fleckner v. U. S. Bank, 8
Wheat. 355; Natoma W. & M. Co. ».
Clarkin, 14 Cal. 552.
2 Hough 1). Cook Land Co., (1874)
73 111. 28.
' Ibid. : citing Banks v. Poitiaux, 3
Rand. 141; Barrow v. N. & C. T.
Co., 9 Humph. 304: Chambers v. St.
Louis, 29 Mo. 576; Attorney-General
1). Tudor Ice Co., 104 Mass. 239; Whit-
man Mining Co. v. Baker, 3 Nev. 391;
Hayward v. Davidson, 41 lud. 213.
That the state alone can raise objec-
tion to an ultra vires act, see Alexander
». Tolleston Club of Chicago, (1884)
110 111. 65; Barnes v. Suddard, 117
HI. 337; People's Gas, etc., Co. v.
Chicago Gas, etc., Co., 30 Bradw. 473.
§ 281] ULTRA VIEES PEIVATE COEPOEATIONS. 495
self and other stockholders to restrain the action of the officers of
the corporation from acts alleged to be ultra, vires and illegal.*
Where one buys land without knowledge of an outstanding equity,
and his note, given for a portion of the pi-ice, secured by vendor's
lien, is taken by a corporation to secure a loan, the owner of this
outstanding equity cannot, in an action to enforce it, set up that
the act of the corporation in taking the note was ultra vires? 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 estopped from availing of the defense, and that the deed
of trust might be foreclosed as against them and other creditors
of the brewing company having notice of the rights of the loan
association.^ It is no defense to a note given by one not a mem-
' Brown i). Duluth, M. & N. Ry. other words, the transactions were at
Co., (1893) 53 Fed. Rep. 889. See most ziltra mres, in the commonly un-
Heath ». Railway Co. , 8 Blatchf . 347, derstood sense of these words, and
393, 410; Ramsey v. Erie Ry. Co., 7 nothing more. As said in Whitney
Abb. Pr. (N. S.) 156; Hersey v. Arms Co. i). Barlow, 63 N. T. 62, cited
Veazie, 24 Me. 9. with approval by this court in Darst v.
^ Taylor v. 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 mala in se or mala
the power of a corporation to do an prohibita, so as to make the contract
act, Bond v. Manufacturing Co., 82 illegal and incapable of being the
Tex. 309; s. c, 18 S. "W. Rep. 691, foundation of an action. Such a con-
and authorities there cited, Bank v. tract as the law will not recognize or
Matthews, 98 U. S. 621; Smith v.. enforce, but applying the maxim eo
"White, (Tex. Civ. App.) 25 S.W. Rep. facto ilUcito non oritur actio, leaves the
' 809; Keys w. Association, (Tex. Civ. parties as it found them.' It is also
App.) 25 S. W. Rep. 809. said in that case: ' When acts of cor-
^ Kadish v. Garden City Equitable p orations are spoken of as ultra vires
Loan & Building Association, (1894) it is not intended that they are unlaw-
151111. 531. The court said: "There ful 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 power con-
members of homestead loan associa- f erred upon the corporation by the act
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 njanaging
tlon therein against loaning money for board by the stockholders, that the
other than building purposes. In affairs shall be managed and the funds
496 tlLTEA YIEES — PEIVATE COEPOEATIONS. [§ 281
ber 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.'' 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 ull/ra
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 tiou to enter into contracts of specula-
settled that a corporation cannot avail tion being withheld on reasons of pub-
ilself of the defense of ultra vires 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 against setting
tract. * * * The same rule holds up the invalidity. A rule of law es-
e converso. 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. «. Dan-
See Benefit Association v. Blue, 130 111. dridge, 8 Gill & J. (Md.) 348, 319,
138; Bradley v. Ballard, 55 111. 415; 3 Parties may also be estopped in some
Beach on Priv. Corp. § 435 et seg., cases from disputing the validity of a
for a full discussion of the subject; corporate contract when it has been
Carson City Sav. Banks. Elevator Co., fully performed on one side, and when
90 Mich. 550; Holmes & Griggs Co. v. nothing short of enforcement will do
Metal Co., 137 N. Y. 353; B. c, 34 Am. justice. To quote the language of
St. Rep. 448. Comstock, Ch. J., in Parish «. Wheeler,
' Poook D. Lafayette Building Asso- 33 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. Coolby, 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 VIEE8 PRIVATE COEPOEATIONS. 4:97
ing of an immoral nature in this contract, the plaintiff was entitled
to recover the value of her goods delivered on the contract to the
corporation upon a qucmtum merioit} 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.^ Where one has
made a contract with a corporation which is ultra vires, 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.^
§ 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 tends
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
has received a portion of the property Thomas ». Railroad Co., 101 U. S. 71;
bargained for, and we may justly as- In re Cork & Y. Ry. Co., L. R., 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 11. Madison Building &
so that the defendant will lose nothing Aid Association, (1885) 103 Ind. 379.
but the anticipated profits on the re- ' Chambers v. Falkner, (18801 65
mainder if the contract is not enforced Ala. 448. In Marion Savings Bank v.
in its favor. Those profits it had no Dunkin, 54 Ala. 471, Justice Stone
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 poration, 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 * * *.
' Day t>. 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 v. ing corporations with the ability to in-
Short, 79 N. Y. 437; Northwestern crease their powers indefinitely by
Union Packet Co. v. Shaw, 37 Wis. sheer usurpation. Such contracts on
655, and Hari-iman ■». Baptist Church, the part of a corporation are ultra vires
63 Ga. 186, and cited as cases consider- and void, and no right of action can
ing the principle involved, Whitney spring out of them."
Arms Co. ■». Barlow, 68 N. Y. 63;
63
498 ULTEA VIEES PEIVATE COEPOEATIONS. [§ 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.'" 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 bo 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 valu'e 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
' People V. North River Sugar Refiuing Compaay, (1890) 131 N. Y. 583.
§ 282] ULTEA VIRES — PRIVATE COEPOEATIONS. 499
elements of its franchise by placing tliem 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
irresponsible hoard its entire independence and self-control.
When 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 beneficial 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 ofiice, 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."' Eeferring 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
'Ibid.; citing N. T. & 8. 0. Co. ■». Meredith, 1 Wall. 29; Whittenton
F. Bank, 7 Wend. 412; Clearwater v. Mills v. Upton, 10 Gray, 596.
500 ULTBA VIEES PEIVATE COEPOEATIONS. [§ 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." ^ 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.^ 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
' People 1). North River Sugar Re- iore, 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 puhlic good in a dis-
formance of its corporate duties, tinotly 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 i). 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 ° Oakes v. Cattaraugus Water Com-
to control and monopolize the avenues pany, (1894) 143 N. Y. 430; s. c, 38
to that industry in which they are N. E. Rep. 461; 62 N. Y. St. Repr.
engaged, they become a public menace, 445. See, also, Leslie «. Lorillard,
against which public policy and stat- (1888) 110 N. Y. 519.
utes design protection. When, there-
§282] ULTEA VIKES PEIVATB COEPOKATIONS. 501
of its board of directors; and the act so done is ultra vires of
the corporation and against pabhc policy, and was done by them
in their individual capacity 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 abuse of corporate power,
may be challenged as such by the state in a proceeding in, quo
warranto." ' Thatbe, J., in the United States 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 organized 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
business, its various provisions, and held that this corporation
exceeded its powers in signing and becoming a party to the trust
agreement.^ 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 be within
' State ex rel. v. Standard Oil Com- issue negotiable securities without
pany, (1892) 49 Ohio St. 137. limit, and to declare dividends thereon.
^ In American Preservers' Trust v. In all these respects, I must conclude
Taylor Manufg. Co., (1891) 46 Fed. that the defendant corporation, by
Rep. 152, it was said by the court: executing the trust agreement, imder-
"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
viduals who signed the agreement, in organized, and from which all of its
creating a partnership or joint-stock powers are derived." Citing People «.
concern, and in furtherance of that North River Sugar Eeflning Co. , (1890)
enterprise it undertook to appoint 121 N. Y. 582; s. c, 24 N. E. Rep.
agents to manage the concern in its 834; Mallory ■». Hanaur Oil Works,
behalf, and to vest such agents with (1888) 86 Tenn. 598; s. c, 8 S. W. Rep.
authority to buy and lease property in 896; State ». Nebraska Distilling Co.,
all parts of the United States, to (1890) 29 Neb. 700; s. c, 46 N. W.
obtain and exercise control over Rep. 155; Whittenton Mills v. Upton,
other corporations by acquiring their 10 Gray, 596.
stock, and with power likewise to
502 ULTRA VIEES PEIVATB COEPORATIONS. [§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 IS^ew 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.''
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* 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
' EUerman ®. 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. 317. miles thereof, was not unreasonable,
'' Ibid. and not an illegal restraint of trade.
' 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 v. Levy, (1886) 54 N. Y. Super,
to engage in the business for a certain Ct. 33.
§ 282] TTLTEA VIRES PRIVATE CORPORATIONS. 503
creation.^ An incidental power is one that is directly and
immediately appropriate to the execution of the specific jjowers
granted, and not one that has a slight or remote relation to it.^
The court held that the Chicago Gas Trust Company, being a
corporation formed under the General Incorporation Law of that
state for the purpose of erecting and operating gas works and the
manufacture and sale of gas, had no power to purchase and hold
or sell shares of stock in other gas companies as incident to the
purpose for which it was formed, even though such power was
specified in its articles of incorporation. This corporation was
incorporated under the general law for two purposes. These
were expressed in its articles of association in these words :
First, for the purpose of erecting and operating gas works for
the manufacture and sale of gas in Chicago and other places in
this state ; and, second, " to purchase and hold or sell the 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 or
elsewhere, etc." It sought to exercise the powers claimed under
the second clause only, and for that purpose bought a majority of
the shares of all the gas companies in Chicago, being 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 purjjose and that all acts done by
it toward the accomplishment of such object were illegal and
void.^ 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-general on behalf of the state.*
' Citing C. P. & S. W. R. R Co. v. Co., 22 Conn. 1; Franklin Co. v. Lewis-
Marseilles, 84 111. 643; Chicago Gas ton Savings Institution, 68 Me. 43.
Light Co. V. People's Gas Light Co., 'People ex rel. Peabody v. Chicago
121 111. 530. Gas Trust Co., (1889) 180 111. 268; s. c,
^ People ex rel. Peabody v. Chicago 22 N. E. Bep. 798.
Gas Trust Co., (1889) 130 111. 268; s. c, < Willoughby «. Chicago Junction
22 N. E. Rep. 798; citing on the last Railways & Union Stock Yards Co.,
point Hood a. K. Y, & N. H. R. R. (1892) 50 N. J. Eq. 656.
CHAPTEE IX.
BANKS AND BANKING.
t 283. Powers of banks generally
384. The guaranty of commercial
paper by a bank.
285. Acts ultra vires a bank.
286. Taking mortgage on and pur-
cbase of real estate.
287. Purchasing notes.
288. Purchasing stock of corpora-
tions.
289. Increase of capital stock.
290. Loans.
291. Dividends on bank shares.
292. Lien of a bank on moneys and
securities of its customers.
§ 293. Lien of a bank on shares of
stockholders for their debts
to the bank.
294. Interest received by banks.
295. A bank's duty as to securities
deposited with it.
296. The rights of a bank as to se-
curities pledged to it.
297. Personal guaranty of a bank by
stockholders and directors.
298. Misrepresentations by a bank
as to solvency of a customer.
§ 283. Powers of banks generally. — A bank, upon wMcli
general banking powers have been conferred, may borrow money
without any more specific authority.* A national bauK has
power to borrow money on negotiable paper, made and indorsed
for its accommodation.^ As incident to its power to loan money,
' Kingling v. Kohn, (1878) 6 Mo. App.
833; Donnell ». Lewis Co. Savings
Bank, 80 Mo. 16i
''Bank v. Sullivan, 11 W. N. C. (Pa.)
363. In a leading New York case
(Curtis 0. Leavitt, (1857) 15 N. Y. 9,
255, 256), Sbldbn, J., states the con-
tention of the receiver's counsel as
follows: " [They] take the broad
ground that banking corporations can-
not borrow money, or, at least, that
they cannot borrow to supply the
place of capital. They contend that
it is the business of banks to lend
money, not to borrow; that borrowing
does not come within the scope of
legitimate banking, and is in its na-
ture a power which corporations cre-
ated for banking purposes cannot
properly exercise." He then said:
"This position is not supported by
any direct authority, and a careful
consideration of the nature of bank-
ing, together with an examination of
its history, has satisfied me that it can-
not be sustained. It is not in harmony
with the present practice or the past
history of banks. Banking for profit
is based primarily upon the idea of
borrowing, without interest, the
various sums which the individuals of
a commercial community must neces-
sarily keep on hand unemployed, to
meet any sudden emergency, and re-
loaning the money, or the greater part
of it, upon interest. It may be said
that banks may borrow, that is, receive
deposits without interest, but cannot
borrow upon interest. This, too, is
untenable. One of the soundest bank-
ing systems known to the age, viz.,
the Scotch, is sustained to a great ex-
§2S3]
BANKS AHD BANKING.
505
a bank may take as security a crop of cotton, and ship the same
to a factor, to be sold to reimburse the loan.^ A bank, author-
ized by its charter to deal in bills of exchange and discount notes,
made negotiable and payable at the bank, with two or more good
and sufficient sureties, may, under this power, undertake to col-
lect bills of exchange in other places.^ Under the National
Banking Association Act, the powers which national banks may
exercise are limited to those expressly granted and those neces-
sarily incidental.' 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.* National
banks may exercise all such incidental powers as may be neces-
sary for discounting and negotiating promissory notes, drafts,
biUs of exchange, etc., which they are authorized to do.' It is
not beyond the powers of a national bank to purchase a draft
tent by sums borrowed at a rate of in-
terest below that charged by the banks.
Edin. Ency. 234, tit. Banks; Lawson's
Hist, of Banking, 419. The commit-
tee appointed by the House of Lords
in England, in 1836, to inquire into the
Irish and Scotch systems of banking,
reported that it was 'proved by evi-
dence and by the documents that the
banks of Scotland, whether chartered
joint-stock companies or private estab-
lishments, have, for more than a cen-
tury, exhibited a stability which the
committee believe unexampled in the
history of banking.' Lawson's Hist,
of Banking, 434. The country bank-
ers of England -also allow interest on
the balances of money in their hands.
McCulloch's Notes to Smith's Wealth
of Nations, 489, title, Money, Edin.
ed.; Lawson's Hist, of Banking, 373.
Another writer, speaking of the prac-
tice of borrowing by the Scotch banks,
says: 'This is in fact a part of the
proper business of a bank. A banker
is a dealer in capital, an intermediate
party between the borrower and the
lender; he borrows of one party and
lends .to another, and the difference
between the terms at which he bor-
64
rows and those at which he lends is
the source of his profit.' Gilbert on
Banking, 52. It can scarcely be said,
in view of these precedents and authori-
ties, that borrowing money, even to be
used as capital, is not within the range
of the business of banking. The
position, thereiore, that the acts of the
banking company in issuing the paper
in question were ultra vires cannot be
sustained on the ground that borrow-,
ing is no part of legitima.te banking,
but must rest on that branch of the
argument which is drawn from the
terms of the General Banking Law
itself. It is a question, not of appro-
priate banking, but of corporate
power."
' Deloach v. Jones, 18 La. 447.
-Branch Bank at Montgomery v.
Knox, (1840) 1 Ala. 148. As to the
power of banks to issue post notes,
see Campbell v. Mississippi Union
Bank, 6 How. (Miss.) 635.
'Logan Bank v. Townsend, 139 U.
S. 67.
"Ibid.
'Shinkle v. First National Bank of
Ripley, (1873) 32 Ohio SL 516.
506 BANKS AND BANKING. [§ 283
with a bill of lading attached.' 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 ult/ra 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 not
to be limited to the securities mentioned, and empowered to dis-
count commercial paper.^ 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.' A national bank is
authorized to buy the checks of individuals or other banks, when
payable to bearer or to order." 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.' 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.' A national bank may take, hold and
enforce a chattel mortgage for a previously contracted debt.' 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.'" 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."
The Minnesota Supreme Court has held that there is no reason
1 Union National Bank v. Rowan, 33 ' Metropolitan National Bank v.
S. C. 343. Loyd, (1881) 35 Hun, 101.
'Bright «. Banking Co., 3 Penny- *Talman ii. Rochester City Bank,
packer (Pa.), 478. , (1854) 18 Barb. 133.
' Detroit Savings Bank v. Truesdail, ' SpafEord v. First National Bank
38 Mich. 430. of Tama City, 37 Iowa, 181.
* Merchants' Bank «. State Bank, 10 '» Leach «. Hale, (1870) 31 Iowa,
Wall. 604. 69.
'' Bank of North America v. Tarn- " Railroad Bank v. Douglas, 3 Speer
blyn, (1879) 7 Mo. App. 571. (S. C), 339.
« Rochester Bank v. Harris, (1871)
108 Mass. 514.
§ 284] BANKS AND BANKING. 507
why a national bank may not, for convenience and a proper pur-
pose, hold and own notes and mortgages througli the medium of
a trustee.'
§ 284. The guaranty of commercial paper by a bank. —
The Supreme Court of Nebraska has lately held that while a
national bank may not lend its credit for the accommodation of
others, still it may guarantee the payment of commercial paper 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
SwATNE, speaking for the United States Supreme Court, in a
leading case before that court : " The National Bank Act,' gives
every bank created under it the right to exercise by its board of
directors, or duly authorized agents, all such incidental powers as
shall be necessary to carry on the business of banking, hy dis-
counting and negotiating promissory notes, drafts, hills of
exchange a/nd 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
ease, 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, (1894) 40 Neb. 501; s. c, 58
«. Kidd, 30 Minn. 234. N. W. Rep. 943.
'Thomas «. City National Bank of *Rev. St. U. S. § 5186.
608 BANKS AND BANKING. [§ 285
would have been the most formal words. These facts conclude
the defendant from resisting the demand of the plaintiff.
* * * j^ different result would be a reproach to our
jurisprudence.'"
§ 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.* A bank cannot bind itself by
an accommodation indorsement.' National banks have no legal
power to guarantee a contract between other persons for the
delivery of building materials.^ 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 ol one party only, secured by mortgages on
real estate, has been questioned in a Michigan case.' A national
bank cannot act as broker for the sale of state bonds on commis-
sion.^ A national bank has. no power to sell railroad bonds for
a customer on commission.' A bank has no authority to become
surety on the bond of a public officer.' 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.' A bank cannot
apply the proceeds of a note tendered to it for discount to the
' 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 ^ Bank of Alexandria v. Saunders, 3
Pickett made his notes for $50,000, Cranch Cir. Ct. 183.
payable to his own order, indorsed ' Bank of Genesee v. Patchin Bank,
them, and delivered them to the 13 N. Y. 309.
national bank to be negotiated to the ^ Norton v. Derry National Bank, 61
plaintiff. The vice-president of the N. H. 589.
national bank, with the knowledge ■■ First National Bank v. Bennett, 83
and consent of the president and Mich. 530.
cashier, but without any authority * Smith v. Bank, 1 "Walk. (Pa.) 318.
from the board of directors, or from ' "Weckler d. First National Bank of
a majority of them as individuals, Hagerstown, 43 Md. 581.
transmitted the notes to the plaintiff, ' Miners' Bank Estate, 13 W. N. 0.
with a written guaranty signed by (Pa.) 370.
himself. The plaintiff's account was » Mclntire «. Blakeley, (Pa.) 13 Atl.
debited with $50,000 on account of Rep. 335.
the notes. At the same time Pickett's *
§ 286] BANKS AND BANKING. 509
payment of the maker's indorsement on another note without his
consent.^ In an action of the owner of a lot which had been
assessed by a city for benefits and afterwards sold upon a judg-
ment, and a certificate of sale given to the city, which it assigned
to another party, who in turn assigned it to a national bank,
against the city and bank to determine their adverse claims, the
plaintiff made the point that the bank, 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 not
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 defense
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.*
It is competent for a national bank to purchase a note in favor of
a third party, and thereby acquire incidentally a mortgage on
' Parry ■». Highley, 8 Pa. Co. Ct. * Kansas Valley National Bank v.
Rep. 584. Rowell, (1873) 3 Dill. 371. As to the
' Hennessy ». City of St. Paul, (1893) lack of power of a national bank to
54 Minn. 319; s. c, 55 N. W. Rep. loan its money on real estate security,
1123; citing Merchants' National Bank see Matthews v. Skinker, (1876) 63 Mo.
B. Hanson, 33 Minn. 40; s. c, 31 N. 339; Warner ®. DeWitt County
W. Rep. 849; National Bank «. Mat- National Bank, 4 Bradw. (111.) 305;
thews, 98 U. S. 631; National Bank «. Winton v. Little, 94 Pa. St. 64, over-
Whitney, 103 U. S. 99; Fortier v. New ruling Fowler 1). Scully, 73 Pa. St.
Orleans Bank, 113 U. S. 451; s. c, 5 456, and Woods v. People's Bank, 83
Sup. Ct. Rep. 334. Pa. St. 57; National Bank v. Matthews,
' Weber «. Spokane Nat. Bank, 98 U. S. 621; National Bank ».
(1893) 50 Fed. Rep. 735. Whitney, 103 U. S. 99; Portier v. New
510 BANKS AND BANKING. [§ 286
land which may have been given to secure it.* Where several debts
due a national bank are consolidated into one, and a new note
given, the bank would not be acting uWra vires in taking a mort-
gage on real estate to secure the consolidated note.^ 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.' 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 N"ational Banking Law,
of loans of money on real estate security.* 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.^ A national banking association may avail itself of a
security on real estate given to one personally liable on a loan x
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-
' Oldham v. Bank, 85 N. C. 240. ing its views : Fowler «. Scully, 73
'Ibid. Pa. St. 456; First National Bank ».
'Allen v. First National Bank National Bank, 93 TJ. S. 123; Matthews
Xenia, (1873) 23 Ohio St. 97. ». Skinker, 62 Mo. 339.
*Fridley «. Bowen, (1877) 87 111. 'Worcester National Bank b.
151. The court said : " The provision Cheeney, (1878) 87 111. 602; Gaar «.
[of the National Banking Law] declar- First National Bank of Centralia, 30
ing upon what security such associa- Bradw. (111.) 611.
tions may make current loans, viz. : * First National Bank «. 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-
§ 286] BANKS AND BANKING. 511
held that, in the absence of affirmative evidence of some contra-
vention of the National Banking Association Act, a national
bank might lawfully purchase, hold and convey real estate.' The
New Jersey Supreme Court has held that a national bank
empowered by its charter " to provide the real estate " necessary
for its immediate accommodation in the transaction of its busi-
ness, cannot interpose the defense of ult/ra vires to a contract
made by it to secure free entrance of light and air into its bank-
ing house.^ Where a national bank discounts a note secured by
a deed of trust on real estate, the security passes to the bank and
may be enforced by it.' 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 incumbered, 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 larger
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 prop-
erty to the bank in payment of the sum due from him, the bank
agreeing to discharge the other liens upon the same, the transac-
tion was held not to be forbidden by the law regulating such
banks.' A mortgage upon real property taken by a national
banking association as security will not be void. A judgment of
ouster and dissolution in a proper proceeding is the punishment
for taking such a mortgage. Private persons cannot question
the validity of the act." A national bank may purchase real
charge of indebtedness previously ' Trustees of First Presbyterian
contracted to it, see Turner v. First Church in Newark v. National State
National Bank, (1881) 78 Ind. 19. . As Bank of Newark, (N. J. 1894) 39 Atl.
to a mortgage given to a national Rep. 320.
bank and assigned to a third party 'Thornton d. National Exchange
being good, see Lacey v. Central Bank, (1879) 71 Mo. 231.
National Bank, 4 Neb. /179. As to ^Mapes v. Scott, (1878) 88 111. 353.
foreclosure of a mortgage by a ^Ibid.
national bank, see Scofield «. State * First National Bank v. Elmore, 53
National Bank, 9 Neb. 328. Iowa, 541; Streeter «. First National
' First National Bank of Memphis Bank, 53 Iowa, 177. As to the power
1). Kidd, 30 Minn. 334. of a national bank to purchase real
612 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 whicli the
bank held a second mortgage lien, and to which foreclosure pro-
ceeding it was made a party.' These banks 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.^ The title of a national bank to land which
"vyas 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.^
§ 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.^ The ruling of the Minnesota Supreme Court on this
subject has been that the purchase of promissoi^y notes by a bank
authorized simply to discount notes was ult/ra vires and that the
purchase would confer no title.^ 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, ' Farmers & Mechanics' Bank «.
although in excess of the debt, see Baldwin, 23 Minn. 198. The court
Upton «. South Reading Bank, (1876) said: " The power to carry on the
120 Mass. 153. • business of banking by discounting
' Heath «. Second National Bank, notes, bills and other evidences of
(1880) 70 Ind. 106. debt, is only an authority to loan
' Wherry v. Hale, (1882) 77 Mo. 30. 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, vanoe. This right can be fully
see Libby «. Union National Bank, 99 enjoyed without the possession of the
111. 622. unrestricted power of buying and
' Reynolds «. 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 Holriies ■». Boyd, (1883) 90 Ind. said to have purchased it, yet it is a
382. purchase by discount, which is per-
* Lazear j). 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."
§ 28Y] BANKS AND BANKING. 513
to discounting tliem.^ In an Ohio case it was held that the
power given to the corporation by a statute of the state of 'New
Tork " to carry on the business of banking by discounting bills,
notes and other evidences of debt," was not a power to buy
promissory notes but to loan money upon the paper described,
and that a transaction of that character was within the usury laws
of that state.^ Under the power given savings institutions to dis-
count negotiable notes in Kansas, they have been held to have
the power of purchasing such notes.' In a comparatively late
• First National Bank of Rochester payees, and that it had no authority
V. Pierson, 34 Minn. 140. to make such purchase. Upon this
'Bank w. Baker, 15 Ohio St. 68. In question, the court says: "It does
Fleckner ®. Bank, 8 Wheat. 338, it not state that the purchase was made
appeared that the plaintiff purchased at a usurious rate of discount, but it
from another bank a note which had avers that under the act of congress
been passed to it through several to provide a national currency, under
parties from the original holder. The which the bank was incorporated, it
hank was forbidden to deal in any had no authority to purchase the bill,
thing, except bills of exchange, gold It seems to be the idea of counsel mak-
er silver, or take more than six per ing the objection that negotiable
cent upon its loans or discounts. It paper, perfect and available in the
was claimed by defendant that the hands of the holder, is not the subject
purchase of the note was ultra mres, of purchase by a national bank at any
but the court held that it was not, and rate of discount. This view we think
that such purchase was but a dis- entirely erroneous. We see ijothing
count. Story, J., speaking for the in the act of congress, nor in reason,
court, says: "But in what manner is why a borrower may not obtain the
the bank to loan? What is it to dis- discount, by a bank, of one of the ex-
count? Has it not a right to take an Isting notes and bills of others, of
evidence of debt which arises from which he is the holder, as well as of
the loan? If it is to discount, must his own paper, made directly to the
there not be some chose in action, or bank. It is true that as between nat-
written evidence of a debt, payable at ural persons, the purchase of such
a future time, which is to be the sub- paper, when made in good faith, and
ject of the discount? Nothing can be not as a disguise for a loan, is not sub-
clearer than that by the language of ject to the usury laws, but it is other-
the commercial world, and the settled wise as to a bank. In the business of
practice of banks, a discount by a banking, the purchasing and discount-
bank means ex m termini, a deduction ing of paper is only ' a mode of loan-
or drawback made upon its advances ing money.' "
or loans of money upon negotiable ^Pape «. Capitol Bank of Topeka,
paper or other evidence of debt, pay- (1378) SO Kans. 440. Bkbwer, J.,
able at a future day, which are trans- speaking for the court, said: "The
ferred to the bank." In the case of power granted is the naked power of
Smith V. Bank, 36 Ohio St. 141, the discounting, and the term 'discount-
defense was that the bank (a national ing' includes purchase as well as loan.
hank) purchased the paper of the 'To discount' signifies the act of buy-
65
514 BANKS AND BANKING. [§ 287
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.^ 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, inasmiich 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 excliange or promissory could not under its charter so 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
counft,' 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 land.' 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 ■». Tal- strictions are shown to have been
mage, 18 Barb. 463; Bank v. Sher- placed upon plaintiff's powers as a
burne, 14 111. App. 566. banking institution," That a national
' Salmon Falls Bank j). 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 «. 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 state of Illinois,
§ 287] BANKS AND BANKING. 515
TJ. S. Sts. at Large, 101), which authorizes national banks to dis-
count and negotiate ' promissory notes, drafts, bills of exchange
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
them.* 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, there are
several reasons why this defense cannot prevail. In the first
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.^ 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 about the rate
of interest to be allowed before giving the note to the plaintiff.
The plaintiff's money was paid to indorser, less the agent's com-
mission. The transaction would have been no different in sub-
fitance if the defendant, who held the note as indorser, had carried
it to the plaintiff's [plaintiff ?] bank and had there made in per-
son the contract which he made through the agent. If he had
done that the transaction clearly would have been a negotiation
of a loan and a discounting of a promissory note.* Thirdly, it
'Lazear v. National Union Bank, 53 Porter, 125 Mass. 333; Atlas National
Md. 78, 124; Farmers & Mechanics' Bank v. Savery, 137 Mass. 75, 77.
Bank s. Baldwin, 33 Minn. 198; First ' Citing National Bank «. Matthews,
National Bank v. Pierson, 24 Minn. 98 U. S. 631, and cases cited; National
140; Niagara County Bank v. Baker, Bank v. Whitney, 103 U. S. 99; Mer-
15 Ohio St. 69. chants' National Bank v. Hanson, 33
^ Citing Smith v. Exchange Bank, 36 Minn. 40; Slater Woolen Co. v Lamb,
Ohio St. 141; Pape v. Capitol Bank of 143 Mass. 430.
Topeka, 30 Kans. 440. See, also. First * Citing Lazear v. National Union
National Bank v. Harris, 108 Mass. Bank, 53 Md. 134; Farmers & Me-
514, 516; National Pemberton Bank v. chanics' Bank v. Baldwin, 28 Minn.
516 BANKS AND BANKING. [§ 288
has 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." '■
§ 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.^ Such a bank not being expressly
proliibited from becoming a stockholder in another corporation,
may take shares in another corporation as collateral secoirity for
a loan made by it, or in satisfaction for a loan for which the stock
may have been pledged to it as security.^ 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.* 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. ». National Exchange Bank of Balti-
' Prescott National Bank «. Butler, more, 39 Md. 600.
(1893) 157 Mass., 548, 549, 550; citing » Kennedy v. California Savings-
Atlas National Bank «. Savery, 137 Bank, (1894) 101 Cal. 495.
Mass. 75, 77 ; National Pemherton * First National Bank v. National
Bank v. Porter, 125 Mass. 333. Exchange Bank, 93 U, S. 133.
§ 288] BANKS AND BANKING. 517
acting ia the honest belief that only by so doing could a serious
loss to the bank be averted. ITone of these reasons, however,
existed in the case at bar, or if they did the record before us does
not disclose them. The cashier had no authority to bind the
bank 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 bank.
* * * 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."^ Unless necessary to
prevent loss on a debt previously contracted in good faith, a
national bank can make no valid loan or discount ih security of
its own stock.^ 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 prohibits
such loans.^ 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.* 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.^ The opinion of the court, a brief one,
rendered by Mr. Justice Field, stated the law in such case to be
' Bank of Commerce v. Hart, (1893) Central R. R. Co. v. Pennsylvania R.
37 Neb. 197, "305, 206. The cases R. Co., 31 N. J. Eq. 475; Sumner «.
referred to by the Nebraska court were Marcy, 3 Woodb. & M. 105; Central
Mechanics & Workingmen's Mutual R. R. Co.* 41. Collins, 40 Ga. 582; Hazel-
Savings Bank & Building Association hurst «. Savannah, G. & N. A. R. R.
«. Meriden Agency Company, 24 Co., 43 6a. 13; People ». Chicago Gas
Conn. 159; Franklin Co. v. Lewiston Trust Co., 180 111. 368.
Institution for Savings, 68 Me. 43 ; » Bank v. Lanier, 11 Wall. 369.
Nassau Bank v. Jones, 95 N. Y. 115. " Ibid.
Astothelack of poyver in one corpora- * Union National Bank v. Hunt,
tion to buy stock of another, see Mil- (1882) 76 Mo. 439.
bank v. New York, L. E. & W. R. R. ' National Bank of Xenia v. Stewart,
Co., 64 How. Pr. 30-39; Eranklin Bank 107 U. S. 676.
■n. Commercial Bank, 36 Ohio St. 355;
518 BANKS AND BANKING. [§ 288
as follows : " Section 5201 of the Kevised 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 oifset to the proceeding. In either view the administra-
tors cannot recover." ' 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
' Ibid.
§§ 289, 290] BANKS AND BANKING. 519
bank.* A national bank which had received the stock of a
savings bank, and still retained it, and had received dividends on
the stock, has been held to be estopped from denying its liability
for its proportion of the indebtedness of the savings bank con-
tracted during the time of its ownership of stock therein.^
§ 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 bank less than that originally voted by its
directors but equal to the amount actually subscribed and paid for
by the stockholders under the original vote.^ The capital of a
national banking association having become impaired by reason of
past due and suspended claims, should its stockholders, 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 be subsequently realized upon 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 stock
surrendered by him.^ The validity of the proceedings for an
increase of the stock of a national bank cannot be questioned by
a stockholder who, with the knowledge of its 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.'
§ 290. Loans. — "Where a state bank has been organized into a
national bank under the national law, and the national bank had
taken from the state bank, among the discounted notes, one for a
larger amount than the national bank was authorized to loan to a
single borrower, the Supreme Court of Ohio held that such note
or any note subsequently given in renewal of it was not to be
regarded within the meaning of the national act as given for
' Chemical Nat. Bank of Chicago v. "' McCann v. First National Bank,
City Bank of Portage, (111. 1895) 40 N. (1887) 113 Ind, 354.
E. Rep. 338. ' Delano r. Butler, 118 U. S. 634 ;
" Kennedy v. California Savings Pacific National Bank v. Eaton, 141
Bank, (1894) 101 Cal. 495. U. S. 337 ; Thayer 11. Butler, 141 U. S.
' Aspin-wall ». Butler, 133 U. S. 334; Butler v. Eaton, 141 U. S. 340.
595.
520 BANKS AND BANKING. [§ 290
money borrowed of the national bank.^ 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.^ 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.' 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.^
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
• Allen 1). First National Bank, Xe- the benefit of either party to the illegal
nia, (1873) 33 Ohio St. 97. contract, hut altogether upon grounds
' Gold Mining Co. i). National Bank, of public policy. In O'Hare v. The
(1877) 96 U. S. 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 «. ified. The court held that the section
Bunnels, 13 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. «. Brioker, 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 ' Stephens v. Bank, 88 Pa. St. 157.
the purchaser was held liable for the * Bates ®. Short, 3 Pennypacker (Pa),
purchase money. Mr. Justice Wayne 495.
said that the rule was allowed not for
§ 291] BANKS AND BANKING. 521
maker.^ Where money is paid on forged paper by discounting or
cashing it by a bank, it can be recovered back provided the bank
has not materially contributed to the mistake itself, and has given
a sufficiently early notice of the mistake to the other party after
discovering it.^ In a Vermont case, it appeared that the defend-
ant signed a writing addressed to the person who was the cashier
of the bank by name only, saying : " I wish you to discount a
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 directors
of a bank have discretionary power to declare dividends and the
amount of same, and a very strong case must be presented to
induce a court to interfere.* "Where the articles of association of a
bank provided that there should be a semi-annual dividend, and
vested all the powers and privileges of the members 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 ooiild
not maintain a bill to restrain the collection of the securities he
had given the association in consideration of his shares, because
they had determined to forego a dividend in that year.' A divi-
dend declared and paid, and credited on a call for payment of the
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 been
held that a dividend declared by a bank could not be made pay-
able in bills of county banks, solvent, but quoted below par in
the city of New York.' A stockholder in a bank is not entitled
to interest from the bank, either on ordinary dividends declared
' Tagg ■». Tennessee National Bank,
= Ely ». Sprague, (1840) Clarke,
(1872) 9 Heisk. (Tenn.) 479.
351.
"Third National Bank v. Allen,
« Sagory v. Dubois, (1846) 3 Sandf.
(1875) 59 Mo. 310.
Oh. 466.
" Woodstock Bank v. Downer, 27
' Ehle r). Chittenango Bank, (1862)
Vt. 482.
24 N. Y. 548.
* State V. Bajik of Louisiana, 6 La.
746.
66
522 BANKS AND BANKING. [§ 291
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 be
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.^ 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
' Mustard ■». Unior Nat. Bank, (Me. for the owner of them than ordinary
1893) 39 Atl. Rep. 977. Pbtbbs, 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 «. Tremont
the plaintifE. There was no promise Ins. Co., 4 Met. 1; Huntress v. Bur-
of interest in any way, and no disposi- bank. 111 Mass. 213; Smith v. Flan-
tion to withhold the funds, except for ders, 129 Mass. 322. And we do not
self -protection. There was more perceive that our own cases favor the
money at all times on hand and unem- claim. In Norris v. 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 v. Gardiner, 45 Me. 542, was a
claim to charge a bank with a liability similar case. And in Abbott v. Stinch-
to pay interest on deposits or declared field, 71 Me. 213, the trustee, an attor-
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."
§ 292] B^NKS AND BANKING. 523
bank to collect the notes from them, and they were not shown to
he insolvent or beyond the jurisdiction of the court ; and in case
the maker of a note was insolvent and in the penitentiary or non-
resident, protest and notice or suit at the first term were not
necessary to hold the indorser, but the debts became an original
habUity of the indorser.*
§ 292. Lien of banks on moneys and securities of its
customers. — A bank has a lien on all moneys and securities of
a customer coming into its possession in the regular course of
business for any balance due it on general account.^ A banker's
lien does not extend to all securities happening to be in his hands for
any purpose.^ A bank has no general lien on securities deposited
with it by a customer as collateral for a particular debt.^ 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 circumstances, or
where there is a particular mode of dealing, inconsistent with
such lien.' By the law merchant a banker has a general lien on
all securities deposited with him by a customer for his general
' First Nat. Bank of Texarkana ®. Tex. 489; s. c, 6 S. W. Rep. 802; 1
De Morse, (Tex. 1894) 36 S. W. Rep. Morse on Banks, § 334; Id. §337; New-
417. The Texas Civil Court of Ap- mark on Bank Dep. §§ 32, 117; Bank v.
peals, upon the general principles of Hughes, 17 Wend. 94; Fegley r.
law involved in the case, said: "A McDonald, 89 Pa. St. 128; Bank v.
bank, in its dealings with its custom- Henninger, 105 Pa. St. 496; Bank
ers, has a right to pay a debt due to it u. Peck, 127 Mass. 300. Mr. Mors^
out of money in the possession of such In his excellent work on Banks and
bank to the general credit of such cus- Banking (Vol. 3, § 699e), says: ' 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 v. Cresson, dends accruing upon the shares of a
75 Tex. 298; s. c, 13 S. W. Rep. 819, stockholder against indebtedness of a
and authorities there cited; Nashville stockholder to the bank, for the divi-
Trust Co. V. Fourth Nat. Bank, dend is a simple debt owing from the
(Tenn.) 18 S. W. Rep. 833; Hagar v. corporation to the stockholder. Hagar
Bank, 63 Me. 509; Morse on Banks, v. Bank, 63 Me. 509.' "
34; Newmark on Bank Dep. § 23; ' In re Tallassee Manufacturing Co. ,
Id. § 117. There is a general rule, 64 Ala. 567.
subject to some exceptions, that a 'Petrie «. Myers, (Sup. Ct. N. Y.
bank has a lien on all moneys and Spl. Term, 1877) 54 How. Pr. 518.
funds of a depositor in its possession * Grant ■». Taylor, 35 N. Y. Super,
to secure any balance due the bank by Ct. 388.
such depositor. Bank v. Weems, 69 ' Reynes t. Dumont, 130 U. S. 354.
524 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
coiirts will take judicial notice.* The doctrine of bankers' liens is
not the law of Pennsylvania.' 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.^ 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.* 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.' Where a bank paid an insolvent depositor's note,
which it had indorsed, and which had been duly 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.^ It was held in a case in a federal court that the
United States Revised Statutes, section 5242, which invalidates
' WymaiiB. Colorado National Bank, 'Falkland v. St. Nicholas National
(1879) 5 Colo. 30; citing Brandao «. Bank of New York, (1881) 84 N. Y,
Barnett, 3 Man., G. & S. 580. As to 145.
banker's lien upon securities belong- * Duncan o. Brennan, (1881) 88 N. Y
ing to his customers for balances due 487.
from them, see Cornwell «. Kinney, 1 ' Rathbone v. Sanders, (1857) 9 Ind,
Handy (Ohio), 496. 217.
^Spring & Axle Co.'s Appeal, 111 'Eosenberg «. First Nat. Bank of
Pa. St. 291. Texaikana, (Tex. Civ. App. 1894) 27
§ 293] BANKS AND BANKING. 525
all transfers of the notes, bonds or bills, of 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 a
bank which has in good faith accepted the draft of a national bank
the day before the latter's insolvency, and afterwards paid the same,
from applying the proceeds of collections made by it on paper in
its hands belonging to the insolvent bank to the payment of the
draft since its lien on such collections runs from the date of accept-
ance.* The United States Circuit Court for the southern district
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 its failure,
which balance had been pledged for the purpose of securing
loans made to the insolvent bank by the correspondent bank.^
§ 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 bank 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.' Where a
bank issues stoqk transferable on its face there is no lien upon it
S. W. Rep. 897; citing Burrow v. Conant «. Seneca County Bank, 1 Ohio
Zapp, 69 Tex. 474; s. c, 6 8. W. St. 298. As to whether a by-law of a
Rep. 783; Traders' Nat. Bank of San bank can create a general lien on the
Antonio ». Cresson, 75 Tex. 298; s. c, shares of a stockholder for any debt due
13 S. W. Rep. 819. the bank from the stockholder, so as to
' In re Armstrong, (1890) 41 Fed. affect the creditors of the stockholder,
iRep. 381. see Nesmith v. Washington Bank,
''Bell V. Hanover National Bank, (1828) 6 Pick. (Mass.) 334. As to a
(1893) 57 Fed. Bep. 821; citing Bank «. bank having a lien upon the stock of a
Colby, 21 Wall. 613. Lacombe, stockholder who may have died leav-
Circuit Judge, said further : "Neither ing notes due and to become due, pay-
the subsequent insolvency of the bank able to the bank, for the amount of the
nor. the appointment of the receiver indebtedness, see Downer v. Zanesville
destroyed the lien of defendant, Bank, (1833) Wright (Ohio), 477. As
nor its right to dispose of the pledge to the lien, given by its charter, to a
to satisfy the debt thus secured." bank on the stock held by the debtor,
Scott o. Armstrong, 146 U. S. 499; s. having a priority over a claim of the
c, 13 Sup. Ct. Rep. 148 United States, see Brent v.. Bank of
3 McDowell V. Bank of W. & B., 1 Washington, 10 Pet. 596. As to the
Harr. (Del.) 27. As to lien on stock effect of a charter or by-laws of a bank
for debt of the stockholder, see Bank prohibiting the transfer of shares of its
of Holly Springs®. Pinson, 58 Miss. 421; stock until all the debts of the stock-
526 BAHKS AND BANKING. [§ 293
for any debt the stockliolders owe the bank.* A bank may hold
a cash dividend as pledged for the debt of its shareholders to the
bank." 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.' A bank has no lien on the stock of one indebted
to it in preference to other creditors. A lis pendens would give
preference to such creditors.* 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.' The provision in such articles of incorpora-
tion that " no shares shall be transferable unless the shareholder
previousl}'^ discharge all debts due him by the association," has
been held to include not only matured debts but also liabilities
unmatured.' 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.'' 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.' 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 * Dana «. Brown, (1839) 1 J. J.
Bank b. Laird, 2 Wheat. 390. That a Marsh. (Ky.) 304.
bank may waive its right, under the ' Hodges v. Planters' Bank, 7 G. &
last provision, see National Bank «. J. (Md.) 306.
Watsontown Bank, 105 U. S. 217. " Leggett v. Bank of Sing Sing,
■ Fitzhugh V. Bank of Shepherds- (1862) 24 N. T. 283.
ville, (1825) 3 Mon. (Ky.) 128. ' Ibid.
5 Hagar ®. Union National Bank, 63 « Arnold ». Suffolk Bank, (1857) 27
Me. 509. Barb. 424.
* Brent «. Bank of Washington, 2
Cranch Cir. Ct. 517.
§ 294] BANKS AND BANKING. 527
during that interval of time the stock be pledged by its owner for
debt to a third party, the rights of the bank will be subordinate
to the rights of the pledgee until his debt is paid or the stock
released by the pledger.^ The lien that a bank has upon the
stock of its debtor will not be affected by the fact that the debt is
barred by the Statute of Limitations.''
§ 294. Interest reserved by banks. — Legal interest, on
sums discounted by banks, is that established by their chartesr.*
They can, in no case, take more interest than that fixed by their
charters.* Banking laws limit the right of a bank to take inter-
est. Keserving or taking interest in excess of that limit, makes
the transaction usurious, and the general usurj' law applies to it.^
The taking of interest in advance upon loans made by a bank is
within the well-established rules of banking. But 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
exceeding the rate allowed by law.* "Where a bank discounts a
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 being the
usage of banks.' Discount means, ex vi 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 bauk.^ The rate of interest on loans
' Bank of America r. McNeil, (1877) ^ Ticonic Bank t. Johnson, 31 Me.
10 Bush (Ky,), 56. 414.
' Farmers' Banlt nf Maryland ®. ' Union Bank ». Corcoran, 5 Cranch
Iglehart, 6 Gill (Md.), 55. That a na- Cir. Ct. 513.
tional bank cannot create or hold, by ' First National Bank «. Sherburne,
its articles of association or by-laws, a 14 Bradw. (111.) 566. As to what is a
lien on its stock to secure the indebt- discount, see Fleckner ». Bank, 8
edness of stockholders to it, see Sec- Wheat. 838; Bank ». Johnson, 104 U.
oud National Bank of Louisville v. S. 271; Tracy ». Talmage, 18 Barb.
National State Bank of New Jersey, 456; Niagara County Bank «. Baker,
(1874) 10 Bush (Ky.), 375. 15 Ohio St. 68; Pape v. Bank, 20 Kans.
' Bank of Louisiana v. Sterling, 2 440; Bank ». Sherburne, 14 111. App.
La. 62; Clinton County -o. Kernan, 10 566; First Nat. Bank v. National Ex-
Eob. (La.) 174. change Bank, 92 U. S. 122. As to in-
* Bank of Louisiana »j. Stansbury, 8 terest, see Guthrie «. Reld, 107 Pa. St.
La. 261. 351; Barnet v. Bank, 98 U. S. 555; Nash
* Rock River Bank «. Sherwood, 10 v. Bank, 68 N. Y. 396; Bank r. Carpen-
Wis. 230; Durkee «. City Bank, 13 ter, 52 N. J. Law, 165; s. c, 19 Atl.
Wis. 216; Brower v. Haight, 18 Wis. Rep. 181; Bank v. StaufiEer, 1 Fed.
102. Rep. 187; Bank ». Chllds, 133 Mass.
528 ' BANKS AND BANKING. [§ 294r
or discounts being limited in the charter of a bank, it cannot
stipulate for a higher rate in consideration of its forbearance to
sue.' It is not usurious in a bank to receive interest ia advance
On notes discounted by it.' Requiring and taking exchange in
'New York by a bank upon a note intended to be, and actually
paid, in Wisconsiu, in addition to ten per cent interest, has
been held to be usury .^ 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.^ 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.^ National banks are sub-
ject to the penalty against usury imposed by the federal law and not
to that imposed by state law." 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.' The rule in Vermont 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.^ 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. 453; c. f., Smitli v. Bank, State ■». 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 N. Y. 64, 68, tution, 10 G. & J. (Md.) 299.
buying notes or advancing money ' Durltee v. City Bank, 13 Wis. 216.
on notes is distinguished from "dis- ■■ Central Bank v. St. John, 17 Wis.
counting." Lester d. Bank of Mo- 157.
bile, 7 Ala. 490; Branch Bank at ' Tiffany v. National Bank of Mis-
Mobile «. Strother, 15 Ala. 51; Kitchen souri, 18 Wall. 409. See, also, Na-
13. Branch Bank at Mobile, 14 Ala. 233; tional Bank v. Johnson, 104 U. S. 271.
Branch Bank at Montgomery v. Har- ^ 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 ' Driesbach «. National Bank, 104
effect of penalties, see Atlantic State TJ. S. 52; Barnet «. National Bank, 98
Bank of Brooklyn v. Savery, (188D) 82 U. S. 555. See, also, as to the rem-
N. Y. 291; Nash ». White's Bank of edy under the national law being ex-
Buffalo, (1877) 68 N. Y. 396. elusive, Stephens v. Monongahela
' Exchange Co. v. Boyce, 3 Rob. Bank, 111 U. S. 197.
(La.) 307. As to the reservation of in- * Bank of Middlebury v. Bingham,
terest in the way of discounts exceed- 33 Vt. 621.
tag the rate of interest allowed a bank
I 294] BANKS AND BANKING. 529
by the assignee of the bank.' The demand and receipt by a
national bank of usurious interest from indorsers upon notes dis-
counted by it, the payments of which notes may be guaranteed
to the bank by a third party in a written guaranty, will not avoid
the contract of guaranty between such third party and the bank.^
In Pennsylvania a national bank cannot take more than six per
cent upon the discount of a note, without showing that the state
banks of issue are allowed to do so.' Where a charter of a bank
provided " that said corporation shall not take more than 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 power in
the bank to make such a contract.* National banks are subject
onjy to the penalties prescribed by the United States Banking
Association Act for taking usury. ^ 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 pleaded
by way of set-oil 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.^ 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.'' The person paying such interest having
' Childs V. Alexander, 23 S. C. ' Lazear b. National Union Bank of
185. That the laws of the state Impos- Maryland,atBaltimore,(1879) 53 Md. V8.
ing penalties for taking usury do not ' Bank v. Gruber, 91 Pa. St. 377;
apply to national banks, see Central Banka. Bletz, 3Pennypacker(Pa.),170.
Bank ». Pratt, (1874) 115 Mass. 539; * Bank of Chillicothe ». Swayue,
Davis i>. Eandall, (1874) 115 Mass. (1838) 8 Ohio, 357.
547. As to the provisions of the Na- ' Merchants & Farmers' National
tional Banking Act with reference to Bank of Charlotte v. Myers, 74 N. C.
forfeiture for taking usurious interest, 514. As to a state court not having
see Central Bank v. Pratt, (1874) 115 jurisdiction of a bill to recover usury
Mass. 539; Davis i). Randall, (1874) paid to a national bank, see Hambright
115 Mass. 547. As to the power to v. Cleveland National Bank, (1891) 3
deduct interest from the amount of Lea (Tenn.), 40; Farmers & Mechanics'
the loan and in advance, see Maine Bank v. Dearing, 91 U. S. 29.
Bank «. Butts, (1812)9 Mass. 49; Agri- « Oldham e. Bank, 85 N. C. 240.
cultural Bank v. Bissell, (1832) 13 ' Crocker v. National Bank of Che-
Piok. (Mass.) 586. topa, (1876) 4 Dill. 358.
6T
530 BANKS AND BANKING. [§ 294
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.-' 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.' 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.'
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.* 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 hona fide made. In an action by a national bank on an
evidence of debt, payable to it or its use, where it has tmlawf nlly
- 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.' 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.'' 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.^ The Supreme
Court of Colorado, in a very recent case, have accepted the con-
' Ibid. Nolan, 7 How. (Miss.) 508 ; Grand
' Ibid. Gulf 11. Archer, 8 Smedes & Marsh.
' Wiley ■». Starbuok, (1873) 44 Ind. (Miss.) 151; .Chambliss v. Robertson,
298. 1 Cushman (Miss.), 302; Planters'
■1 Ibid. Bank v. Snodgrass, 4 How. (Miss.)
" Ibid. 573; Forniquet v. West Feliciana R.
«Ibid.- R. Co., 6 How. (Miss.) 116; Killings-
' Ibid. In La Dow v. First Nat. worth e. 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 v. 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 v. Murphy, Walker (Mich.),
and charge interest at the rate of 424 ; Farmers & Traders' Bank v.
eight per cent. Shunk «. Bank, 28 Harrison, 57 Mo. 508; Lyon v. State
Ohio St. 508, distinguished. As to Bank, 1 Stew. (Ala.) 442.
interest and usury taken by banks, see ' Murrali v. Branch Bank at Deca-
Commercial Bank of Manchester r. tur, 30 Ala. 393.
^ 294] BANKS AND BANKING. 531
elusions of the courts of certain states tliat national banks may
charge as high a rate of interest as is allowed to either individuals
or banks 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 itself.
The restriction contained in the National Banking Act, which for-
bade national banks to charge more than seven per cent interest
only, became 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 by
either citizens or banks of issue became operative. Under this
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 elfect 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.'"
'Rockwell ■B. Farmers' Nat. Bank tional Banking Act, adjudged this
of Longmont, (Colo. 1894) 36 Pac. admissible where a counterclaim was
Eep. 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
BisspLL, 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 interest'
the whole subject that it is deemed was reserved, a defense based 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 due. Barnet «. Bank, 98
national bank in Colorado to reserve U. S. 555; Driesbach «. Bank, 104 U.
and receive, whether by way of loan S. 53. The sole remaining inquiry
or discount, a greater rate of interest concerns the recovery of the thirty-
than seven per 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
eat, even though illegal, be applied to tenor jsf the note. The statutes in
the reduction of th'e 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 speciflo rate
532 BANKS AND BANKING. [§ 294r
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 Kevised Statutes United
of interest, which is now eight per forma, and the query has been pre-
cent, but the act regulating the mat- sented by way of defense to prevent
ter has likewise contained a section the recovery of the stipulated interest,
permitting parties to stipulate for any and likewise in actions brought to
rate of interest and authorizing the recover the penalty of twice the inter-
recovery of the stipulated interest, est where the rate has been manifestly
The National Banking Act, as amended illegal. Nevertheless, it remains true
in 1864 (§§ 5197, 5198, U. S. Stats.), that the question as here presented
in general provides that such bank- has never reached the Supreme Court
ing associations may reserve and of the United States. The case relied
receive any rate of interest allowed by on by the appellant, and,which at first
the law of the state wherein the bank blush would seem to sustain his con-
is organized. There was some con- tention, is Bank v. Johnson, 104 U. S.
trariety of opinion among the state 271. This case went up on writ of
courts as to the extent of the power error to the Court of Appeals of the
conferred by these two sections and state of New York, and the federal
concerning the proper construction of tribunal took iurisdiction because of
the clause granting the banks the right the question involved. In support of
to charge interest in those states where our position that this case is not decis-
one rate was prescribed for banks of ive of the present controversy, and in
issue and another for persons gen- reality does not touch the principles
erally. This matter has likewise been under discussion, it is needful to state
settled by the Supreme Court of the what that case is, the point at issue,
"United States, which has held that the and other questions determined. This-
banks may charge either rate at their was a penal action against the bank,
pleasure, selecting, if they choose, the brought originally by Johnson in the
maximum. Tiffany v. Bank, 18 "Wall. Supreme Court of New York to re-
409. None of these Supreme Court cover twice the interest alleged to
decisions, however, touch the matter have been reserved and received by
in issue, which is, are national banks the corporation in the business done
in states having a statute upon the by the parties. Johnson insisted that
subject of interest which fixes a rate, the bank was subject to the penalties
but likewise contains a provision au- and liable to the provisions of the stat-
thorizing parties to stipulate as they ute respecting usury and interest in
may choose respecting this matter, the state of New York, which, in gen-
authorized to contract like other citi- eral, provided that all usurious loans
zena living within the sovereignty? should be absolutely void and the
This question has not been settled, lender could recover neither principal
The statute respecting national banks nor interest. On the other hand, th&
has been in force for upwards of bank insisted that, according to the
thirty years, and considerable litiga- tei'ms of the transaction, it was one
tion has arisen on this particular ques- entirely analogous to the discount of
tion. The suits have taken various paper by the bank where the note was.
§ 294]
BANKS AND BANKING.
633
States, section 519Y, which prohibits national banks from- taking
interest on any loan or discount made by them at a greater rate
than is allowed by the laws of the state where they are situated ;
also, that the acceptor of drafts so purchased might defend
the recovery of interest thereon by the bank, under
agamst
made by A. to the order of B., who
indorsed and sold it to the bank. 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, banks were not
amenable to the usury statute. It may
seem like a judicial evasiouof the law,
but in that mercantile community it
has never been changed, the courts
holding in a case of that description
there are 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 difEerent 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
right of the general government to
establish the system, delegate the
power granted and impose restrictions
on the banks organized under it were
fully considered in the case of Bank v.
Bearing, 91 U. S. 89. It was there
decided that these banks were part of
the instruments adopted to aid in the
administration of the government in
one of its most important depart-
ments. The corollary was that the
states could exercise no control over
them, nor in any wise affect 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 purview of the
usury statute. . Since the statutes 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 dis-
counts were of no consequence, and
afforded no possible solution of the
query. There was another equally
cogent reason, and one possibly more
534
BANKS AND BANKING.
[§294
Revised Statutes United States, section 5198, which provider
that the taking of an unlawful rate of interest shall be deemed a-
forfeiture of the entire interest which the " bill or other esddence
of debt carries with it," as this provision destroys the interest-
bearing power of the instrument. Furthei-, where the acceptor
conclusive of the subject. The fed-
eral statute itself, in section 5197, in-
hibited national banks from reserving
other than the permissible interest,
whether it was done by way of loan
or by way of discount. The positive
limitation of the section puts loans and
discounts on the same identical basis.
,This of itself would prevent the ap-
plication of the New York doctrine,
and the negative answer to the inquiry
given by the Court of Appeals was of
necessity affirmed by the other tribu-
nal. These were the only questions in
that litigation. It is true that, in the
course of the discussion concerning
this matter, the court suggested that,
when no rate of interest was fixed by
the laws of the state, a bank could
only charge seven per cent per annum.
Thei-e are two reasons why that decla-
ration by the court could not be taken
as decisive of the present inquiry.
As demonstrated, the case under con-
sideration did not come up from a state
where there was no statute fixing a
rate, nor from one where the law fixed
the rate, but permitted any rate to be
charged which might be agreed upon
between the parties. It came from
a state having one fixed rate of inter-
est, which, of course, under the fed-
eral statute, would be conclusive upon
the rights of a national bank. In the
next place, it was a statement argu-
endo, and could only beheld to refer
to a ease where the laws of the state
were silent. " The court then discussed
the state cases as follows: " Three of
the cases presented the question in a
somewhat different aspect from the
one at bar, but one very illustrative
of this theory of construction. They
were actions upon notes reserving ten
and twelve per cent interest, where the
general rate was six, though the parties
by contract were authorized to charge
at the rate of ten and twelve per cent
per annum. It was conceded that six
was the general rate fixed by the
statute, and that the other was totally
dependent upon agreement of the
parties; yet, the courts held that the
national banks might reserve and re-
ceive whatever interest was allowed
by the law of the state regulating the
matter. Wiley i>. Starbuck, 44 Ind.
298; Newell ». Bank, 12 Bush, 57;
Crocker ii. Bank, 1 Thomp. Nat. Bank
Cas. 317 ; s. c. Fed. Cas. No. 3,397.
It will be observed that in these casea
the rate was established by the law of
the state, and there was a limit put by
the same laws, beyond which neither
individuals nor banks could go.
Within the limit, interest might be re-
served. The courts, in reaching their
conclusion, proceeded upon the hy-
pothesis that, under the National Bank-
ing Act, the bank might charge any
interest allowed by the laws of
the state in which it was organized,
even though the rate above six must be
the subject of convention, and, unless
the limit were reached, the rate as a
rate would not be stated. This was
regarded as of no moment in the inter-
pretation of the statute. It is very
plain that if the bank had reserved
nine per cent, while the respective
limits were six and ten, an amount
would have been charged in a case
where there was no definite legislation
directly authoi'izing either the indi-
vidual or the bank to charge nine per
cent, other than that flowing from the
§294]
BANKS AND BANKING.
535
of such drafts makes a payment to the bank without any direction
as to its application, the payment cannot be appUed to the for-
feited interest, but must be credited on the face vahie of
the drafts.' The Umitation of two years, within which an
action, under the provisions of section 5198, Revised Statutes
"United States, may be commenced 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 bank's
reservation of it from the original loan by way of discount.^
legislation which made the matter of
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 maybe the subject of
an agreeement, 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 v. Bruhn, 64
Tex. 571; Hinds v. Marmolejo, 60 Cal.
239; Bank v. Stover, 60 Cal. 387; Guild
V. Bank, (S. D.) 57 N. W. Rep. 499."
'Danforth v. National State Bank
of Elizabeth, (1891) 48 Fed. Eep. 271.
' Smith V. First Nat. Bank of Crete,
(Neb. 1894) 60 N. W. Rep. 866, fol-
lowing Bank v. Smith, 36 Neb. 199;
s. c, S4 N. W. Rep. 254; followed in
Lanham v. First Nat. Bank of Crete,
(Neb. 1894) 60 N. W. Rep. 1041. The
court referred to the few cases bearing
upon the subject in these words: "In
Buncan ». Bank, 1 Thomp. Nat. Bank
Cases, 360; s. 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
tQ the time of final payment of the
principal, or up to the time of enter-
ing judgments — there is a locus peni-
tentim for the party taking the excess-
ive interest. Any time till then he
may consider the excessive interest
paid on account of the loan, and so
apply it, and lessen the principal. Up
to that time 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 Millinger notes was made, and
the judgments on all the Duncan
& Bros.' notes were entered, near 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 v.
Davis, reported in Fed. Cas. No.
10,038, is found the opinion of
Gresham, J., in which he quoted the
section of the National Banking Act
with which we have to deal. * * *
Having quoted this language. Judge
Gresham commented on it as follows:
" If a national bank discount a note at
a usurious rate of interest, paying the
borrower the proceeds less the inter-
536 BAJfKS AND BANKING. [§ 295
§ 295. A bank's duty as to securities deposited with it. —
The findings of the court in this case were that the owners of cer-
tain bonds first placed them for safe-keeping with a firm of bank-
ers. Afterwards they repeatedly asked for discounts of their
notes by the bankers, offering them the bonds deposited with
them as collateral, and the discounts were made. "When the notes
thus secured were paid the bankers called upon the owners of the
bonds to know what they should do with them; they were
informed that they were to hold them for the owners as pre-
viously. The owners had already written to the bankers that
they desired to keep the bonds for an emergency, and also that
they wished at times to overdraw their accounts, and that they
est, and suit be brought to recover tbe evidence of debt carries with it, or
loan, and the borrower plead the which has been agreed to be paid
usury, the bank will recover the face thereon,' must be held and adjudged
of the note, less the entire interest to be forfeited. By the latter pro-
taken out, received, or reserved, and vision, if usurious interest ' has been
no more. It will thus collect the paid,' twice the amount of interest
sum of money it actually paid out, may be recovered back from the asso-
being punished for receiving inter- elation ' taking or receiving ' it, pro-
eat in excess of the legal rate by vided the action therefor be corn-
forfeiting all interest. But if the menced within two years from the
note thus discounted be renewed for time the usurious transaction occurred,
the same amount, the borrower paying And, by construing the whole section
usurious interest out of his pocket in together, we are inclined to believe
advance, and suit be brought on the that, in case usurious interest has been
renewed note, the defendant may re- received at the time of the loan or dis-
coup double the amount of the entire count, there is left to the bank a locus
interest actually paid on renewal, or, penitentim. In such case, the bank
in an independent action of debt, he may, upon receiving payment of the
may recover from the bank double the debt, discharge itself from all liability
amount of the entire interest thus to the debtor by giving credit for the
paid." In Higley v. First National amountof interest received; otherwise,
Bank of Beverly, 36 Ohio St. 75, Mc- the debtor may insist upon a reduc-
IiiVAiNB, J., on page 79 et seg., made tion of his indebtedness to the amount
use of the following language, in actually loaned or advanced, or he may
reference to that part of the section pay the whole claim, and afterwards,
above referred to: "By the first pro- within two years, recover back twice
vision in that part of the section above the amount of interest paid." See
quoted, if the contract or promise to Shinkle «. First National Bank of Rip-
pay usurious interest be unexecuted, ley, 23 Ohio St. 516, which supports
it cannot be enforced, and in such case the above views. Other cases referred
the debtor is released from the pay- to are Hall «. Bank, 30 Neb. 103; 8. c,
ment, not only of the interest in ex- 46 N. W. Rep. 150; Brown v. Bank,
cess of the lawful rate, but ' the entire 73 Pa. St. 309.
interest which the note, bill or other
§ 295] BANKS AND BANKING. 537
would consider the bonds as security for such overdrafts. The
court was of opinion frona these facts that the bonds were held
by the bankers as collateral security to meet any sums which the
owners of the bonds might overdraw, and the accounts showed
that they did subsequently overdraw in numerous instances.
These bonds were originally sold by the bankers to the owners
and left with them for safe-keeping. An absconding cashier of
the bankers had stolen the bonds, and the owners brought this
action to recover the value of the bonds of the bankers. The
United States Supreme Court held that when bonds, 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.'
■ Preston v. Prather, (1891) 137 U. S. three to fifteen thousand dollars. The
604, affirming the judgment in favor firm was not indebted to the hank sub-
of the plaintiff rendered in Prather v. sequently to July, 1873, when it paid
Kean, 29 Fed. Rep. 498. The court its last indebtedness; the bonds, how-
referred to the following cases in sup- ever, were not then withdrawn, but
port of their judgment, to wit: "In left in the bank under the original
* * * Third National Bank v. Boyd, agreement. In August, 1873, the bank
44 Md. 47, it appeared that a firm was entered by burglars and certain of
* * * a large customer of [the the bonds were stolen. In an action by
hank] [on a certain date] was indebted the senior partner against the bank to
to it in about five thousand dollars, recover the value of the bonds stolen
Subsequently, the senior member of it was held: ' First, that the contract
the firm, pursuant to an agreement be- entered into by the bank was not a
tween him and the president of the mere gratuitous bailment. » * *
bank, deposited with the bank certain Third, that the original contract of
bonds and stocks as collateral security bailment being valid and binding, the
for the payment of all obligations of obligation of the bank for the saf e cus-
himself and of the firm then existing tody of the deposit did not cease when
or that might be incurred thereafter, the plaintiff's debt had been paid,
■with the understanding that the right Fourth, that the defendant was respon-
to sell the collaterals in satisfaction of sible if the bonds were stolen in con-
such obligations was vested in the of- sequence of its failure to exercise such
fleers of the bank. Some of the bonds care and diligence in their custody and
were subsequently withdrawn and keeping as at the time banks of com-
others deposited in their places. While mon prudence in like situation and
these collaterals were with the bank business usually bestowed in the cus-
the firm kept a deposit account, hav- tody and keeping of similar property
ing an average of about four thousand belonging to themselves; that the care
dollars, and from time to time, as it and diligence ought to have been such
needed, obtained on the sepurity of as was properly adapted to the preser-
the collaterals discounts ranging from vation and protection of the property,
68
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 pledgor, 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.^ 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-
any imprudence on the part of the de- genoe 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 «. 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 bene-
bank, delivered to it certain securities, fit of the parties; that the bailee was
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- tuitions 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 v. Cecil National Bank,
question or examination; that they had (1892) 53 Fed. Rep. 513. See as au-
no meetings pursuant to the by-laws, thority for this rule National Bank v.
§ 296] BANKS AND BANKING. 539
authority to sell and the provisions of certain statutes of Mary-
land relieved it from liability. The court held that the fact that
the agent had authority to sell did not afEect the duty of the bank
to make inquiry, as authority to sell did not include authority to
pledge, nor was the bank excused from liability by tlie Maryland
Factors' Act (Code, art. 2), • providing that any person intrusted
with storekeeper's certificates or other similar documents show-
ing possession may pledge the goods to anybody who is without
notice that such person is not the actual owner, the word " agent "
in the receipts and the circumstances charging the bank with
notice ; nor by article 14 of the Maryland Code, declaring storage
receipts to be negotiable instruments in the same manner as bills
of lading and promissory notes ; for when the fiduciary character
of the holder is expressed on the face of a negotiable instrument
notice is thereby given to the indorser that the holder prima
facie has no right to pledge.' In this case the plaintiS's action
was for certain coupon railroad mortgage bonds which it was
claimed the bank became wrongfully and illegally possessed of.
Plaintiif, the owner of these bonds, had placed them with certain
brokers to cover margins in transactions in the purchase of stocks
by them on his account. These brokers, keeping a regular
account with the bank in their usual course of business, had
placed these bonds with other securities as collateral with the
bank under an agreement to this effect : " We hereby agree with
the St. IS^icholas National Bank of New York, in the city of New
York, that in case we shall become or be at any time indebted to
said bank for money lent or paid to us or for our account or use,
or for any overdraft, in any sum or amount then due and pay-
able, the said bank may, in its discretion, sell at the brokers' board
or at public auction or private sale, without advertising the same,
and without notice to us, all, any and every collateral securities,
things in action and property held by said bank for securing the
payment of such debt, and apply the proceeds to the payment of
such indebtedness, the interest thereon, and the expenses of sale,
Insurance Co., 104 U, S. 54; Duncan 'Ibid. In support of these rules see
«. Jaudon, 15 Wall. 165; Warner v. Allen i). St. Louis Bank, (1887) 130 U.
Martin, 11 How. 325; Taliaferro v. S. 30, 32; s. c, 7 Sup. Ct. Rep. 460;
Bank, 71 Md. 308; s. c, 17 Atl. Rep. Kinder v. Shaw, 3 Mass. 398; Phillipa
1086; Lowry o. Banls;, Taney, 310; ii. Huth, 6 Mees. & W. 572, 596; Cole ».
Shaw 11. Spencer, 100 Mass. 883; Dil- North Western Bank, L. R., 10 C. P.
Ion «. Insurance Co., 44 Md. 386. 354, 363.
540 BAMKS AND BANKING. [§ 296
holding ourselves responsible and liable for the payment of any
deficiency that shall remain unpaid after such application." The
bank paid and advanced for these brokers on the faith of the bonds
and other securities large sums of money. The brokers failed
in business, and owed the bank a large sum for checks certified
by it and outstanding, and for money paid by it up to the close
of the business a few days before their failure. There was no
notice or claim as to the ownership of the bonds involved by the
alleged owner until two weeks after the failure of his brokers.
The bank in good faith and on the best available terms made sale
of the bonds and other securities and credited its depositors, the
brokers, with the proceeds, which left a small deficiency which
it never received. This case was tried on a circuit of the
Supreme Court of the State of New York, and the plaintiffs
asked the court to direct a verdict against the bank and in their
favor on the ground that the certification of the cheeks by the
bank was void, because it was unlawful, being a certification of
checks drawn by the brokers when they had no money on deposit
to their credit with the bank, and the bank could not hold the
bonds as against such unlawful certification, and on the further
ground that the bank did not take the bonds in the ordinary
course of business. The trial court refused and directed a ver-
dict for defendant. Exceptions to this judgment came before
the Supreme Court in General Term, and the court denied a
motion of plaintiffs for a new trial with an order that the defend-
ant have judgment against the plaintiffs upon the verdict with
costs.^ The case was carried to the United States Supreme Court,
' Thompson «. St. Nicholas National would defeat the very policy of an act
Bank, (1888)47 Hun, 621; aflfirmed in intended to promote the security and
Thompson v. St. Nicholas National strength of the national banking sys-
Bank, (1889) 113 N. Y. 335, in which tem, if its provisions should be so con-
case Kuqbb, Ch. J., remarked: "That strued as to inflict a loss upon the
the statute of the United States af- banks and a consequent impairment of
firmed the validity of the contract of their financial responsibility." The
certification, and expressly provided court then cited to support that view
the consequences which should follow National Bank v. Matthews, 98 U. S.
its violation; that the penalty incurred 621; National Bank v. Whitney, 103
was impliedly limited to a forfeiture U. S. 99, and National Bank of Xenia
of the bank's charter and the winding v. Stewart, 107 U. S. 676. It was
up of its affairs; that it was thus further said " that the statute in ques-
clearly implied that no other conse- tion had no application to the question
quences were intended to follow a involved in this suit, which concerned
violation of the statute; and that it only the relations between [the brokers!
296]
BANKS AND BANKING.
541
on a writ of error, there being a federal question involved, the
construction and effect upon this contract of the United States
Eevised Statutes, section 5208, providing : " It shall be unlawful
for any officer, clerk or agent of any national bank to certify any
check drawn upon said bank, unless the person or company
drawing said check shall have on deposit in said bank at the time
such cheek is certified an amount of money equal to the amount
specified in such check ; and any check so certified by duly
authorized officers shall be a good and valid obligation against such
bank ; and any officer, clerk or agent of any national bank vio-
lating the provisions of this act shall subject such bank to the
liabilities and proceedings on the part of the comptroller as pro-
vided for in [the section of an act, the provisions of which were
and the [bank]; that by the deposit of
the bonds the former secured the
, promise of the [bank] to protect their
checks of a certain day for a specified
amount; that the certification of the
checks was entirely aside from the
agreement between [the brokers] and
the [bank], and was a contract be-
tween the [bank] and the anticipated
holders of the checks; that [the
brokers] had received the considera-
tion of their pledge when the [bank]
agreed with them to honor their checks,
and that would have been equally
effectual between the parties without
any certification; that the certification
was simply a promise to such persons
as might receive the checks that they
should be paid on presentation to the
[bank], in accordance with its previ-
ous agreement with [the brokers]; that
the legal effect of the agreement was
that the [bank] should loan a certain
amount to [the brokers], and would
pay it out on their checks to the per-
sons holding such checks; that it was
entirely legal for the [bank] to con-
tract to pay [the brokers'] checks, and
it did not affect the legality of that
transaction that the [bank] also repre-
sented to third parties that it had made
such agreement, nor could any other
'party standing in the shoes of [the
brokers]; that the fact that the [bank],
in connection with the agreement to
pay such checks, had also promised
third parties to pay them, could not
invalidate the liability previously in-
curred, or impair the security which
had previously been given to the
[bank] upon a valid consideration; that
the fact of the certification was entirely
immaterial in respect to the liability
incurred by [the brokers] to the [bank];
that there was no evidence impairing
the title to the bonds acquired by the
[bank] through the transfer of them
to it by [the brokers]; that the purpose
for which the bonds were transferred
by [their original owner] to [the
brokei's] contemplated their transfer
and sale by the latter to third persons;
that the [bank] acquired a valid title
to them by their transfer to it; that
the transaction between [the brokers]
and the [bank] was in the ordinary
course of business pursued by the
latter; that it received the bonds in
good faith for a valuable consideration,
and within all the authorities this gave
it a good title to the bonds; that it was
authorized to d'Cal with them for the
purpose of effecting the object for
which they were transferred to it; that
its right to hold the bonds continued
so long as any part of its debt against
542
BANKS AND BANKING.
[§296
that the comptroller of the currency might forthwith appoint a
receiver to wind up the affairs of the banking association]." The
Supreme Court affirmed the decision of the New York Court of
Appeals.^ In this case a national bank in a faihng condition,
while being pressed by its customers, remitted securities in the
form of bills of exchange, notes, etc., to a large amount to its
correspondent bank in another city, on which it asked advances
or loans for its relief and also authorized the holding of these
securities as collaterals to protect against its overdrafts. The
failing bank finally succumbed to the pressure, and was placed in
the hands of a receiver. The receiver brought action against the
bank holding these securities, claiming a right to their possession
in himself as assets of the bank. The contention on the part
of the receiver was that the United States Revised Statutes, sec-
[the brokers] remained unpaid; that
the [original owner] could at any time
have established his equitable right to
a return of the bonds, and could have
procured their surrender by paying
the amount for which they were
■pledged, but he refrained from doing
so, and impliedly denied any right in
the [bank] by demanding the uncon-
ditional surrender of the bonds, and
that he never became entitled to such
surrender, and of course was not au-
thorized to recover possession of
them."
' Thompson v. St. Nicholas National
Bank, (1892) 146 U. S. 240. Mr.
Justice Blatchfokd, for the court,
approved the views of the New York
Court of Appeals as sound and as
covering the case. He then said :
" The agreement [before referred to]
between [the brokers] and the [bank]
did not call for any act violating the
statute. There was nothing illegal in
providing that the securities which
the bank might hold to secure the
debt to it of [the brokers] should be
available to make good such debt.
The statute does not declare void
a contract to secure a debt arising on
the certificates which it prohibits.
In addition to that, the statute ex-
pressly provides that a check certified
by a duly authorized officer of the
bank, when the customer has not on
deposit an amount of money equal to
the amount specified in the check
certified, shall nevertheless be a good
and valid obligation against the bank;
and there is nothing in the statute
which, expressly or by implication,
prohibits the bank from taking
security for the protection of its
stockholders against the debt thus
created. There is no prohibition
against a contract by the bank for
security for a debt which the statute
contemplates as likely to come into
existence, although the unlawful act
of the officer of the bank in certifying
may aid in creating the debt. In
order to adjudge a contract unlawful,
as prohibited by a statute, the pro-
hibition must be found in the statute.
The subjection of the bank to the
penalty prescribed by the statute for
its violation cannot operate to destroy
the security for the debt created by
the forbidden certification. If the
[original owner] had pledged the
bonds to the [bank], he could not, after
receiving [the bank's] money, have
replevied the bonds ; and after pos-
session of the bonds had been given
§296]
BANKS AND BANKING.
543
tioii 5242, wliich proMbits all transfers by any national banking
association after the commission of an act of insolvency, or in con-
templation thereof, with a view to the preference of one creditor to
another, had been violated by the insolvent bank, and that the cor-
respondent bank had, therefore, no title in or lien upon the secur-
ities which it held. Wallace, J., of the United States Circuit
Court for the southern district of New York, held that the statute
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 is insolvent,
and the creditor has reason at the time to believe that to be the
by him to [the brokers], and after they
had been subsequently taken by the
[bank] in good faith, neither he, nor
his executors can set up the statute to
destroy the debt. This construction
of the statute in question is strength-
ened by the subsequent enactment,
making it a criminal offense in an
officer, clerk or agent of a national
bank to violate the provisions of the
act. [Eev. Stats. U. S. § 5308, to
wit: Act July 13, 1888, § 13, c.
288; 33 Stats, at Large, 166.] This
shows that congress only intended to
impose, as penalties for over certifying
checks, a forfeiture of the franchises
of the bank and a punishment of the
delinquent officer or clerk, and did
not intend to invalidate commei-cial
transactions connected with forbidden
certifications. As the [bank] was
bound to make good the checks to the
holders of them, because the act
[heretofore referred to] declares that
the checks shall be good and valid
obligations against the [bank], it fol-
lows that [the brokers] were bound to
make good the amounts to the [bank].
It necessarily results that the [bank],
in paying the checks, was as much
entitled to resort to the securities
which [the brokers] had put into its
hands, as it would have been to apply
inone}^ which they might have de-
posited to meet the checks. More-
over, it has been held repeatedly by
this court that where the provisions of
the National Banking Act prohibit cer-
tain acts by banks or their officers,
without imposing any penalty or for-
feiture applicable to particular trans-
actions which have been executed,
their validity can be questioned only
by the United States, and not by
private parties. National Bank d.
Matthews, 98 U. S. 621; National
Bank i\ Whitney, 103 U. S. 99,
National Bank of Xenia i>. Stewart,
107 U. S. 676. The bonds in question
came into the possession of the [bank]
before it certified the checks. They
were not pledged to it under any
agreement or knowledge on its part,
or in fact on the part of [the brokers],
that subsequent certificates would be
made. The certificates were made
after the pledge and created a debt of
[the brokers], which arose after the
pledge. The agreement [at the time
of depositing the collaterals] applied
and became operative simultaneously
with the certifications, but independ-
ently of them, as a legal proposition.
In Logan County Bank v. Townsend,
139 U. S. 67, 77. decided in March,
1891, after the present case was de-
544
BANKS AND BANKING.
[§296
fact.* 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.^
cided by the Court of Appeals of New
York, this court approved the decision
in National Bank s. 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.' "
' Armstrong v. Chemical National
Bank, (1890) 41 Fed. Rep. 334. 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."
'Armstrong «. 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 w. Dumont, 180U. S. 354; s. c,
9 Sup. Ct. Rep. 486. That was a case
§§ 297, 298] BANKS AND BANKING. 545
§ 297. Personal guaranty of a bank by stockholders and
directors. — The United States Circuit Court of Appeals for the
fifth circuit has held that a personal guaranty given by stock-
holders and directors of a bank to another bank in consideration
of " loans, discounts or other advances to be made," for the
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.*
§ 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 to 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] had resulted, either in conse-
hundred and seventy-five thousand quence of a subsequent express con-
dollars of municipal bonds had been tract, or in consequence of any im-
left by one banking firm with another plication from the nature of the trans-
fer 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 v.
pledge of the bonds, and the former, at Colby, 21 Wall. 609, and Bank «.
the request of the latter, had also ob- Butler, 139 U. S. 223; s. c, 9 Sup. Ct.
tained various loans of other bankers^ Rep. 381, take a view of the statute
bypledging so many of the bonds as which suggests that no preference can
was necessary in the particular trans- be obtained by one creditor of a, na-
action. The court found as a fact that tional bank 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 bank- 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 ' Doud v. National Park Bank of
them were specific loans accompanied New York, (1893) 54 Fed. Eep. 846.
by an express pledge, and held that See Davis «. Wells, 104 U. S. 159, for
these circumstances were inconsistent a review of the precedents in such
with the existence of a general lien, case and a statement of their doctrine.
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 throiigh its cashier to the other bank as to the financial
responsibility of its customer.^ 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-
teeden's act (9 Geo. IV, 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
writtea and signed by the cashier of the national bank was the
' Nevada Bank of San Francisco v. case the doctrine of ultra Hires has no
Portland Nat. Bank, (1893) 59 Fed. application. Corporations are haWe
Rep. 338. Gilbert, Ciror.rt 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 v. 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 f ot its ma-
that it had not the power to assume lioious or negligent torts, however
such liability ex contractu, but in the foreign they may be to the object of
case of a tort committed hy 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 vires. In the case in the cases of Railroad Co. v. Derby,
of Merchants' Bank v. State Bank, 10 14 How. 468; Railrosvd Co. v. Quigley,
Wall. 604, the court said: 'Corpora- 21 How. 303; Ettlng ». 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.
§ 298]
BANKS AND BANKING.
547
letter of the bank and the signature the signature of the bank
within the meaning of this statute. The court held that it was.^
' Nevada Bank of San Francisco v.
Portland Nat. Bank, (1893) 59 Fed.
Eep. 338. Gilbert, Circuit Judge,
■arguendo, said: "It is argued that the
signature of the cashier of the defend-
ant bank, attached to the letters, is not
the signature of the bank. The Eng-
lish case of Swift v. Jewsbury, L. R., 9
Q. B. 301, decided 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 had 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 j udg-
ment had first been obtained against
the company through one of its public
■officers. The decision of the Court of
. Queen'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 Colbeidgb
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 con-espondenoe 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 was
concurred in by the remainder of the
court. No American case is found
which covers the point in question, but
the tendency of the decisions in the
states in which Lord Tbntbbdbn's act
has been adopted has been to modify
the protection which the statute affords
to fraud by enforcing a strict construc-
tion of its provisions. Bush ii.
Sprague, 51 Mich. 41; s. c, 16 N. W.
Rep. 232; Hodgin i>. Bryant, 114 Ind.
401; s. c, 16 N. E. Rep. 815. * * ■«
A corporation can sign instruments in
writing only by an officer or officers
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 mayi nevertheless, empower any
officer to execute deeds 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 its usual correspond-
dence about business are often, if not
generally, signed by him. In Morse
on Banks and Banking (§ 162) it
is said that it is the special duty of the
cashier to conduct the correspondence
of the bank. The name of the defend-
ant bank stands at the head of both
letters referred to in the complaint,
and both are 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 circum-
stances detailed in the complaint, the
signature of the cashier is the signa-
ture of the bank.""
CHAPTEE X.
OFFICEES OF BANKS.
§ 399. 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-
ors of national banks —
actions to enforce it — rules.
803. 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.
309.
310.
311.
313.
313.
314.
Cashier's liability for his acts.
Knowledge of its cashier not
imputable to bank — ^illus-
trations.
Rules as to ratification of a
cashier's act by the bank.
Act of cashier binding on
bank.
Promise by cashier to pay
draft of a customer to be
drawn at a future day —
not binding on the bank.
Estoppel of a, bank to deny
the validity of an act of its
cashier in drawing drafts
on its correspondent and
fraudulently indorsing
them.
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 any securities
belonging to the corporation.^ 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.^ But if the cashier be guilty of fraud in con-
nection with the settlement, the bank will not be concluded by
it.' Directors of a bank have no authority to allow overdrafts.^
The giving of compensation to a director by the board of direct-
' Northampton Bank
(1874) 11 Mass. 388.
*! Frankfort Bank v.
Me. 490.
' Ibid.
* Market Street Bank
V. Pepoon, of the directors of a bank, see Harper
11. Calhoun, 7 How. (Miss.) 203; State
Johnson, 24 ». Commercial Bank of Manchester,
6 Smedes & Marsh. (Miss.) 318; Com-
mercial Bank of Manchester v. Bonner,
V. Stumpe, 13 Smedes & Marsh. (Miss.) 649.
(1876) 3 Mo. App. 545. As to powers
§ 299] OFFIOEES OF BANKS. 549
ors of a bank for extra sei-vices, though unlawful, will not expose
the directors to liability if done in good faith and with the purest
intention to benefit the bank.^ A director of a bank receiving
his compensation provided by law as a director cannot contract
with the board of directors while he continues a member for com-
pensation for extra services.^ 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.^ Where a director of a bank
has received money by order of its board of directors, which is
unauthorized by law, it may be recovered by the bank as so
much received to its use.* A bank will be afEected with the
knowledge of one of its directors, who acts for it in discounting a
note, that the note was procured by f raud.^ 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 paper 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 belongs to him, and it is their duty to see that the duty is
performed. They are bound in law to know the securities of the
bank, its bills payable and bills receivable, maturity of its paper
' Uodbold 1). Branch Bank at Mobile, * Security Bank ®. Cushman, (1877)
11 Ala. 191. 121 Mass. 490. Under what circum-
' Branch Bank at Mobile v. Collins, stances a bank would not be affected
(1845) 7 Ala. 95; Branch Bank at Mo- by the knowledge of one of its direct-
bile «. Scott, (1845) 7 Ala. 107. An or- ors in discounting a note, see Wash-
der of a board of directors allowing ington Bank v. Lewis, (1839) 33 Pick,
a compensation of ®1,000 cash to the (Mass.) 34. When notice to a, director
members of the board constituting the of facts affecting paper offered for dis-
real estate committee, has been held to count is notice to the bank, see Clerks'
be illegal and void In Branch Bank Savings Bank i). Thomas, (1876) 3 Mo.
at Mobile i). Collins, (1845) 7 Ala. App. 367. As to a notice to a bank
95; Branch Bank at Mobile «. Scott, director, or knowledge obtained by
' (1845) 7 Ala. 107. him while not engaged either officially
' Branch Bank at Mobile ii. Collins, or as an agent or attorney in the busl-
(1845) 7 Ala. 95; Branch Bank at Mo- ness of the bank, being inoperative as
bile V. Scott, (1845) 7 Ala. 107. a notice to the bank, see Fairfield Sav-
* Branch Bank at Mobile v. Collins, Ings Bank «. Chase, 72 Me. 226.
(1845) 7 Ala. 95; Branch Bank at Mo- « Shaw v. Clark, 49 Mich. 384.
bilei). Scott, (1845) 7 Ala. 107.
550 OFFICEES OF BANKS. [§ 299*
and who are the parties. And, in the absence of the cashieiv
they are bound to due diligence in perfecting the liability of all
indorsers upon the paper of the bank.* 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 ofiicer, which appropriation may be made and also
entered upon the books of the bank without the actual knowl-
edge of the directors.^ The sacrifice of the corporate property
by oificers 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.*
"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.* Directors of a bank under the Maine statutes
are liable to a creditor of the bank suffering certain losses grow-
ing out of the oflicial 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.
' Lane ii. Bank of West Tennessee, the bank, see United Society of Sliak-
9 Heisk. (Tenn.) 419; Moses v. Oooee ers i>. Underwood, (1873) 9 Biiah (Kj.\
Bank, 1 Lea (Tenn.), 398. 616.
2 First National Bank v. Drake, " Gillet v. Moody, 3 N. Y. 479.
(1883) 29 Kans. 311. As to the dili- « Seneca County Bank ii. Neass,
gence required of directors of a bank (1848) 5 Dcnio, 339. As to loans of
in acquiring knowledge of its business, bank funds to directors, see Bank
and what negligence would render Commissioners v. Bank of Buffalo,
them liable for special deposits lost by (1837) 6 Paige Ch. 497.
' § 299] OtFICEES OF BANKS. 551
They are personally answerable for ordinary neglect in their offi-
cial business. But one board of directors cannot be made to
answer for renewals of worthless paper discounted by a previous
board.' In a rather recent case, an action by bill of the receiver
of a national bank against its former directors and the represent-
atives of such as were deceased, framed upon the theory of a
breach by the defendants as directors "of their common-law
duties as trustees of a financial corporation and of breaches of
special restrictions and obligations of the National Banking Act,"
the questions of the management of the business of such institu-
tion and the liability of its directors have been fully considered
in the main opinion by the majority of the Supreme Court of the
United States, and the dissenting opinion of the minority. It
appeared that the provisions of the by-laws were not observed,
and that the management of the bank was left almost entirely to
the officers. No exchange committee nor examination committee
was appointed, and the meetings of the board were infrequent
and perfunctory. For years prior to the failure, fourteen at least,
the business of the bank had been conducted by the president.
Fuller, Ch. J., speaking for the majority, said : " It is not con-
tended that the defendants knowingly violated, or permitted the
violation of, any of the provisions of the Banking Act, or that
they were guilty of any dishonesty in administering the affairs of
the bank, but it is charged that they did not diligently perform
duties devolved upon them by the act. Our attention has not
been called, however, to any duty specifically imposed upon the
directors as individuals by the terms of the act, although if any
director participated in or assented to any violation of the law by
the board he would be individually liable. The corporation after
the amendment of 1874 had power to carry on its business
through its officers. And although no formal resolution author-
ized the president to transact the business, yet, in view of the
practice of fourteen years or more, we think it must be held that
he was duly authorized to do so. It does not follow that the
' Bank Mutual Redemption v. Hill, bank to be damaged by wrongful acts
56 Me. 385. That directors of a bank, of its president, see Smith v. Bathbun,
after Its insolvency, have no rights in 33 Hun, 150. As to liability of direct-
equity to secure any advantage to ors of a bank to depositors for their
themselves, see Roan «. Winn, (1887) gross negligence and mismanagement,
93 Mo. 503. As to liability of directors see Adams v. Manning, 10 "W. N. C.
of a bank who may have allowed a (Pa.) 449.
652 OFFIOEES OF BANKS. [§ 299
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 t],iem 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 fgents, 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
299J
OFFICERS OF BANKS.
553
creditors are concerned, between whom and the corporation the
relation is that of contract and not of trust. But, undoubtedly,
under circumstances, they may be treated as occupying the
position of trustees to cestui que trust." After referring to the
cases cited below,* 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 charged.^ Four of the justices,
however, dissented as to the acts of several of the directors.^
'Percy ®. Millaudon, 8 Mart. (N.
S.) (La.) 68; Spering's Appeal, 71 Pa.
St. 11; Citizens' Building Association
». Coriell. 34 N. J. Eq. 383; Hodges s.
New England Screw Co., 1 R. I. 312;
Wakeman v. Dalley, 51 N. Y. 27.
« Brigga 1). Spaulding, (1891) 141 U.
S. 132.
^ Ibid. Mr. Justice Harlan, speak-
ing for himself and Gray, Bebwbr
and Brown, J J., 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 be
properly intrusted to them by the di-
rectors. But, certainly, congress never
contemplated that the duty of direct-
ors 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 per-
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 directors and
those who are interested in the bank,
to exercise proper diligence and super-
vision in respect to what may be done
by its officers and agents. As to the
degree of diligence and the extent of
supervision to be exercised by direct-
ors, there can be no room for doubt,
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 conclusions of the mi-
nority, quoted largely from many of
the following cases, and cited the oth-
ers : Martin ». Webb, 110 U. S. 7;
Cutting V. Marlor, 78 N. Y. 454; Pres-
ton ®. Prather, 137 U. S. 604 ; Hun ».
Gary, 83 N. Y. 65; Ackerman v. Hal-
sey, 37 N. J. Eq. 356; Halsey v. Ack-
erman, 38 N. J. Eq. 501; United Soci-
ety of Shakers ». Underwood, 9 Bush
(Ky.), 609; Horn Silver Co. v. Ryan, 43
Minn. 196; United States b. Means, 43
Fed. Rep. 599; Delano v. Case, 121
111. 347 ; Percy ii. Millaudon, 3 La.
568; Marshall i\ P. & M. Savings
Bank of Alexandria, etc. , 85 Va. 676 ;
554 OFFICEES 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 coftgress, 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.' 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.^ Criminal prosecutions for ofiEenses 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. Rep. 817 ; Charitable Corpora- Bank of Gloversville v. Wells, 79 N.
tion «. Sutton, 3 Atk. 400 ; Land Y. 498; affirmed in the Supreme Court
Credit Co. of Ireland «. Lord Fermoy, of the United States, January, 1882.
L. R. , 5 Ch. 763 ; Williams 'o. McKay, = Citing Cooke i>. State Nat. Bank of
40 N. J. Eq. 189. Boston, 52 N. Y. 96; Bletz ii. Colum-
' Citing Claflin v. Houseman, 93 U. bia Nat. Bank, 87 Pa. St. 87.
S. 180; Robinson v. National Bank of
§ 301] OFFICEES OF BANKS. 555
"Wall. 506 ; Green v. Walkill Nat. Bk., 7 Hun, 63 ; City of Lex-
ington V. Butler, 14 "Wall. 283 ; Bank v. Kennedy, 17 "Wall. 19.
The receiver was also a necessary party, as it was through him
that the amount which might be adjudged against the directors
was to be collected and paid over. The presence of both of
these parties was necessary to a final determination of the
controversy." ^
§ 301. Jurisdiction of courts of equity in such cases.—
The JSTew 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 Kapallo, J., for the court, said : " The liability
of directors of corporations for violations of their duty or
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
E. S. 462) it is declared that the chancellor has jurisdiction over
directors, managers and other trustees, and ofl&cers of corpora^
tions, and to compel them to account for their oificial 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 them
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 Utica Ins. Co.,
2 Johns. Ch. 389, with reference to which case the provisions
of the Revised Statutes just referred to were framed. But, in
that very case, jurisdiction in cases like the present was conceded
'Brinkerhoff v. Bostwick, (1883) 88 N. Y. 53, 60, 61.
556 OFFICEES 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." '
' BrinkerhofE v. Bostwick, (1882) long as they remained in office could
88 N. Y. 52, 58, 59. See, also, set them at defiance. In the present
Brinckerhoff «. Bostwick, (1885) 99 N. case the corporation cannot sue, be-
Y. 185. As to how such actions may cause all its rights of action have been
be brought, it was said in Brinker- transferred by operation of law to the
hoflf 1). Bostwick, 88 N. Y. 52 : " The receiver. He certainly is not a proper
action to recover such, losses, as before person to whom to intrust the conduct
observed, should in general be of the action, even did he consent to
brought in the name of the corpora- institute it, or should the comptroller
tion, but, if it refuses to prosecute, the of the currency direct him so to do,
stockholders, who are the real parties for he is one of the parties charged
in interest, will be permitted to sue in with misconduct and against whom a
their own names, making the corpora- remedy is sought. It necessarily fol-
tion a defendant. Greaves «. Gouge, lows that the shareholders must be
69 N. Y. 154. And that course of permitted to sue in their own names, ■
proceeding is also allowed if it ap- or the wrongs complained of must go
pears that the corporation is still under without redress, and substantial
the control of those who must be rights be sacrificed to a mere matter
made the defendants in the suit. See of form. The shareholdere are the
Butts V. Wood, 37 N. Y, 317; Robin- parties whose interests are involved in
son V. Smith, 8 Paige, 222. In such the proceeding. If conducted in the
cases a demand upon the corporation name of the corporation or the re-
to bring the suit would be manifestly ceiver, it would be as their representa-
futile and unnecessary. A suit prose- tive and for their benefit; and when,
cuted under the direction and control as in this case, sufficient reasons are
of the very parties against whom the shown why it cannot be effectually
misconduct is alleged, and a recovery prosecuted in that form, the right of
is sought, would scarcely afford to the shareholders to sue in their own
the shareholders the remedy to which names is sanctioned by principle and
they are entitled, and the fact that the precedent. Where the shareholders
delinquent parties are still in control are numerous, the suit may be brought
of the corporation is of itself suflicient by one or more in behalf of all."
to entitle the shareholders to sue in Butts i>. Wood, 37 N. Y. 817; Robin-
their own names. Hodges «. New son ®. Smith, 3 Paige, 232; Hichens v.
England Screw Co., 1 R. I. 312; Congreve, 4 Russ. 562; Heath «. Erie
Heath D. Erie Railway Co., 8 Blatchf. Railway Co., 8 Blatchf. 847. More
847. If they could not be permitted than sixty years ago Chancellor
in such cases to assert their own rights Walworth, of the Court of Chancery
in a court of equity, the directors so of New York, referring to the allega-
§302]
OFFIGEKS OF BANKS.
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 Kevised Statutes of
the United States, section 5204, by declaring dividends in
excess of net profits, and of section 5200 for loaning to
separate persons, firms or corporations amounts exceeding
one-tenth of the capital stock, cannot be enforced in an
action at law.* Under the Kevised Statutes of the United
States, section 5239, providing that, if the directors of a
national bank shall violate any of the provisions of the title
relating to the organization and management of banks, the
franchises of the bank shall be forfeited, such violation, how-
ever, to be determined by a proper court of the United States in
t
tions of the bill before Mm said : "If negligently permitting various persons
[they] are true, there is no doubt that and corporations 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
gambling speculation in stocks, which
was wholly unauthorized by their
charter, and which, the bill alleges,
was carried on to subserve their own
individual interests and purposes. I
have no hesitation in declaring it as
the law of this state that the directors
of a moneyed or other joint-stock cor-
poration, 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 their loss. And they are
equally liable, if they suffer the cor-
porate funds or property to be lost or
wasted by gross negligence and in-
attention to the duties of their trust."
Eobinson ». Smith, (1832) 3 Paige Ch.
223, 232. Adopting and approving
this rule declared by Chancellor Wal-
woBTH, the Court of Appeals has
since held that a complaint charging
the directors of a national bank with
neglecting to perform their official
duties as such directors, and negli-
gently permitting the money, prop-
erty and effects of the bank to be
stolen, wasted and squandered; with
security, and negligently permitting
the money of the bank to be loaned to
irresponsible persons and corporations,
without adequate security, whereby
said money was lost; with employing
a cashier who was dishonest, unfaith-
ful and incompetent, all of which was
known to them; with neglecting to
take and keep good and sufficient
security for the performance of the
duties of said cashier and of the
president and other officers of the
bank; and that they so negligently
and carelessly conducted its affairs
that its entire capital, surplus, prop-
erty and effects were lost and the
stock rendered worthless, and the
stockholders were rendered liable for
a large sum of money on account of
the unpaid debts of the bank, stated a
cause of action upon the personal
liability of directors.
'Welles B. Graves, (1890) 41 Fed.
Bep. 459, in accordance with the doc-
trine laid down in Plornor v. Henning,
93 U. S. 328. See Stone «. Chisolm,
113 U. S. 302; s. c, 5 Sup. Ct. Rep.
497.
558 OFFIOEES Oli' BATSTKB. [§ 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.' 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.^ An aetio:n
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.' 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.* 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.' The receivers of a railroad company in Texas had
'Welles V. Graves, (1890) 41 Fed. "Ibid.
Eep. 459. See Kennedy «. Gibson, 8 » Howe v. Barney, (1891) 45 Fed. Rep.
Wall. 498. 668. In National Exchange Bank of
= Witters v. Sowles, (1890) 43 Fed. Baltimore ■». Peters, (1890) 44 Fed.
Bep. 405. Rep. 13, HtfGHBS, Circuit Judge, re-
'Stephensti. Overstolz, (1890)43Fed. f erring first to the statutes, discussed
Rep. 465. this question elaborately as foUows:
§ 302] OFFICERS OF BANKS. 559
under the orders of the federal court appointing them deposited
large amounts of money in a bank in that state. This bank
became insolvent and its affairs were in the hands of a receiver
appointed by a state court. The balance of funds due receivers
on their deposit account not being paid on demand, they peti-
tioned the court appointing them, alleging a conspiracy on the
part of several officers of that bank to misappropriate the funds,
" Thus the statute law makes directors As before said, whatever is claimed in
of a national bank liable in damages* the suit at bar would be an asset in the
for violations of their duty, or negli- hands of the receiver if recovered, and
gence or malfeasance as directors, and the statute law imposes upon him the
prescribes how they shall be subjected duty of suing for it, under the comp-
to liability. Being liable in damages, troller's direction. But this bill con-
they are amenable to suit for damages tains no allegation either that com-
in a jury proceeding, and not, I infer, plainant called upon the comptroller
to suit, in any other form, whether at to direct the receiver to sue, and he
law or in equity. But even if they refused, or that the receiver himself
were amenable to liability in a pro- was called upon and refused. Con-
ceeding not sounding in damages, then, taining no such allegation, the bill
the damages recoverable being an asset makes no case for a suit by a person
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
jured bank, under the direction of the had been made and refused, and the
comptroller; and him alone, to sue the fact had been only alleged in the bill,
claim. Except the receiver, the stat- that this suit could be maintained, for
ute law nowhere authorizes suit to be in cases where directors of national
brought by any person not in privity banks have violated or negligently
against directors of national banks, permitted the violation of the laws
The bill of complaint under c»nsid- regulating those banks, the statute
eration has, therefore, no sanction in law seems to require that the question
respect to its party plaintiff from the of violation shall be j udicially deter-
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 instituted in his own
ercise of a high prerogative to which name by the comptroller for that
it feels at liberty sometimes to resort, specific purpose, before the liability
will relieve against the rule of privity, can attach to the directors; and, there-
and entertain this suit, though brought fore, it would seem that directors can-
by a. plaintiff otherwise incompetent not be pursued individually for such
to sue? Certainly the bill contains violation until after such an adjudica-
nothing on its face to require or to tion thus obtained. So that if the re-
justify such a recourse. Exceptional ceiver and the comptroller, though
authority to sue is given only in the called upon to sue the defendants in
rare cases in which those legally com- this suit, had refused to do so, even
potent to sue wrongfully refuse to do the allegation of such application and
soj When such a case is presented, refusal would have been insufficient
equity will sometimes authorize and ground of authority for bringing this
direct suit to be brought by some sbit. I am of the opinion that the
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 oiScers 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.'
Act enter as part into the contracts of moneys deposited by the receivers
creditors with the national hanks, and under the order of court." He then
that those provisions which define the said: "The adjudged cases on this
liability of directors, and prescribe the point brought to the attention of the
proceedings to be taken against them, court are unsatisfactory. The state-
when guilty of violations of the act, ment in Rapalje on Contempts (§15)
are exclusive of other liability and that 'a private corporation made the
other proceedings; and that it is not depository of the funds of the court,
within the prerogative of equity to is an officer of the court, within the
authorize a disregard of the provisions power of the court to punish by con-
of the National Banking Act, defining tempt process for misconduct,' is sup-
such liability and prescribing such ported by a dictum of the Supreme
proceedings." See, on this point, Court of Illinois in the case of In re
Smith V. Hurd, 13 Met. 371; Craig «. Western Marine & Fire Ins. Co., 38
Gregg, 83 Pa. St. 19; Allen v. Curtis, 111. 389, in which case it is said
36 Conn. 455; Evans v. Brandon, 53 ' When a court makes an order ap-
Tex. 56. As to the circumstances pointing a particular person a deposi-
under which a stockholder may bring tary of the court funds, and such per-
such actions, see Robinson e. Smith, 3 son, knowing of such order, accepts
Paige, 333; BrinkerhofE v. Bostwick, the (ieposit, he unquestionably be-
88 N. Y. 53; Smith ». Poor, 40 Me. comes pro liac vice an officer of the
415; Carter v. Glass Co., 85 Ind. 180. court. The court may order him to
As to the avails of such litigation by refund the money, and if he fails to do
stockholder going to the corporation so, without shoioing some iicdid reason,
and being a part of its means, see may proceed against him as for a con-
Dewing v. Perdicaries, 96 U. S. 193, tempt. The same rule would apply
197, 198. to a corporation, and if its officers,
' Southern Development Co. ». Hous- Tiamng control of its funds, and liamng
ton & Texas Central Ry. Co., (1886) tJicmeO'iis of payment belonging to tlis
27 Fed. Rep. 344. Paedeb, J., said: corporation in their hands, should re-
" Counsel for the receivers contend fuse to pay, they might be proceeded
that the effect of the order of court against as for a contempt.' It will be
designating the bank as one of the noticed by the foregoing that officials
depositories of the .receivers, and the of a corporation delinquent as a de-
acceptance by the bank of the re pository are to be held as in case of
cei vers' deposits, was to make the bank contempt when they have control of
and its officers officers of the court, its funds and have the means of pay-
and, therefore, directly responsible tf) ment belonging to the corporation in
the court for misapproprtation of the their hands. * * * In the present
§ 303] OFFICEES OF BANKS. 561
§ 303. President — his power and duty. — The executive
officers of a bank, its president and cashier, are presumed to have
authority to direct the application of any funds in the bank to
its debts.* An official indorsement of a note payable at a bank
by its president -will bind the bank.' A president of a bank must
be authorized by the board of directors, or he will not be author-
ized to execute a warrant of attorney to institute a suit.' Should
a president of a bank receive stock of the bank in payment for a
note made payable to the bank in its stock, he would hold the
stock for the bank as its property.* 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.^ A bank will be
case I think that it is somewhat doubt- possession of [one of the respondents],
ful whether the funds deposited fey as receiver, being that of the [Texas
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
funds 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 funds, as in
payment and collection of bills and the cases of contempt, there is neither
transaction of such financial business reason nor authority for considering
as would require the medium of and that each servant or agent of the bank
accommodation of banks. In the also became pro hoc vice an officer of
transaction of this business, moneys the court, and, therefore, amenable to
were not deposited as special funds to the court, as in case of contempt for
be drawn out on order of the court, misconduct in dealing with the bank
but were deposited, generally, to the funds.''
credit of the receivers, and to be ' City Bank v. Bateman, 7 H. & J.
handled and used by the bank like the (Md.) 104.
deposits of its other patrons in a bank- ^ Aiken v. Marine Bank, 16 Wis.
ing, loan and discount business. And 679.
it may be further noticed that the re- • Bank v. Keim, 10 Phil. 311.
spondents have not the possession of ■* Markley «. Rhodes, 59 Iowa, 57.
the funds of the bank nor means in '^ National Bank v. Strait, 58 Vt.
their hands belonging to the bank, the 448.
Yl
562 OFFICERS OF BANKS. [§ 303
bound by whatever its president may do in taking a new note for
matured paper, so far as it is within the apparent scope of his
authority.* The president of a bank cannot make a vaUd contract
to pay for obtaining depositors.^ A president of a bank, when
discounting paper for the bank, has no authority to promise the
holder that he need not pay it.^ Neither the president nor cashier
of a bank organized under the laws of Kansas has the power,
virtute officii, to sell the safe of the bank for a debt of the bank.*
A contract made by a president of a national bank for the bank
to act as agent in the purchase of bonds or stocks, as the bank has
no such power, would be ultra vires and not binding upon the
bank.^ l^otice to the president of a bank is notice to the bank.^
A bank will be affected with notice of knowledge acquired by its
president in the course of its business that money deposited by a
depositor in his individual account belongs to an estate of which
he may have control, for instance, as assignee for the benefit of
creditors ; and the money deposited by him cannot be appropri-
ated by the bank to the payment of his notes. Payments thus
made could be recovered from the bank by the assignee.'' Where
the cashier of a national bank in the usual course of business
takes a note before its maturity without notice or knowledge
of any defense to the note, the knowledge of the presi-
dent of the bank that there was claimed to be a failure
of consideration would be no notice to the bank of that fact.^
It would be a breach of duty for a president of a bank to allow a
customer of the bank to take away its securities for inspection,
and he and his sureties would be liable for the results of such an
act on his part without rega,rd to the question of good faith.'
' Cake D. Bank, 116 Pa. St. 264. knowledge of its president. Union
« TifCt V. Bank, 8 Pa. Co. Ct. Rep. Banks. "Waudo Mining &Mfg. Co., 17
006. S. C. 361. Under what circumstances
' First National Bank of WMtehall one who may have compromised a
1). Tisdale, (1879) 84 N. Y. 655. claim and given a release to the bank
* Asher v. Sutton, (1884) 31 Kans. may avoid that release by reason of the
386. falsity of a president's statement, see
" Bank ®. Hoch, 89 Pa. St. 334. Gould ii. Cayuga County National
« Savings Bank v. Holt, 58 Vt. 166. Bank, (1877) 56 How. Pr. 505. That a
' Bank v. Peiss.rt, 3 Pennypacker president of a bank has no authority
(Pa.), 378. to release debts, see Olney v. Chadsey,
8 First National Bank v. Sherburne, 7 R. I. 224.
14 Bradw. (Rl.) 566. Bank chargeable » Bank )'. Wiegand, 5 W. N. C. (Pa.)
with notice of facts within the official 12.
§ 303] OFFICERS OF BANKS. 568
An overdraft on a bank, if made without authority, is a fraud
upon the part of the drawer ; if suggested, countenanced, con-
nived at and allowed by the president of a bank, without any
authority of the directors, it would be a fraud on the part of the
president, and he will be held liable personally for the damages
to the bank.^ In a Kansas case it appeared that one, at the same
time stockholder, director and vice-president of a savings bank,
sold his stock in the bank, while it was in an embarrassed condi-
tion, to an outside party who had no funds in the bank, but, on
the contrary, had an overdrawn account with the bank of several
months' standing, from whom he received a check on the bank
in payment for the stock for $2,100. This outside party then
sold the stock to the cashier of the bank, who purchased it for
the bank, but had no authority from the bank or from any one
else to make such purchase. The cashier.then gave to this out-
side party a credit for the stock of $2,100 on the books of the
bank, and on the same day gave the vice-president of the bank,
who had sold this stock, a credit on the books of the bank for the
amount of the check drawn by the outside party, and charged the
latter with a like amount. A few days afterwards the vice-presi-
dent drew the amount out of the bank. The Supreme Court of
that state held that the bank cculd maintain its action against this
officer for the amount of money so withdrawn from the bank.^
As to the duty of officers of the bank, it was held by the court
that a director, having personal and private dealings with his
bank, was bound to know (so far as the same affected his own
personal dealings) the general condition and management of his
bank, and everything of importance that occurred therein, either
at the time it occurred or soon thereafter. Further, it was held
that this officer, the vice-president, was bound to know when his
■ Oakland Bank of Savings v. Wil- v. Reed, 36 Mich. 363, the president of
cox, (1883) 60 Cal. 136. See, on the the bank was held personally liable for
Buhject of personal liability of officers, moneys paid out by the cashier under
LefEman v. Flanigan, 5 Phila, 155; his directions and without security
Shea ■». Mabry, 1 Lea (Tenn.), 319; to one who was supposed to be irre-
Minor ®. Mechanics' Bank, 1 Pet. 73; sponsible, with whom the president
Eichelberger v. Finley, 7 Har. & J. was interested in the business for
(Md.) 887; Bank of St. Mary's v. Cal- which the money was obtained, these
der, 3 Strobh. (S. 0.) 408; Lancaster payments having been kept from the
Bank v. Woodward, 18 Pa. St. 363; knowledge of the directors.
Shear v. K. & K. R. R". Co., 6 Bax. ' German Savings Bank v. Wulfe-
(Tenn.) 378. In First National Bank kuhler, (1877) 19 Kans. 60.
564 OFFICERS OF BANKS. [§ 304
bank was in an embarrassed condition, and the condition of an
account wliich had been overdrawn for months ; and that where
the cashier had given a credit to the person having such over-
drawn account, for an insuflficient and illegal consideration, the
officer was bound to know the same within less than several days
thereafter.'
§ 304. President's acts binding on bank — illustrations. —
In an action by a receiver of an insolvent national bank against a
correspondent bank to recover the amount of a deposit by the
insolvent bank with this correspondent, where the evidence
showed that the board of directors left it to the president, as the
agent of the bank, to negotiate loans, and to make such contracts
as to repayment and security as were lawful and usual, the United
States Circuit Court for the southern district of New York held
that the evidence was sufficient to establish the authority of the
president to pledge the deposit with the correspondent bank as
security for loans by it to the insolvent bank.^ This was an action
by the receiver of a national bank against the makers of a note
found among its assets. The defense of the makers was that
there was no consideration towards them ; that it was an accom-
modation note made by them at the instance of the president of
the bank, to be used for the purposes of the bank. The note was
made payable to the order of the makers and indorsed by them.
On the trial the note clerk of the bank testified to entries on the
discount book indicating that the note was discounted on a cer-
tain day, and that the account of the proceeds was handed to the
president of the bank, who put his signature upon it, thus making^
it an order on the teller for the amount therein stated ; that this
order was returned to the clerk, together with the president's
own check for an amount sufficient to make up the face of the
note, and that this amount was used to pay a former note of
' Ibid. practice whicb the directors may have
'Bellfl. Hanover Nat. Bank, (1893) permitted to grow up in the business
57 Fed. Kep. 821. Lacombb, Circuit of the bank, and by the knowledge
Judge, said: "It is true that no ex- which the board of directors must be
press authority from the board of presumed to have had of the acts and
directors to make such an agreement doings of its subordinates in and about
is shown, but the contract is not an the affairs of the corporation. Ma-
unusual one, and authority to make it honey Mining Co. ». Anglo- Calif orniaa
may be established by proof of the Bank, 104 U. S. 194."
course of business, by the usages and
§ 304] OFFICEES OF BANKS. ^ 565
the makers. As to the former note, he testified to entries on the
discount book indicating that it liad been discounted, and that
the proceeds were deposited to the credit of the president of the
bank. The bank a short time afterwards became insolvent.
The United States Circuit Court of Appeafs for the third circuit
held that this testimony did not sufficiently show the bank to be
a lonafide holder for value, as against the defense that the notes
were procured from the makers by the president, who was also
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 .r.eciting 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 better 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
I'unetions of ca'shier and was the sole managing officer of the bank,
he had authority to borrow money for the use of the bank in the
regular course of its business.* One intending to purchase bank-
' Simons ». Fisher, (1893) 55 Fed. should have a lien; the firm to be kept
Eep. 905 (Btjtlbb, D. J., dissenting), informed of the condition of the bank,
AcHBBOif, Circuit Judge, in the opinion which the cashier stated to be embar-
of the majority of the court, referred rassed, but, with certain expected aid,
to the case of Coats v. 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 bank [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 the duty
negotiated by the bank it would keep to attend to the making of loans, dis-
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 said in
of the drafts, upon which the firm Coats v. Donnell, supra : " 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.^
§ 305. 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.^ 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 tank is its executive officer, and part of the business for which it was
it is well settled that as an incident of inoorpol-ated. 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; bijt 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
'Merrill i). Florida Land & Imp. has been directed to the doctrine of
Co., (1893) 60 Fed. Eep. 17. ultra vires, but we do not think that it
^ Robertson ». 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 agsncy. 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
fied 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 organized under 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. Eep.
of paper mills, canals or churches is no 854, it is said : ' The directors of a
§ 305]
OFFICEES OF BANKS.
567
standing tliat the bank would not draw against it, and had the
Few York bankers charged with the amount, and his own per-
sonal account with his bank credited with the amount, placing
with the New York bankers his individual note for discount for
the same amount. He then was allowed to overdraw his indi-
vidual account afterwards, and then authorized the New York
bankers to charge the amount of his individual note to his bank,
which they did. The bank becoming insolvent, the receiver
brought his action against the New York bankers for the amount.
The United States Circuit Court of Appeals for the second cir-
cuit held that ilnless expressly authorized to do so the president
of the bank could not use the funds of the bank to pay his 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.''
corporation have no authority to ap-
propriate its funds in paying claims
which the corporation is under no legal
or moral obligation to pay, as to pay
for past services -which have been
rendered and paid for at a fixed salary
previously agreed on, or under a
previous agreement that there should
be no compensation for them.' To the
same effect see Salem Bank v. Glou-
cester Bank, 17 Mass. 39; Bissell v.
City of Kankakee, 64 111. 349; Minor
«. Bank, 1 Pet. 46; Case v. Bank, 100
U. S. 446. In Alexander v. Cauld-
well, 83 N. Y. 480, it is said . ' One
who deals with the officers or agents
of a corporation is bound to know their
powers and the extent of their au-
thority. The corporation is only bound
by their acts and contracts which are
within the scope of their authority.'
In Rich V. Bank, 7 Neb, 301, it is said
in the syllabus : ' No officer of a bank
can bind it by a promise to pay a
debt which the corporation does not
owe and was not liable to pay, unless
the bank authorizes or has ratified the
act; but ratification is equivalent to
original authority to act in the matter,
and the corporations are bound in the
same manner as natural persons.' We
think these authorities are decisive of
the case at bar. This is not a case in
which the bank has received and re-
tains the fruits of an unauthorized
contract made by its agent." For an
illustration of what kind of a contract
made by the director of a bank,
specially delegated to take charge of
the matter, and who acted under the
direct advice of the president of the
bank, would be binding upon the
bank, see Waxahachie Nat. Bank v.
Vickery, (Tex. 1894) 36 S. W. Rep. 876.
' Chrystie v. Foster, (1894) 61 Fed.
Rep. 551. Wallace, Circuit Judge,
said : " While it may be conjectured,
in view of the character of [the presi-
dent's] relations with the bank, that it
would have permitted him at any
time to overdraw his account, there is
no evidence that it did not rely upon
the credit [given it by the New York
bankers] in its subsequent dealings
[with the president], and the presump-
tion is that the notice given by the de-
fendants influenced the bank as they
intended it should. The authorization
to the defendants by [the president],
in his official capacity as president of
568 OBTICEES OF BANKS. [§ 30G
§ 306. When a bank is not chargeable with constructive
notice as to knowledge of its president. — This was an actiou
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 vendor's lien,
but rather imputed a notice that no such lien was to be retained.'
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 «.
ment of his note, does not protect the Shawnee Co. Bank, 95 U. S. 557;
defendants. It is not pretended that National Park Bank v. German-
[the president] had any express au- American Mut. Warehousing & Secur-
thority to apply the funds of the bank Ity Co., 116 N. "if . 281; s. c, 23 N. E.
to the payment of his own note. He Rep. 567; Anderson ». 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 liis own, and had
au agent to bind his principal to the given them such au 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]
OFFICERS OF BANKS.
569
§307. Cashier — his power and duty. — The cashier of a
bank is the executive officer or agent of its financial depart-
ment, and, in all the duties imposed upon him by law or usage as
Pardee, Circuit Judge, referred in
support of the court's ruling to certain
cases in these words: " In the case of
Whelan «. McCreary, 64 Ala. 319,
Mr. Cliief Justice Biucket.l, speaking
for the court, declared the law of Ala-
bama as follows: ' Whoever gives
value, or enters into transactions hj
which his position is materially
changed, and from which change loss
must ensue, on the faith that the ven-
dor of real estate, or person with whom
he deals, has, as the title papers ex-
hibit, a clear legal title, will be pro-
tected against outstanding and latent
equities, of which he has no notice.
A mortgagor taking a security for a
contemporaneous loan or advance falls
within the rule and is entitled to pro-
tection. Boyd V. Beck, 29 Ala. 713;
Wells V. Morrow, 38 Ala. 125. The
only notice, actual or constructive, of
Mrs. Whelan's equity, which is at-
tributed to the insurance company, is
imputed, because notice, it is insisted, is
traced to Williams, one of its direct-
ors, active and instrumental in making
the loan to Cunningham and McCreary,
and taking the mortgage. Whatever
facts may have been known to Wil-
liams which ought to have excited in-
quiry on his part, came to his knowl-
edge while he was acting as the agent
of Cunningham, in a transaction in
which the insurance company had no
interest. The rule is settled in this
state that a corporation will not be
affected by notice which one of its
directors or other officers may have
received when not acting for the cor-
poration, but in the transaction of his
own private affairs, and under such
circumstances that its communication
to other officers of the company is not
to be expected. Terrell v. Bank, 13
T2
Ala. 502. If the facts were stronger
for the imputation of notice to Wil-
liams than are found in the record,
notice should not be imputed to the in-
surance company.' The case of
Barnes 11. Gas Light Co. , 37 N. J. Eq.
33-37, involved a question in regard
to notice very similar to the case in
hand, and the chancellor held as fol-
lows: 'That the defendants are bona
fide purchasers for valuable considera-
tion is not denied. Their title is not
impugned, except on the ground of
notice, and the claim to relief is
based on the allegation that at the time
when the conveyance was made by
Mr. Potts to them he was their pi-esi-
dent, and this fact is relied upon as of
itself sufficient to establish notice to
them of all the facts which the bill
charges were within his knowledge.
The general proposition is undoubtedly
true that notice of facts to an agent is
constructive notice thereof to the prin-
cipal himself, where it arises from or
is at the time connected with the sub-
ject-matter of his agency. The rule
is based on the presumption that the
agent has communicated such facts to
the principal. Story Ag. § 140. On
principles of public policy the knowl-
edge of the agent is imputed to the
principal. But the rule does not ap-
ply to a transaction such as that under
consideration, for, in such a transac-
tion, the officer, in making the sale and
conveyance, stands as a stranger to the
company. Stratton «. Allen, 16 N. J.
Eq. 329. His interest is opposed to
theirs, and the presumption is not that
he will communicate his knowledge of
any secret impurity of the title to the
corporation, but that he will conceal
it. Where an officer of a corporation
is thus dealing with them in his own
570
OFFICEES OP BANKS.
[§307
such cashier, he acts for the bank and speaks for it.' 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 chai'ge 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 v.
Burgwyn, (1892) 110 ZSr. 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
' BUicott «. Barnes, (1884) 31 Kans.
172; Lane v. Bank of West Tennessee,
9 Heisk. 419; Maxwell ». Planters'
that the plaintiff [the bank] cannot be
affected therewith unless [he] was act-
ing in 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 oflBcer acts for himself and deals
with the corporation as if he had no
official relations with it,' or, as was
said in Barnes «. Trenton Gas Light
Co., 37 N. J. Eq. 33: 'His interest is
opposed to that of the corporation, and
the presumption is not that he will
Bank, 10 Humph. 507; United States
V. City Bank of Columbus, 31 How.
364.
§307]
OFFICEES OF BANKS.
571
of the bank's debts and obligations.^ The power of a cashier to
purchase for the bank is not implied from his office as cashier.^
A bank will be bound by the agreement of its cashier to extend
paper.' A statement by its cashier, upon inquiry of one known
by him to be a surety on a note due the bank, that the note had
been paid, with the intention that the surety should rely upon
the statement, and the surety does so, and in consequence change
his position by giving up securities or indorsing other notes for
the same principal or the like, will estop a bank from denying
that the note was paid.* The cashier of a bank, without special
authority, cannot bind it by an official indorsement of his per-
sonal note. In an action on such a note the onus would be upon
the paj'ee to show the cashier's authority.' 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 heen 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 «.
Christopher, 40 N. J. L. 435), or that
it was made for his accommodation
(Bank «. Cunningham, 24 Pick. 270),
or that it was obtained upon a false
pretense of having it discounted for
the maker (Washington ». Lewis, 23
Pick. 24), or that it was affected in his
hands with certain conditions (Louisi-
ana State Bank -a. Seuecal, 13 La. 535),
or with a claim of recoupment of which
the bank had no notice (Loomis v. Bank,
1 Disney, 385), or with other equities.
Savings Bank 4). Hamlin, 135 Mass. 506.
To the same effect are Corcoran «. Snow
Cattle Co., 151 Mass. 74; Innerarity v.
Bank, 189 Mass. 332; Stevenson ». Bay
City, 26 Mich. 44; Frost v. 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."
' Maxwell v. Planters' Bank, (1850)
10 Humph. (Tenn.) 507.
' Lionberger v. Mayer, (1883) 13 Mo.
App. 575. As to the acts of a cashier,
within the sphere of his duties, being
the acts of a bank, see Burnham D.Web-
ster, 19 Me. 332; Medomak Bank v.
Curtis, 24 Me. 86; Warren ». Gilman,
17 Me. 360; Farrar v. Oilman, 19 Me.
440; Badger ii. Bank of Cumberland,
26 Me. 428; National Bank of Metrop-
olis ». Williams, 46 Mo. 17. As to the
authority of cashiers of banks, see
Caldwell v. National Mohawk Valley
Bank, 64 Barb. 383; Chemical National
Bank v. Kohner, 8' Daly, 530. As to
powers habitually exercised by a
cashier with the knowledge and acqui-
escence of the bink, see Merchants'
Bank- «. State Bank, 10 Wall. 604.
'Wakefield Bank v. Truesdell, 55
Barb. 603.
* Cocheco National Bank v. Haskell^
51 N. H. 116.
^West St. Louis Sav. Bank i).
Shawnee County Bank, (1874) 3 Dill.
408; affirmed in 95 U. S. 557. In
Houghton V. First National Bank of
Elkhom,36 Wis. 668, the bank was
held to be bound by its cashier's in-
dorsenient of his name followed by the
abbreviation "Cas." on the negotiable
note of another, though not done at
the bank, or for its benefit, and by his
statement to a purchaser that such
statement was all right. As 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.* 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 aeted.^ 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.' The assignee of
a bank, it has been held, could not recover the securities dehvered
by a cashier as collateral for money borrowed on the bank's note
from the lender.* 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.^ 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.^
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.' 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.^ 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
ment of overdrafts by a cashier being the bank. Ringling «. Kohn, (1878) 6
a violation of his duty, see Bank ®. Mo. App. 333; Dounell v. Lewis Co.
Calder, 3 Strob. (S. C.) 408. Savings Bank, (1883) 80 Mo. 165.
'McDermottD. Bank, lOOPa. St. 287. » iq-atjoQai g^nk of Xenia s. Stew-
2 Manufacturers' Bank ». Scofield, art, 114 U. S. 324.
39 Vt. 590. « Dorsey «. Abrams, 85 Pa. St. 299.
' Mechanics' Bank v. Bank of Colum- ' Grain •». National Bank, 114 lU.
bia, 5 Wheat. 326. 516.
* Creswell «. Lanahan, 101 U. S. ' City Bank of Nevf Haven ». Per-
347. "What is necessary to show a kins, (1859) 4 Bosw. 420.
cashier's authority to borrow money for
§ 307] OFFICERS OF BANKS. 5T3
cashier of a bank, such, for instance, as the drawing or indorsing
by a cashier in connection with bills of exchange, checks and
drafts.'' A cashier may, ex-officio, indorse a note the property
of the bank so as to authorize a demand and notice to the
indorser.' In the course of his ordinary duties, the cashier 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 the
propriety of the transfer. But such an inference would not be
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 rights
and interests of the bank, and thus defeat the transfer.^ The
exercise by the cashier of a bank of his power to pledge the
negotiable securities belonging to the bank is prima facie evi-
dence that he had the power.* "Without authority from his
bank, evidenced by a resolution of the board of directors, usage
in like cases, or in some other way, a cashier cannot transfer non-
negotiable paper.' 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.' A cashier can invest no clerk of the bank with
any 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
' Merchants' Bank 11. Central Bank, case. As to the powers of a cashier in
1 Ga. 418; Gary, Assignee, «. McDou- discharging and transferring securi-
gald, 7 Ga. 84. ties, etc., of the banlc, see State v. Com-
* Hartford Bank v. Barry, (1831) 17 mercial Bank of Manchester, 6 Smedes
Mass. 94; Folger v. Chase, (1836) 18 & Marsh. (Miss.) 218; Harper «. Cal-
Pick. (Mass.) 63. houn, 7 How. (Miss.) 303; Crocket ».
'Everett v. United States, 6 Port. Young, 1 Smedes & Marsh. (Miss.)
(Ala.) 166. As to the power of a cash- 241.
ler of a bank to transfer its notes and * Mercantile Bank 11. McCarthy,
assets in payment of the bank's indebt- (1879) 7 Mo. App. 318; Bank of State
edness, see Kimball D.Cleveland, 4 Mich. v. Wheeler, 31 Ind. 90.
606; Peninsular Bank ®. Hanmei^ 14 ^Barrick v. Austin, (185S) 31 Barb.
Mich. 208. Whether the power to ap- 241.
ply the assets in this way includes the ' Bank of New York 11. Bank of
power to guarantee their collection or Ohio, (1864) 39 N. Y. 619.
invalidity was questioned in the last
574 OFFICEES OF BANKS. [§ 307
securities of the bank.* A clerk tlius 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.^ As its executive officer, a cashier of a bank has authority
to take such measures for the security and eventual collection 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.^ A cashier of a bank has
'power, prima facie, to indorse for collection notes discounted
and notes deposited with the bank to be collected or deposited as
collateral security.* But he cannot indorse, without special
authority, a note made payable to a bank and discounted by
another person.^ A cashier may bind a bank for costs incurred
in the collection of a note which he has indorsed for collection.^
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.' A cashier has no power
to accept bills of exchange on behalf of the bank for the accom-
modation merely of the drawers.^ A bank will be bound by
the official signature of its cashier to a negotiable note.' 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.'" Unless the power to accept has been
conferred upon him by the corporation, a bank will not be bound
' Potter V. Merchants' Bank, (1864) sary to that end, see Young v. Hudson,
28 N. Y. 641. (1889) 99 Mo. 102.
^ Ibid. ' Bancroft e. Wilmington Conf.
' Bridenbecker v. Lowell, (1860) 32 Academy, 5 Houst. (Del.) 577.
Barb. 9. * Farmers', etc.. Bank ». Troy City
* Elliot V. Abbot, 12 N. H. 549; Bank, 1 Dougl. (Mich.) 457.
Corser v. Paul, 41 N. H. 24, 26. » Rockwell v. Elkhorn Bank, 13 Wis.
5 Cross 1). Rowe, 22 N. H. 77. 653; Ballston Spa Bank ». Marine Bank,
« Eastman u. Coos Bank, 1 N. H. 23, 16 Wis. 120.
25. As to the power of a cashier of a '" Chemical Nat. Bank of Chicago «>.
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.
§ 307] OFFICEES OF BANKS. 575
hy its cashier's aeceptance of a bill of exchange in his official
capacity.* A cashier of a bank has no power to transfer judg-
ments in favor of the bank, or to dispose of its property.^
Ifeither has he power to discount a note ; but if he discount a
note his act will be valid, if afterwards ratified by the bank.^ By
his general power to certify checks, a cashier of a bank is not
authorized to certify a post-dated check.* The general powers of
its cashier do not include authority to bind a bank to indemnify
an officer for levying on property.'^ There is no implied power
in a cashier of a bank to pledge its assets for payment of an ante-
cedent debt.* A cashier of a bank as such has 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
bank.'' ISTeither can he, virtute officii, release a surety upon a
note, even though the bank holds other security to which it might
resort, 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 ou a debt due the bank." 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.'" It would be beyond the scope and power of
the cashier of a private bank (himself a partner) to enter credits
upon the bank book of a depositor without any check, bill or note
being presented for discount. Should he enter the credits 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 be otherwise as to credits
not entered on the books of the bank, though duly entered on the
'Pendleton «. Bank of Kentucky, 'Ecker v. First National Bank of
(1834) 1 Mon. (Ky.) 179. New Windsor, (1883) 59 Md. 391,
'Holts. Bacon, 3 Cushman, (Miss.) 303.
567. 8 Ibid.
" Planters' Bank tK Sharpe, 4 Smedes ' Daviess Co. Savings Association v.
& Marsh. (Miss.) 75. Sailor, (1876) 63 Mo. 34. That a cashier
* Clarke National Bank v. Bank of has no power to discharge a surety on
Albion, (1868) 52 Barb. 593. bank paper, see Cocheco National Bank
' Watson B. Bennett, (1851) 13 Barb. v. Haskell, 51 N. H. 116. Release of
196. surety by cashier. Merchants' Bank v.
« State of Tennessee «. Davis, (Sup. Rudolf, 5 Neb. 540.
Ct. N. Y. Spl. Term, 1874) 50 How. '"Lee v. Smith, (1884) 84 Mo. 304.
Pr. 447.
576 OFFICEKS OF BANKS. [§ 307
depositor's pass book.' 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 iirm.'' A
cashier of a bank cannot bind it as an accommodation .indorser on
his individual note.* Neither can he bind the bank by assurances
that woul(i release parties from their liability on a note held by
the bank.* 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
honafide holder.^ 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.^ In an action by a Nebraska
' Williams ». Dorrier, 135 Pa. St. tended that tie had any such authority
445. from the board of directors. The whole
' Allen ■B. Bank, 137 Pa. St. 51. record is against any such presump-
^ West St. Louis Savings Bank v. tion as this. Did he then, mrtuie of-
Shawnee County Bank, 95 U. S. 557. Jicii, have the right to dispose of the
*Bank of Metropolis i>. Jones, 8 discounted bills and notes of the bank?
Pet. 12. There is nothing in the charter of the
' Pope D. Bank of Albion, (1874) 57 institution conferring that right upon
N. Y. 136. him. The management is there con-
«Lamb d.- Cecil, (1884) 35 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 v. 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. 577
bank upon a note the maker, as a defense, claimed payment of
the balance due on the note, in that he had sold to the bank
through its cashier certain shares of stock in an insurance company,
the cashier promising at the time that he 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 cashier, by
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
power in agreeing to accept, on behalf of his principal, the insur-
ance company stock in payment of the debt due the bank, and
that the bank was not bound thereby.'
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 choice
debt of the corporation vrithout au- of directors. Having this power, there
thority from the board of directors, is no reason why it should not be ex-
An assignment so made is not merely ercised by one of the body with the
voidable, but is absolutely void. Rug- consent of the rest, expressed by their
GLES, 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 preai-
not prescribed by the charter; no dent or any other officer of the bank to
power is conferred upon themtomort- assign over the promissory notes pay-
gage, assign or dispose of the property able to the company.' In Fleckner«.
of the corporation. This is a part of U. S. Bank, 8 Wheat. 338, 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 was
been held that these officers are 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 e. Ladd, 11 Mass. 94, and Bank bills and notes of the bank. It would
V. Pepoon, 11 Mass. 388. Indeed, in be a dangerous power, indeed, to re-
the first of these cases it was gravely pose in an officer of the bank. It
considered whether the board of di- would put a large part of the property
rectors could confersuch powers on the of the bank under the absolute control
president and cashier; and, in the sec- of the cashier or other officer exercis-
ond, whether they could confer it on cising such power; and he might, for
any attorney. In the last-named case, his own use, dispose of such property
Pakkbk, Ch. J. (p. 293), said: 'This and pass good title thereto."
power puts the whole property of the ' Bank of Commerce e. Hart, (1893)
bank under the control of the directors, 37 Neb. 197. Ryan, C, speaking for
and without doubt the power may be the court, as leading to and supporting
73
578
OFFICEES OF BANKS.
[§308
§ 308. Cashier's liability for his acts. — A cashier applying
to his use securities of a hank will be liable on his bond for the
full amount.' 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 authority, 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 «. City Bank of
Columbus, 31 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
' Pendleton v. Bank of Kentucky, (1824) 1 Mon. 179.
308]
OFFICEES OF BANKS.
579
bond.^ A cashier of a banking corporation, having authority to
loan the money of the bank, with or without security, has been held
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 had no author-
ity to make such a contract, and there
■was no proof that the board of di-
rectors had authorized It. In the
course of the opinion Justice Swathe
said: ' The court defines the cashier of
a hank to be an executive officer by
whom Its debts are received and paid,
and its securities taken and transfer-
red, and that his acts, to be binding
upon a bank, must be done within the
ordinary course of his duties. * * *
The term 'ordinary business,' with di-
rect reference to the duties of cashiers
of banks, occurs frequently in * * *
reports of the decisions of our state
courts, and in no one of these has it
been judicially allowed to comprehend
a contract made by a cashier, without
an express delegation of power from a
board of directors to do so, which in-
volves the payment of money, unless
it be such as has been loaned in the
usual and customary way. Nor has
it ever been decided that a cashier
could purchase or sell the property or
create an agency of any kind for a
bank which he had not been author-
ized to make by those to whom has
been confided the power to manage its
business, both ordinary and extra-
ordinary.' The court then addressed
itself to the case at bar, and said: The
power of this bank to purchase stock
in an insurance company, if it exists
at all, is an extraordinary power and
one not confided to the cashier, but
belonging to the directory. In The
Bank of Healdsburg v. Bailhache, 65
Cal. 329, it is said that the power to
make a settlement of defalcation to a
bank, and accept a deed of real es-
tate in satisfaction and release, is the
function of the board of directors and
not of any individual director or
officer. It has also been decided that,
in the absence of special authority,
the cashier of a bank could not release
the surety from a note owned by the
bank. Merchants' Bank v. Rudolf,
5 Neb. 537; Cocheco National Bank
V. Haskell, 51 N. H. 116. That in the
absence of special authority or estab-
lished usage the cashier has no power
to compromise claims due his bank.
Chemical National Bank v. Kohner,
8 Daly, 530. That he had no author-
ity to bind his bank by issuing a cer-
tificate of deposit to himself. Lee v.
Smith, 84 Mo. 304. Nor bind the bank
by an official indorsement of his own
note. West St. Louis Savings Bank b.
Shawnee County Bank, 95 U. S. 557.
The cashier of the [plaintiff bank],
then, as the executive officer of the
bank, was clothed with authority to
collect all debts due the bank, but this
means collections in money. If a
cashier may discharge the debts due
his bank by exchanging the evidences
of them for stocks of an insurance com-
pany or a gas company, then he can,
under the name and charter of the
bank, conduct an entirely different
business, and use the funds of his
stockholders for a purpose for which
they were never subscribed, and in
violation of the law of the bank's cre-
ation. The purposes for which [this
bank] was organized, as expressed in
its articles of incorporation, were to
receive deposits of money and pay the
same out on proper vouchers ; to loan
money on personal security ; to issue
' Ibid.
580 OFFICBES OF BANKS. [§ 30S
trustees, but treated in his reports to the board as cash on hand.'^
The obligors upon a bond of the cashier of a bank tinder 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.^ 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.' 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.* 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 ovraer 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.^ 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 v.
stocks of insurance companies and deal Flanders, (Mass. 1894) 37 N. E. Rep.
generally in stocks of other corpora- 307. See, also, Bank v. Keavy, 128
tions, such a provision would have been Mass. 398; Holden ■». Upton, 134 Mass.
contrary to the laws of the state and 177, 179; Trustees of Smith Charities
void. But there is no provision in the v. Connolly, 157 Mass. 373; s. c, 31 N.
bank's charter which by any reason- E. Rep. 1058.
able construction can be construed into ' San Joaquin Valley Bank i). 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.) 301.
kind,' but certificates of stock are not ' Franklin Bank v. Cooper, 36 Me.
securities within the meaning of this 179; Franklin Bank ». Stevens, 39 Me.
provision, nor such as the word imports 533; Franklin Bank «. Cooper, 39 Me.
in commercial or banking phraseology. 543.
' Securities,' as here used, means notes, * "Washburn v. Blake, 47 Me. 316.
bills, evidences of debt, promises to pay 'First National Bank v. Drake^
money." As to the authority of a sav- (1883) 39 Kans. 311.
ings bank's treasurer, having power to
§ 308] OFFIOEKS OF BANKS. 681
the bond of the cashier of a state bank as required by the statute
of Indiana is that he " will honestly and faithfully discharge [his]
duties as such [officer] * * * during [his] continuance in
office." This was an action against the cashier of a bank and his
sureties upon his official bond, and his acts complained of were
that he converted different amounts of the large sums of money
coming into his hands to his own use, as alleged in one paragraph
of the complaint. In another it was alleged that pursuant to the
by-laws of the bank it had organized an " excliange 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 overdrafts
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 ; with
further allegations of the entire loss of such moneys and the con-
cealment oh 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. Beekshike,
J., for the Supreme Court, in the opinion, said of this answer :
" The basal rock upon which these paragraphs of the answer rest
is the allegation that there was no exchange committee organized,
as required by the by-laws ; " and afterwards : " But the answers
themselves disclose the existence of the ' exchange committee '
provided for in the by-laws. They show that this committee was
to be composed of the cashier, president and a designated director.
The committee was composed of three members ; 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 OFFICEES OF BANKS. [§ 309'
the two had power to act. Besides, the by-laws provided that
the cashier was at hberty 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 hi&
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.*
§ 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-
tations 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
' Wallace «. Exchange Bank of Spencer, (1890) 136 Ind. 265.
§310]
OFFICERS OF BANKS.
583
bank." ^ Notice to a cashier that stock pledged to a bank was
tl-ust stock has been held to be notice to the bank of that fact.^
It has been held in Yermont that notice to the attorney of a bank
or to the cashier, while acting in the matter of attaching land for
the benefit of the bank, of an equitable right in a third person —
as, by a defective deed or record — was notice to the bank.'
§ 310. Rules as to ratification of a cashier's act by the
bank. — In a case before the Supreme Court of Iowa it appeared
' Benton «. German- American Na-
tional Bank, (Mo. 1894) 26 S. W. Rep.
975; citing 1 Mof. Priv. Corp. § 540c;
Bank v. Loyhed, 28 Minn. 396; s. c,
10 N. W. Rep. 421; DeKay v. Water
Co., 38 N. J. Eq. 158; Wilson ». Bank,
(Pa.) 7 Atl. Rep. 145. See, also,
Banki). Christopher, 40 N. J. L. 435;
Inerarity v. Bank, 189 Mass. 382; s.
c, 1 N. E. Rep. 282; Barnes i>. Gas
Light Co., 27 N. J. Eq. 33; Bank v.
Neass, 5 Den. 829; In re European
Bank, 5 Ch. App. 358; Bankc. Savery,
83 N. Y. 291; Fisher «. Murdock,
13 Hun, 485; Gates v. National
Bank, 100 U, S. 239, 245; Louisiana
State Bank v. Senecal, 13 La. 527;
Branch Bank at Huntsville «. Steele,
10 Ala. 915. The Missouri court said:
" Whatever may have been his knowl-
edge of the condition of the company's
stock account, or of its affairs gener-
ally, that knowledge cannot be im-
puted to the bank when, subse-
quently, he came to procure 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 coi'poration through his private
transactions, and beyond the range of
his official duties, is not notice to the
corporation. State Savings Assn. v.
Nixon-Jones Printing Co., 25 Mo. App.
643; Bank i>. ' Schaumburg, 88 Mo.
228; Manhattan Brass Co. v. Webster
Glass & Queensware Co., 87 Mo. App.
145; Hyde «. Larkin, 35 Mo. App. 366;
Johnston v. Shortridge, 93 Mo. 327; s. •
c, 6 S. W. Rep. 64; Bank ®. Levitt,
114 Mo. 519; s. c, 21 S. W. Rep. 825.
In this last case, which is quite anala-
gous to the case in hand, we held that:
' An officer of a banking corporation
has a perfect right to transact his own
business at the bank of which he is an
officer, and in such transaction his in-
terest is adverse to the bank, and he
represents himself and not the bank.
The 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 property
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 the
common officer cannot be attributed to
either corporation in a transaction in
which he did not represent it."
'' Duncan i>. Jaudon, 15 Wall. 165.
' Vermont Mining Co. v. Windham
County Bank, 44 Vt. 489. As to the
effect upon the teller of the bank of
knowledge of a cashier that a note ac-
quired by the bank was fraudulently
negotiated, see Fall River Union Bank
-0. Sturtevant, (1858) 12 Cush. (Mass.)
374. As to the declarations of officers
not admissible against a bank to prove
facts, see Pemigewassett Bank v.
Rogers, 18 N. H. 255, 261; Grafton
Bank v. Woodward, 5 N. H. 301, 808.
584 OFFICERS OF BANKS. [§ 310
that certain shares of stock in an investment company were sold
by the president of the company, in payment for which the
cashier gave him credit on the books of the bank for the agreed
price of the stock. The shares were then placed in an envelope
marked and figured as an item in the cash account for a sum in
excess of the agreed price. The cashier afterwards abstracted
from the envelope the amount in excess of the agreed price and
appropriated it to his own use. Upon this fact being afterwards
ascertained on an examination of the bank's affairs, an action was
brought by the bank against the cashier to recover this amount.
His defense was that it was his private transaction. The main
question presented to the Supreme Court was as to a ratification
by the bank of the acts of the cashier by which he claimed that
the transaction was his and not that of the bank, so that the
profits would belong to him. The Supreme Court approved the
following instructions by the trial judge upon this point : " In
regard to this transaction the defendant claims that he purchased
said stock as an individual and not as cashier, for himself and not
for the bank, for eleven thousand dollars ; that he borrowed the
money of the plaintiff bank to pay therefor, and that thereafter
he sold said stock to plaintiff for fourteen thousand three hundred
and fifty dollars; and, further, that March 31, 1891, [after he
had ceased to be cashier] a final settlement between the plaintiff
and defendant was had, and that the facts in regard to said trans-
action were fully made known to plaintiff, and that, with full
knowledge of all said facts, plaintiff ratified and approved the
same, and that thereby plaintiff is estopped from claiming there-
upon. The jury are instructed that if they find that at said time,
or at any time subsequent to the transaction, the plaintiff, with
full knowledge in regard to all the facts in relation thereto,
acquiesced in and adopted and ratified said transaction, then they
are estopped from now recovering thereon, and in this issue you
should find for the defendant. And, further, you are instructed
that as soon as the facts were known to plaintiff's directors, if
they were ever known, it was their duty to either adopt the
transaction or repudiate it ; and, if they elect to repudiate it, they
should repudiate it altogether. They cannot repudiate it in part
and adopt it in part. But, as to all acts prohibited by law, no
affirmative act of repudiation is necessary. The law presumes
that they are repudiated, and will not presume or infer an affirm-
§ 310] OFFICERS OF BANKS. 585
ance. Such acts, to estop plaintiff from recovery thereon, must
be expressly ratified, and with full knowledge of all the facts in
relation thereto ; and the burden of proof is upon the party
who relies upon a ratification of such unauthorized and unlawful
act to prove that the principal, having such knowledge, acquiesced
in and adopted and ratified such acts of its servants and agents.'" '
The Supreme Court of Iowa also in this case approved the
refusal of the trial judge to allow the defendant to show a cus-
tom of the officers of the bank whereby the defendant, its
cashier, had been permitted, from time to time since the organiza-
tion of the bank, to make loans to himself, giving his notes or
other securities as he thought proper.^
' Iowa State Sav, Bank v. Black, The instruction means no more than
(Iowa, 1894) 59 N. W. Rep. 383. It that, in the absence of proof of an in-
was said by the court: "Appellant tent to ratify the acts of defendant,
complains of the instruction in that the presumptions of the law are
' the term ' expressly ratified ' calls for against it. The law does not require
a higher degree of action and a more one man to affirmatively repudiate the
definite specific perfoi-mance than the unlawful acts of another or presume
law requires.' A purpose of the in- his approval or affirmance of them."
struction was to inform the jury as to ^ Iowa State Sav. Bank «. Black,
plaintiff's rights and duties in matters (Iowa, 1894) 59 N. W. Rep. 283. The
where the acts of the defendant were court said: " The object of the testi-
prohibited by law, and that as to such mony was to prove that the officers of
matters the law will presume that the bank allowed defendant to make
they were not acquiesced in or ap- illegal loans to himself and thus estop
proved until expressly ratified. The the bank from showing that the loan,
phrase is not to be understood as now claimed by them, was not legal,
requiring a ratification in terms, for The court, speaking of the defendant,
there is no evidence of such a ratifica- said to the jury: ' He had no right or
tion. As a matter of fact, the bank authority as such cashier to loan him-
did not in terms ratify defendant's act, self as an individual or to use in any
and hence the jury must have under- manner for himself the funds of the
stood that the instruction meant that bank, and all such acts are wholly un-
tie intent to approve the acts must authorized and contrary to law.' The
have been plain or clear. "With that instruction is but expressive of the
view the instruction is not erroneous, statute law of the state regulating
It is said that it is error to say of such state banks, and the policy of the law
acts that the law ' presumes that they is public. It cannot by any custom
are repudiated, and will not presume of the officers of the bank be disre-
or infer an affirmance.' It is certain in garded with impunity. The security
such a case that the presumptions of of the bank against such practices is,
the law are against ratification. The in a very important sense, the security
law will not presume that one person of the public in dealing with the
ratifies the unlawful acts of another, bank. A design of the law was to
74
586 OFPIOEES OF BANKS. [§ 311
§311. Act of cashier binding upon the bank — illustra-
tion.— The cashier of a national bank had a note executed by a
certain party payable to his bank discounted by another bank,
upon the usual indorsement of his bank by him as cashier. Just
before this note was falling due, the same party executed a note
for a larger sum payable to the cashier individually. This note
he indorsed individually and then placed the indorsement of his
bank by him as cashier in the usual manner. He then presented
before the other note was due this second note for discount to
the same bank. They discounted it and upon his request applied
a part of the proceeds of the discount to the payment of the
other note and gave the bank's check to them for the balance,
The bank discounting this note brought its action in a Minne-
sota court against the receiver of the bank represented by this
cashier, such bank having become insolvent, to have the sum due
on the note adjudged a legal claim upon tlie assets of the bank
in his hands. Among the findings of the court below was one
that " the plaintiff [meaning its officers] in good faith believed
that [the negotiator with it in the transactions] was acting as
cashier of said bank in said transaction, and had no evidence to
the contrary, and no reason to believe anything to the contrary,
except what appeared by said proceedings and said notes herein-
before specified ; that said plaintiff gave credit to said [insolvent]
bank, and to said [negotiator] in all of said transactions." Also
this finding : " Both of said notes were made by said [maker]
and by her delivered to said [negotiator] for his individual use
and accommodation ; but plaintiff had no notice or knowledge
thereof, except as shown by the notes themselves, until after, it
had discounted them." There was an insistment, on behalf of
the receiver, that the plaintiff's cashier, who discounted the note
in suit, was not justified upon these facts in supposing that the
negotiator was acting officially, as cashier of the insolvent bank,
in procuring the money on the note ; and that his statements or
conduct in the transaction were immaterial, in view of the fact
that the note showed on its face that it appeared to be his individ-
ual note, and he had no authority in fact to make an accommo-
dation indorsement thereon in behalf of the bank. The Supreme
prevent such loans being in any way would defeat a, principle, if not the
made and to permit the proposed entire purpose, of the law."
showing by defendant as an estoppel
§ 312] OFFICEES OF BANKS. 587
Court held that in view of the fact that this negotiator was tlie
acting cashier of the insolvent bank, entitled to make indorse-
ments in this form of paper belonging to the bank, and presented
himself in that capacity in this instance, the paper itSelf bore no
marks of suspicion sufficient to affect the title of the bank as a
purchaser in good faith, which, upon the facts, would otherwise
be presumed.^
§ 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 Revised Stat-
utes (§ 5136) "to exercise by its board of directors or duly
authorized officers or agents, subject to law, all such incidental
' Merchants' National Bank of St. not, of itself, a circumstance so extra-
Paul V. McNeir, (1893) 51 Minn. 123. ordinary or suspicious as to make the
The court said: " [The negotiator] case one of gross negligence on the
assumed to be acting in his official part of the plaintiff, and subject it to
capacity, and appeared to be engaged the imputation of bad faith in receiving
in the business of his banlt. He pro- the paper. Nor, in the face of the
posed to take up the note which he finding of good faith of the officers of
had before rightfully negotiated in the plaintiff in the transaction, did
behalf of the bank as cashier, and to the circumstance that the surplus,
substitute another executed by the over the amount ' due upon the old
same party. And the cashier of the note, vyas paid directly to [the nego-
plaintifl bank, as the court finds, in tiator] either in currency or by check
good faith, believed that [he] was act- running to him, amount to notice of
ing officially for [his] bank, and the [his] intended fraud upon his bank,
evidence sustains this finding. If the or make the plaintiff a purchaser mala
new note had been of the same amount fide of the note. It is not sufficient,
as the old one taken up, the fact that under the rule applied to the transfer
it ran to [the negotiator] would hardly of negotiable paper, under the law
be claimed to be sufficient to excite merchant, that there be circumstances
suspicion. And so, if the note had been of suspicion such a^ would put a care-
subsequently negotiated by plaintiff, ful purchaser upon inquiry. The cir-
and had passed in the regular course cumstances must be so pointed and
of business into the hands of a remote direct as to amount to evidence of
indorsee, it would hardly be claimed mala fides, in the absence of inquiry,
that such indorsee was not a bona fide or such as to be prima facie incon -
purchaser, either on the ground of sistent with any other view than that
notice from the note itself, or that he there is something wrong in the title,
was bound to have instituted a pre- and thus amount to constructive
liminary inquiry as to the authority notice. 1 Dan. Neg. Inst. (4th ed.)
of [the negotiator] to make the second § 796; 2 Rand. Com. Paper, §§ 998,
indorsement as cashier. The fact that 1001; Tied. Com. Paper, § 389; Free-
[he] appeared to be the first indorser, man's Nat. Bank «. Savery, 137 Mass.
and the bank the second indorser, was 78, 79."
588
OFFICEKS 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.'
§ 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
' Flannagan 1). California Nat. Bank,
(1893) 56 Fed. Rep. 959. The court
said: "In Bank d. Dunn, 6 Pet. 51,
the court would not permit the presi-
dent and cashier of the bank to bind it
by their agreement with the indorser
of a promissory note that he should
not be liable on his indorsement. It is
said it is not the duty of the cashier
and president to make such contracts,
nor have they power to bind the bank,
except in the discharge of their ordi-
nary duties." The court then referred
to V. S. V. City Bank of Columbus, 21
How. 356, and afterwards said : In
West St. Louis Sav. Bank v. Shawnee
County Bank, 95 U. S. 557, where it
was attempted, but unsuccessfully, to
bind a bank as an accommodation in-
dorser on the individual note of its
cashier, the court said: "Ordinarily
the cashier, being the ostensible execu-
tive officer of a bank, is presumed to
have, in the absence of positive restric-
tions, all the j)Owers necessary for such
an officer in the transaction of tlie
legitimate business of banking. Thus
he is generally understood to have
authority to indorse the commercial
paper of his bank, and bind the bank
by the indorsement. So, too, in the
absence of restrictions, if he has pro-
cured bona fide rediscount of the paper
of the bank, his acts will be binding
because of his implied power to trans-
act such business; but certainly he is
not presumed to have power, by reason
of his official position, to bind his bank
as an accommodation indorser of his
own promissory note. Such a trans-
action would not be within the scope
of his general powers; and one who
accepts an indorsement of that charac-
ter, if a contest arises, must prove
actual authority before he can recover.
There are no presumptions in favor of
such a delegation of power. The very
form of the paper itself carried notice
to a purchaser of a possible want of
power to make the indorsement, and
is sufficient to put him on his guard.
If he fails to avail himself of the notice,
and obtain the information which is
thus suggested to him, it is his own
fault, and, as against an innocent party,
he must bear the loss."
§ 313] OFFICEES OF BANKS. 589
of that bank in a bank in the city of New York, it appeared that
the latter had debited the former with certain checks which the
cashier of the insolvent bank had 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 upon
the checks, making them payable to the order of a New York firm
of brokers, who collected the amount of these checks from the
bank upon which they wdre 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 payee, which he
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 his
own bank's funds. Eegarding 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 oificer,
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."
Tl>e Court of Appeals approved these two judgments.' A
' Phillips V. Mercantile National 140 N. Y. 556, 559, 560, affirming 67
Bank of the City of New York, (1894) Hun, 378. 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 codireetors and other officers had little or no oversight of
opinion distinguished Shipman v. Bank
of the State of New York, 136 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 oflacers 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 dravring
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 thein. As it
was, the payees were fictitious per-
sons in the eye of the law, and the
only real parties were the fii-ms in New
York, to whom the cashier sent them
in such form as that they could draw
the moneys upon them. The fictitious-
§ 313] OFFICERS OF BANKS. 591
its affairs. He was engaged in stock speculations on his own
account in New York, and drew from time to time, for his
own purposes, in favor of a firm in New York, his brokers, on
the bank balance with the New York bank. His brokers from
time to time returned to that bank sums to be credited to the
country bank. The latter, being ruined by fraudulent operations
of its officer before mentioned, who disappeared, became insolvent
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 and 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 proper care, could have ascertained that
ness of the maker's direction to pay fall upon the bank, whose directors,
does not depend upon the identifica- 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 upon others who, themselves act-
intention underlying the act of ing innocently and in good faith, were
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 authorized to draw or check
cashier adopted, in the execution of upon the bank's funds. If he abused
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 confided to him other cases which the plaintiff's coun-
for exercise, w^as enabled to perpe- sel cited from, is in the fact that it was
trate a fraud upon his bank, which a within the scope of this cashier's
greater vigilance of its officers might powers to bind the bank by his checks,
have earlier discovered, if it might In transmitting them, made out and
not have prevented. If his position indorsed as they were, the bank was
and the confidence reposed in him so far concluded by his acts as 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.' 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-iive 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
' Kissam «, Anderson, (1893) 145 U. parties. If it be said that no officer
S. 435. Mr. Justice Bkbwbk, speak- of [this] bank knew of these deposits
JBg toT the coMTt, arguendo, said: "We except [its cashier], the wrongdoer,
think [the principle upon which the and that he sxibsequently 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-
§ 314] OFFICERS OF BANKS. 593
ITnited States Circuit Court of Appeals for the seventh circuit
affirmed the judgment rendered in the Circuit Court in favor of
the bank, holding that the forgery by the clerk, and not the neg-
ligence of the bank, being the proximate cause of the loss, the
bank was not liable. Further, the bank was not liable on the
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.^
§ 314. Teller and bookkeeper — their powers and duties.
— There is no inherent, original power expressly conferred upon
the teller of a bank, in the powers and duties usually conferred
upon such officer and to be exercised by him, to enable him to
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 misconduct,
returned by [the wrongdoer] was in- in respect to which they had no part,
sufficient to replace his defalcation by It will not do to 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 deposited
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 bank to take care of its de-
not unjust or unreasonable to compel posits. The rule might be difierent if
the defendants to restore such of the [the wrongdoer], the cashier of the
funds of the bank as they received [country.] bank, was the only officer
when they are unable to prove that authorized to draw on the [New York]
the bank was not directly or ultimately bank, or charged with knowledge of
a loser in consequence of their acts, the state of the account; butthepresi-
It may be that [the wrongdoer] would dent and teller had equal authority, and
have misappropriated the money of were equally chargeable with knowl-
the bank in other ways if they had re- edge; in fact, it appears that these
fused to receive the checks, but cer- officers did draw 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 direct-
he could not use the paper of the bank ors, also, were under some obligations
for his speculations with the same to know the affairs of the bank; and
facility as though it were his own it will not do to say that the bank can
money.' But surely they cannot bo ignore the negligence of all its officers
held for his subsequent wrongdoing, and profit by their omission of duty."
If they have returned a part of that ' Exchange Nat. Bank of Spokane
they assisted him in wrongfully with- ■». Bank of Little Rock, (1893) 58 Fed.
drawing, they are pro tanto relieved Rep. 140.
from responsibility, and are not to be
75
594 OFFICERS OF BANKS. [§314
power incident to, or necessary to, the faithful discharge of any
•of his dnties.* 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 cheeks 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.^ 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. Pie certified checks in
violation of these instructions under a fraudulent arrangement
with the drawer. The bank was held liable to a bona fide 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
'Mussej!'. Prest.. etc., Eagle Bank, notes discounted; .ind 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 I'e- 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-
ceiving 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 the
they severally fall 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 dejjositors as the money 'Mussey r. Prest., etc.. Eagle Bank,
is from time to time drawn out, or for (1845) 9 Met. (Mass.) 306.
§ 314] OFFICEES OF BANKS. 595
tlie holder's right.' A bank will be estopped by its teller, upon
the presentation of a check bearing a forged certification, he being
the officer whose certification it purports to be, pronouncing the
■certification genuine.^ In a New York case it appeared that
after the certification of a check it was raised and the name of
the payee changed. The check was then tendered to the plain-
tiffs in this case, who sent it to the certifying bank during the
busy part of the day, and its teller was asked if the check was
good. Before this inquiry the drawer of the check had requested
the bank 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 the
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 presented
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
upon 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.* 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 payment, he
cannot, afterward, without the consent of the bank authorities,
return it to the bank.' A paying teller of a national bank has no
power, without the sanction of its directory, to receive after bank-
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
presentable and will then cause an account to be opened by the
bank with the holder and the amount of the check placed to his
credit so that it can be drawn against.^ The functions of a note
' Farmers' & Mechanics' Bank ». * Levy v. Bank of the United States,
Butchers' & Drovers' Bank, (1855) 4 4 Dall. 234; s. c, 1 Binn. (Pa.) 27.
Duer, 219; afiBrmed in 16 N. Y. 135. 'Union Bank of Georgetown v.
' Continental National Bank v. Mackall, 3 Cranch Cir. Ct. 695.
National Bank of the Commonwealth, 'Averell ». Second National Bank,
(1873) 50 N. Y. 575. (1890) 8 Mack. (D. C.) 246. As to a
' Clews B. Bank of New York, (1889) post-dated check the court said: "It
114N.Y.70;s.c.,33N.Y. St.Repr.397. should in due course of business be
596 OFFIOEES 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 uj^*''^ ^^^ request.' A bank
will not be bound by the statement of its teller that the indorse-
ment upon a cheek is genuine.^ It is a gross violation of duty
for the officers of a bank to honor a check or draft beyond the
drawer's deposits.' 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.* 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.^ The bookkeeper of a
bank or his sureties will not be relieved from liability on hi&
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,"
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 iu 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.''
presented by tlie 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 meetthe post-dated checks."
is simply to pay his customers' checks ' Marine Bank of Chicago «. Ferry's
over the counter when presented on or Admr., (1860) 40 111. 355.
after their date. It is no part of his ''Walkers. St. Louis National Bank,
business to receive post-dated checks (1878) 5 Mo. App. 214.
before they are payable and to engage ^ Eichelberger ■». Finley, 7 H. & J.
to present them to himself, or, iu other (Md.) 381.
words, to consider them as presented * New Hampshire Savings Bank v.
to him for payment on the day when Downing, 16 N. H. 187.
they are payable, Still less is it his ^ 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 ' Chew -e. EUingwood, (1885) 86 Mo.
mentioned. If he should do so it 260.
would be at his own risk, for he could '' Union Bank of Georgetown «.
not refuse to pay other checks that Mackall, 3 Cranch Cir. Ct. 695.
CHAPTER XI.
DEPOSITS AND CHECKS.
j 315. General deposits.
316. Depositors — duty and rights.
317. When the ownership of a de-
posit is questioned — rules.
318. Passing of title by deposit of
check.
319. Deposits in savings banks.
330. Receiving deposits by a bank
knowing its insolvency.
321. Certificates of deposit.
322. Special deposits.
323. -The duty of a bank as to de-
posits and its right as to their
application.
§ 324. Checks generally.
325. Certification of checks.
336. Acceptance of a check by a
bank — illustration.
837. Presentment of checks for
payment.
338. When a draft on a bank fails to
bind the fund in bank.
339. Forged checks — rules.
330. Payment of forged checks or
payment of checks on forged
indorsements.
331. Payment of raised checks.
§ 315- General deposits. — It is now perfectly well settled
tliat 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 tlie money as an ordinary deposit and
gives credit to the depositor, the money becomes 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.' A deposit is general, unless made special by the depos-
' Hardy & Bros. v. Chesapeake Bank,
<1879) 51 Md. 563, 585; Horwitz v.
EUinger, 31 Md. 492, 503; Foley ».
Hill, 2 H. L. Cas. 38; Thompson «.
Biggs, 5 Wall. 663; Bank of the Re-
public V. Millard, 10 Wall. 153, 155.
As to the relation between general de-
positors and a bank, see Marine
Bank v. Fulton Bank, 3 Wall. 353;
Phoenix Bank «. Risley, 111 U. S. 135;
Planters' Bank v. Union Bank, 16
Wall, 483; Boyden v. Bank of Cape
Fear, 65 N. C. 13; McGregor ».
Loomis, 1 Disney (Ohio), 247; Perley
■0. Muskegon County, 33 Mich. 132;
Neely v. Rood, 54 Mich. 134; Knecht
». United States Savings Institution,
(1876) 2 Mo. App. 563; Union Bank ».
Tutt, (1878) 5 Mo. App. 343; State i).
Keim, 8 Neb. 63, 67; First National
Bank e. Gandy, 11 Neb. 431, 434; Sew-
ard County i). Cattle, 14 Neb. 149; Long-
bottom's Exrs. V. Babcock, 9 La. 50;
Grant v. Fiol, 17 La. 162; Wall v. 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.' 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.^ 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.^ 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.* A bank receiving a sum of money on deposit generally,
must account to the dejjositor 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.^ "Whenever the relation of
debtor and creditor exists between the bank and a depositor, the
bank will be liable for any depreciation of the ciirrency.'
Where money is collected and mixed up with the general funds
lock, 10 La. 343; In re Louisiana ^ Corbit v. Bank of Smyrna, 2 Harr.
Savings Bank, 40 La. Ann. 514. That (Del.) 235.
money, checks or bill deposited by a ^Ibid.
general depositor in a bank become the ' Marine Bank of Chicago i). Birney,
property of the bank, and the relation 28 111. 90.
of debtor and creditor between the bank ' Marine Bank of Chicago «. Chand-
and depositor is thereby created, see ler, 27 111. 525. In Kupfer «. Bank of
Matter of Franklin Bank, (1828) 1 Galena, (1864) 34 111. 329, a deposit of
Paige Ch. 249; Chapman n. 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 ®. 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; ^tna National treasury notes. The Supreme Court
Bank i>. 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
' Brahm v. Adkins, 77 111. 263; Mc- other coin, see Thompson v. Kiggs, 6
Ewen V. Davis, 39 Ind. 109. D. 0. 99.
2 Thompson v. Riggs, 6 D. C. 99.
§ 315] DEPOSITS AND CHECKS. 599
of a bank it becomes a general deposit to the credit of the party
for whom the collection was made, and is governed by the rules-
which obtain in ordinary cases of deposit of money with banks.^
In such case, therefore, should the funds after such mingling
become depreciated, the bank must sustain the loss and not the
one for whom the collections were made.^ Where a depositor
makes a deposit with a bank to his credit, with instructions 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 is
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.^ 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 any subsequent
loss of the money or destruction of its value, falls on the bank.
The depositor is only a creditor of the bank.^ 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 ^o rata share of
the assets.^ 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.^ 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 deposit upon its
own books of account, thereby assumes the relation to the depos-
itor which the former owes to him.'' The receipt of a cashier of
a bank is evidence of a deposit in a bank.' In a New York ease
where a bookkeeper in the bank, as well as bookkeeper for one of
■ Marine Bank of Chicago «. Rusli- (1883) 61 Md. 467. The court refers
more, 38 111. 463. to and comments upon Lewis «. Park
2 Ibid. Bank, 43 N. Y. 463, and Swartwoutu.
' Moore v. Meyer, 57 Ala. 30. Mechanics' Bank of New York, 5
* Henry ». North, Bank of Ala., 63 Denio, 555.
Ala. 537. ' Green v. Odd Fellows' Savings &
5 Ibid. Commercial Bank, (1884) 65 Cal. 71.
* Carman «. President & Directors ^ State Bank «. Kain, Breese (111.),
of the Franklin Bank of Baltimore, 75.
600 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.^ A credit on the books of a bank for a gen-
eral deposit is an acknowledgment of the receipt of so much
money .^ 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 hona fide evi-
dence of a general deposit against the bankers.' 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.'' 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."
A check left with a bank for collection and credited to the depos-
' Manhattan Co. v. Lydig, (1809) Law J. 43 ; Anderson v. Leverick,
4 Johns. 377 . (Iowa) 30 N. W. Rep. 39. The court
* Corbit -0. Bank of Smyrna, 2 distinguished Jassoy v. Horn, 64 111.
Harr. (Del.) 335. Whether ahankcan 879, and Long v. Straus, 107 Ind. 94;
go behind its cashier's entry on a s. c, 6 N. E. Rep. 133, and 7 N. E.
depositor's bank book to prove that Rep. 763.
the amount deposited was a smaller 'Bank ». Headley, 17 W. N. C.
sum has been queried in Johnaon v. (Pa.) 557.
Farmers' Bank, 1 Harr. (Del.) 117. * City National Bank v. Burns,
' Brahm v. Adkins, 77 111. 363. (1880) 68 Ala. 367; citing Chambers 4>.
^ Talcott «. First Nat. Bank of Miller, 13 C. B. (N. S.) 125; Levy v.
Larned, (Kans. 1894)36Pac. Rep. 1066. U. S. Bank, 4 Dall, 334; Oddie v. Na-
See Davis v. Bank, 53 Mich. 163; s. c, tional Bank, 45 N. Y. 735; s. c, 6 Am.
18 N. W. Rep, 629; Bank r. Smith, Rep. 160; Bolton t'. Richard, 6 Term
19 Johns. 116; Asher r. Bank, 7 Alb. Rep. 139; National Bank v. Burkhardt,
§ 315] DEPOSITS AND CHECKS. 601
itor may be charged back to hiin in case the check proves a
fraudulent one.^ Where commercial paper is delivered to a
bank under an arrangement that the depositor be allowed to
draw against it, the paper becomes the property of the bank, and
the depositor cannot thereafter claim it.'' The mere discounting
of paper and placing the amount thereof to the credit of a
depositor who already has a large balance to his credit, will not
make the bank a purchaser for value so as to protect it against
infirmities in the paper. Entering the amount of the discount
to the credit of the depositor simply creates the relation between
the bank and depositor of debtor and creditor ; and, as long as
that relation remains and the deposit is not drawn out, the bank
has simply promised to pay ; the depositor has parted with no
value and would not be entitled to the protection of a hona fide
holder of paper.' But while the mere discounting of paper by a
bank and placing the amount thereof to the credit of a depositor
having already a balance to his credit will not constitute the bank a
purchaser for value so as to cut off equities, yet, as by the dis-
count and credit, it becomes a debtor to the depositor if before
receiving notice of any infirmity in the paper it pays out on the
checks of the depositor the full amount due him, including the
discount, the bank thereby will become a purchaser for value so
as to be entitled to full protection.* This rule would obtain
though the depositor, by subsequent deposits or discounts, pre-
serve a constant balance to his credit, for, in the absence of
special facts demanding a different rule, payments are applied to
the oldest debts.^ The fact that the depositor be itself a bank
and the regular coi-respondent of the discounting bank would
not change the rules as already stated.*
100 XT. S. 686. The Alabama court Bullene «. Coates, (1883) 79 Mo. 426;
distinguished Boyd «. Emmerson, 2 Ad. Armstrong v. Exchange National
& Ell. 184, and Kilsby v. Williams, 5 Bank, 133 U. S. 438. "When bankers
Barn. & Aid. 815. See on the subject will not be held liable as guarantors of
of drawing checks, Martin ». Morgan, a deposit made with other bankers, sec
Gow, 123; s. c, 3 J. B. Moore, 635; Dustln & Musick ti. Hodgen, (1868) 47
Peterson v. Union National Bank, 52 111. 135.
Pa. St. 206; National Gold Bank & ^jjunn ,. Second National Bank,
Trust Co. ». McDonald, 51 Cal. 64; s. (1883) 30 Kans. 412.
c, 21 Am. Rep. 697. ■* Fox v. Bank of Kansas City, (1883)
' Rapp «. Bank, 26 W. N. C. (Pa.) 30 Kans. 441.
458. "Ibid.
'Flannery v. Coates, (1883) 80 Mo. ''IXAA. As to what constitutes a
444; Ay res v. Bank, (1883) 79 Mo. 421; legal deposit of money in a bank and
76
602 DEPOSITS AND CHECKS. [§ 316
§ 316. Depositors — duty and rights. — Depositors must
know and conform to the ordinary usage of business of the bank.^
Where one of two partners carrying on business in his own name
deposits moneys of the firm in his own name in bank, the other
partner will have the right, during the lifetime of his partner, to
change the account, placing it to the credit of the firm, and after
his death to draw against it as surviving partner.^ Though a
depositor's account may be deemed balanced, and the lapse of
time be such that as a whole account it cannot be opened, yet
particular items may be shown to be false.' A depositor is not
precluded by a rule of a bank, that all payments made and received
must be examined at the time, from showing afterwards that
there was a mistake made in the entry of his deposit.* ISTeither
will he be concluded by entries made in his deposit book by the
bank in writing up his account if he has made objection to it
within a reasonable time after the account was written up.*
Where the entry of a deposit was made by the teller of a bank,
and the amount was erroneously stated to him by the depositor's
clerk, and the depositor questioned its correctness on the day of
the deposit, as soon as he discovered a mistake had been made,
the Supreme Court of New York held that the depositor should
be allowed to recover from the bank the difference between the
amount entered and the true amount." The United States
Supreme Court has held that a depositor in a bank was estopped
to question the correctness of his bank account by omission to
examine entries in his jDass book and vouchers returned, and to
report errors.' They also held that a depositor intrusting exami-
the bank's liability, see Jackson Insur- ^ Schneider v. Irving Bank, (1865) 1
ance Co. i>. Cross, (1872) 9 Heisk. Daly, 500; s. c, 30 How. Pr. 190. See
(Tenn.) 383. Godin v. Bank of the Commonwealth,
' American National Bank v. Bushey, 6 Duer, 76, as to what amounts to an
45 Mich. 135. As to the effect of accounting between a bank and a de-
usage of the bank upon other par- positor which will bind the latter,
ties, see Leavitt v. Simes, 3 N. H. 'Mechanics & Farmers' Bank v.
14; Pisoataqua Bank ■!). Carter, 20 N. Smith, (1831) 19 Johns. 115. In Win-
H. 246, 248; Moore r. Waitt, 13 N. H. ter ». Bank of New York, 2 Caines,
415; Crosby «. Wyatt, 10 N. H. 318. 337, a bank was held liable to the true
" Commercial National Bank v. Proc- depositoi', though the deposit had been
tor, (1881) 98 111. 558. partly credited to one who falsely
'Manhattan Co. ■». Lydig, (1809) 4 claimed to be the depositor, and the
Johns. 377. bankhadparted with valuetohimonit.
* Mechanics & Farmers' Bank «. 'Leather Manufacturers' Bank v.
Smith, (1821) 19 Johns. 115. Morgan, 117 U. S. 96.
§ 316] DEPOSITS AND CHECKS. 603
nation of his bank account and vouchers to his clerk, without
proper supervision, was hable for loss by the clerk's forgeries,
where the bank had used due care.* A check drawn by a depos-
itor, never accepted and not accounted for, would be no obstacle
to a suit for the deposit.^ In an action against a depositor for an
overdraft he may set off coupons, payable to bearer, for which
the bank may be liable-.' Should a depositor on the same day of
his deposit, and before it is placed to his credit on 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 ou'the checks
of the latter, the depositor will not be allowed to recover the
amount of the deposit from the bank.* As a general 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.' In an Illinois case it appeared that a depositor 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 against
deposits for fifteen days only, and placed the power of attorney
with the bank. After his return lie resumed drawing his owa
checks. But after the expiration of fifteen days the clerk con-
trived to draw checks without the knowledge of the depositor, a
part of Tyhich 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 paid out
on the checks drawn by the clerk after his agency ceased, so far
'Leather Manufacturers' Bank v. of proceeding against him. Sammis
Morgan, 117 U. S. 96. «. Claris, 13 111. 544; Hitt ii. Allen, 13
' Jackson Insurance Co. v. Cross, HI. 593. And the defending in good
(1872) 9 Heisk. (Tenn.) 388. faith of a suit brought for the recovery
^Bank of the United States v. Mac- of the money is not a vexatious delay,
alester, 9 Pa. St. 475. Aldrich i>. Dunham, 16 111. 403." In
^NefE V. Greene County National Jassoy v. Horn, (1872) 64 111. 379,
Bank, (1886) 89 Mo. 581. where payment of an account evi-
' First National Bank of Springfield denced by the entries in a depositor's
V. Coleman, (1882) 11 Bradw. (111.) 508. book had been repeatedly demanded
The court said: " It cannot be said that and ten years had elapsed after the de-
there has been any unreasonable and positof the money, the Illinois Supreme
vexatious delay*, unless the debtor has Court held that the delay of payment
thrown some obstacle in the way, or, was vexatious and unreasonable and
by some management of his own, in- that interest should be allowed on the
duced the creditor to prolong the term account.
€04 DEPOSITS AND CHECKS. [§ 316
as he had appropriated them to his own nse.^ It was insisted
before the court that the court before which this case was tried
had erred in rendering judgment for any gi-eater 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 tlie 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.^ 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.^ There
must be a demand for payment before a suit can be brought
against a bank for a deposit.* 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.' 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.' An action against the bank cannot be maintained
' Manufacturers' National Bank v. thority with the bank, in pursuance of
Barnes, (1873) 65 111. 69. a previous arrangement, • were suffi-
^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."
ouerate the bank from liability for the 'Johnston v. Bank, 101 Pa. St. 600.
continued payment of checks improp- ^ Downes v. Phoenix Bank, (1844) 6
erly drawn. * * * The facts that Hill, 397.
the plaintiff [in the case before us] had ' 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.
tp fifteen days, and to lodge this au-
f 316] DEPOSITS AND CHECKS. 605
upon a certificate of deposit issued to one, " subject to order of
himself * * * and payable on return of this certificate "
before a demand for payment and a refusal to pay.' A depositor
will be relieved from demanding the payment of his deposit as
preliminary to the right to sue, by a notice from the bank, or by
an advertisement, that his claim would not be paid at the coun-
ter.^ Upon the suspension of a national bank and the appoint-
ment of a receiver, a depositor in the bank, from the date of his
demand for it, will be entitled to interest on his deposit.' "Where
money may be deposited by the drawee in a bank to pay a cer-
tain draft, not there at the time, the drawers would have no
interest on the money until the application to their draft is made.
The drawee may revoke his direction at any time before the
money is so applied.* In an Indiana case one who wished a loan
of money employed a firm to negotiate it for him. They applied
to another firm, who procured the money from their principal, a
security company, and deposited it in bank. Soon afterwards the
first party executed his note and mortgage for the amount and
delivered them to the firm who had procured the money, and
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 the
release of prior incumbrances on his land, which he agreed to do
at a certain time. He 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 he
could maintain an action against the security company for the
surrender and cancellation of the note and mortgage.^ One keep-
ing an account with a banking house, depositing funds which are
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 case before the Supreme
'Brown v. McElroy, (1876) 53 Ind. ^ National Bank v. Mechanics' Na-
404. tional Bank, 94 U. S. 437.
''Farmers & Mechanics' Bank v. ^Bank «. Higbee, 109 Pa. St. 130.
Planters' Bank, 10 G. & J. (Md.) 433. ^ Security Company v. Ball, (1886)
That demand must be made for pay- 107 Ind. 165.
ment of deposit before action to re- »"Willetts v. Paine, (1867) 43 111.
cover it, see National Bank of Fort Ed- 433.
ward V. Washington County National
Bank, (1875) 5 Hun, 605.
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 afiirmed the
judgment of the trial court in favor of the firm.^ A person
• Gladstone Exchange Bank t>. Keat- in the case that the defendants are
ing, (1892) 94 Mich. 439. Montsom- estopped from relying upon this de-
BRY, J., speaking for the majority, fense, for the reason that there was an
said; " It is suggested that the burden opportunity for an examination of the
of proof would rest upon the defend- account and checks, and that the de-
ants to show that the moneys did not fendauts should have examined these
go to the benefit of the firm. In ray checks, and notified the [bank] of the
judgment, this is not the correct rule excess of authority and of the inva-
in such a case. The [bank] seeks to lidity of the checks." The case of
recover, notwithstanding it appear.? Bank v. Morgan, 117 U. S. 96, cited to
affirmatively that the money was paid sustain this position, was distinguished
out by it upon checks which were in the opinion of the lijichigan Su-
drawn without the requisite au.thority preme Court, as follows: "But in the
of the firm. There can be no doubt case cited, the party drawing the check
about the power of either member of had prima facie authority to draw it;
a copartnership to protect himself by the bank acted in good faith in making
stipulating that the other member shall the payment; the check passed back
not have the authority to bind the firm into the hands of the drawer, with
by signing checks, if notice is given opportunity to examine and observe
to the bank which is the depository the error; it appeared charged in the
of the firm; and when, on the afflrma account of the drawer. Under these
tive showing of the bank, as in this circumstances, it was held that there
case, it appears that the bank has dis- was a duty to notify the bank, in order
regarded the notice, how can it be said that it might protect itself. But what
that a pnTOa/ara« case is shown, with- notice was requisite in this case to
out further showing that some benefit enable the bank to protect itself? The
was derived by the firm from the pay- moment it paid one of these checks,
ment of the money? It is suggested its officers knew from direct notiflca-
§ 317] DEPOSITS AND CHECKS. 607
depositing money with one bank, to be transmitted for his use
and benefit to another bank, whicli refuses or is unable to receive
it, and cannot be compelled to receive it, the purpose of the
deposit failing, the bank so receiving the same will hold it to the
use of the depositor, and mast account to him for it. Money so
deposited and expressed in the certificate 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.^
§ 317. When ownership of deposit is questioned — rules. —
In a controversy over the right to a bank deposit where it is
denied that the depositor was the owner of the fund, and entitled
to draw the same from the bank, it may be shown that the
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
been 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 appeal th^ 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 bank, as well as the defend-
press instructions and directions of ants, was apprised." Grant, .J., dis-
defendants. Why notify them of what sented on each of the points just
they already knew? If either party discussed.
was entitled to notice of this transac- ' Drovers' National Bank r. O'Hare,
tion from the other, it was certainly (1887) 119 111. 646; s. c, 10 N. E. Rep.
the two defendants, as individuals, 360; followed in Union Stock Yards
who were entitled to notice from the Nat. Bank ■». Dumond, (1894) 150 111.
bank that some person connected with 501; s. c, 37 N. E. Rep. 863.
the firm was assuming to violate the 'Wichita Nat. Bank v. Maltby,
express instructions of the firm, of (Kans. 1894) 36 Pac. Rep. 1000.
608 DEPOSITS AND CHECKS. [§ 31T
giving of a check by the receiver to the individual in payment of
the obligation.* Neither the bank nor the attorney can deny
that money deposited by the depositor as attorney for another
belongs to the latter.^ 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.' 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.* T}a.e jprima 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.' And a bank will
not be permitted to allege that money received by it from a
depositor belongs to some one else." In an Ohio case a party
deposited money in one bank to the credit of another bank, but,
Avithout 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.''
' Eecles v. Drovers & Mechanics' Rice «. Foster, 6 Ohio, 279; Mitchel v.
Nat. Bank, (Md. 1894) 39 Atl. Rep. McCabe, 10 Ohio, 405; Moore ». Gfano,
963. 12 Ohio, 300; Howe «. Hartness, Hill
= Burger v. Burger, 185 Pa. St. & Co., 11 Ohio St. 449; CornweU o.
499; s. c, 26 "W. N. 0. (Pa.) 355. Kinney, 1 Handy (Ohio), 496; Fuller-
^Hemphill «. Yerkes, 133 Pa. St. 545; ton «. Sturges, 4 Ohio St. 529; Putnam
s. c, 25 W. N. C. (Pa.) 417. u Sullivan, 4Mas3. 45; Selser«. Brock.
* Ferry b. McKenna, 9 Pa. Co. Ct. 3 Ohio St. 307. In Tradesmen's Bank
Rep. 17. ®. Astor, (1833) 11 Wend. 87, the facts
' Egbert «. Payne, 99 Pa. St. 344, were that the president of the bank
'Bank«. Alexander, 120 Pa. St. 476. became treasurer of a voluntary as-
' Weirick «. Mahoning County Bank, sociation, and as treasurer opened an
(1866) 16 Ohio St. 396. See Ring & account with the bank, depositing the
§ 317] DEPOSITS AND CHECKS. 609'
A bank cannot claim a lien upon a bank account opened with it by
one as the general agent, when it knows that he is agent of a cor-
poration, for an individual debt of the depositor to the bank.'
A factor depositing money in a bank which has knowledge that
it is the proceeds of sales of goods for his principal's account, and
the principal's ownership, the bank will not be allowed, as
against the principal, to appropriate the deposit to payment of a
general balance due from the factor to the bank.^ A bank
refusing, without cause, to honor a depositor's check has been
held liable for substantial damages, though no special loss was
shown.' In case a bank, with which an agent or trustee has
deposited money belonging to his principal or beneficiary, withoiit
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 be debarred by that fact from recovering
the money from the bank if it can be identified.* 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 general
deposit in a bank.^ As against a depositor, a bank cannot allege
that the fund in its hands belongs to a third person against
whom the bank has a counterclaim." A bank would not be
authorized to pay out money on check of a depositor in his
individual name where the deposit has been credited to him as
trustee.'' The money belonging to a county deposited by a
county treasurer in a bank in his name as " treasurer," no money
of the treasurer being mixed with it, upon his becoming a
bankrupt, belongs to the county, and it would be no defense in an
action against the bank to recover the deposit that it had been
paid to the assignee in bankruptcy of the treasurer.' There is
justification for payment by a bank of money upon orders
of the one depositing the money or his agent, until notice
funds of the association therein, which " Patterson v. Bank, 130 Pa. St. 419.
account he overdrew. It was held *Burtnett v. First National Bank,
that the bank could recover the 38 Mich. 630.
amount overdrawn from the members ' McLain ». Wallace, (1885) 103 Ind.
of the association as he drew upon the 562.
account as the agent of the association. ' Bank v. Mason, 95 Pa. St. 113.
'National Bank v. Insurance Co., ■■ Ihl v. Bank of St. Joseph, (1887)
104 U. S. 54. 36 Mo. App. 139.
''Union Stock Yards Bank e. « Supervisors of Schuyler County
Gillespie, 137 U. S. 411. «. Bank of Havana, (1875) 5 Hun, 649.
7T
610 DEPOSITS AND CHECKS. [§ 318
is received of an adverse claim of ownership of the funds.*
"Where a bank is notified of adverse claims to a deposit, as tliat 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.^ 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.' 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 not
belong to the depositor, but that it did belong to the person to
whom it was paid.* 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.'
§ 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 cheeks
still in its hands. The custom of the bank was, at the close of
' McEwen v. Davis, (1872) 39 Ind. « Springfield Marine & Fire Ins.
109. Co. V. Peck, (1882) 102 111. 365.
' German Exchange Bank ». Com- * Patterson ». Bank 130 Pa. St. 419-
missioners of Excise, (Sup. Ct. N. 'Viets ii. Union National Bank of
Y. Spl. Term, 1879) 6 Abb. N. C. Troy, (1886) 101 N. Y. 568.
g 318] DEPOSITS AND CHECKS. 611
each day's business, to balance its books, crediting depositors witb
the amount of their checks, and, if a check was subsequently
returned unpaid from the clearing house, it was charged off to
the depositors. This depositor did not know of this custom. He
had made deposits with the bank for several years without any
special arrangement, and had never drawn against uncollected
checks, except by particular understanding. On these facts the
United States Circuit Court for the district of Massachusetts held
that title had passed to the bank so as to create the relation of
debtor and creditor. But these facts being alleged in the
depositor's bill against the receiver of the insolvent bank, and
connected with further allegations that, at the time the cheeks were
received, the bank was " irretrievably insolvent, and made so by
the operations of the president and two others of the airectors,"
and that the depositor then believed it to be solvent, and had no
means of knowing of its insolvency, the court held this was suffi-
cient to show fraud, and to render the 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 be 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 first
circuit, and that court held that, under the circumstances of the
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.^ One corporation which had
' City of Somerville ■». Beal, Ee- phasizes it. Tlie paying of actual
ceiver, (1893) 49 Fed. Rep. 790. money by a customer into a bank of
* Beal, Receiver, ii. City of Somer- deposit does not create a bailment, be-
ville, (1892) 50 Fed. Rep. 647. The cause, by the settled customs, recog-
•opinion of Putnam, Circuit Judge, is nized by the Supreme Court of the
an elaborate one, and it so learnedly United States, the House of Lords and
discusses the whole question and so numerous other courts, the bank is
distinguishes the cases on this subject authorized to mingle the money at
that we give it in this 'note. He said: once with its general fund, creating
"The fact that the checks were ex- immediately the relation of debtor
pressly indorsed 'For deposit,' does and creditor, subject by further cus-
Dot change the nature of what oc- torn to draft in the usual course of
curred in this instance, as there are no business. But, with reference to the
intervening equities, although it em- checks claimed by the city of Somer-
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 its books as 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 rdeaning 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 ». Continental Bank,.
148 Mass. 553; s. c, 20 N. E. Rep.
193, and Railway Co. ■». Johnston, 133:
U. 8. 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 aa
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 1). 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 efiect.
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 law
to convert the natural incidents of a.
bailment into a right of an entirely
§318]
DEPOSITS AND CHECKS.
613
receiver of the bank to recover the sum collected on this sight
bill. The question in the case was whether the draft belonged to
the plaintiff at the time it was paid by the drawee. If it did the
defendant did not acquire title to the money. If the transaction
in controversy was equivalent to a discount of the draft the bank
acquired the title to the paper ; if it was not, the bank merely
became the agent of the plaintiff to collect the proceeds. The
different character, to be sustained, if
at all, by a custom violative of the
ordinary rules governing analogous
transactions. No authorities have
been cited or found which bind this
court to the contrary of what is here-
inbefore expressed. Railway Co. «.
Johnston, 133 U. S. 566; s. c, 10 Sup.
Ct. Eep. 390, is not in point, as the
paper in question in that case was not
a check, but a sight draft, and the de-
cision was made to rest mainly on the
ground of fraud, as was stated by the
learned judge from whose decree in
the Circuit Court this appeal was
taken. Ex parte Richdale, 19 Ch. Div.
409, is criticized in Balbach v. Freling-
huysen, 15 Fed. Eep. 675. It can be
added to what is there said that so far
as the case touches this at bar, the
different judges who sat in the Court
of Appeal used essentially varying ex-
pressions, all of which were unneces-
sary, beyond the proposition that the
banker there in question was, under
the special circumstances, a holder for
value. Bank v. Loyd, 90 N. Y. 530,
so much relied on as establishing an
absolute title in the bank from the in-
stant the checks were deposited, may
perhaps settle the law for the state of
New York. It apparently was so
considered by Judge Wallace as late
as 1886, as stated in Railway Co. «.
Johnston, 37 Fed. Rep. 243. The law
of New York was especially found by
the Supreme Court of Massachusetts
to be as stated in Bank v. Loyd, in
Brooks ». Bigelow, 142 Mass. 6; s. c,
6 N. E. Rep. 766, and though perhaps
not of importance, yet it is noteworthy
that the parties deemed it necessary to
prove the rule of that state as though
local and peculiar, and not to be gath-
ered from the common law. Bank v.
Loyd is discussed by the Supreme
Court in Railway Co. v. Johnston, al-
ready cited; and its effect is stated
(page 575, 133 U. S. and page 392, 10
Sup. Ct. Rep.) to be in substance that
a transfer by a bank of a draft de-
posited for collection and indorsed
generally, would confer title by reason
of 'reputed ownership.' This was
the pith of the New York decision,
the question being, not as to title be-
tween the primary bank and its cus-
tomer, but between the latter and
another bank to which the drafts had
been remitted. Bank v. Hubbell, IIT
N. Y. 384; s. c, 23 N. B. Rep. 1031
(decided November 26, 1889), can be
distinguished from the case at bar
only by the fact that in the former the
checks were expressly indorsed ' For
collection.' They were charged by
the depositor to the banker simul-
taneously with forwarding them, and
were in like manner credited at once
on reception and before collection, and
such as were protested were charged
back. The banker did not keep the
proceeds of the collections distinct,
nor remit them specifically; but they
were mingled with his other funds,
and remittances of balances were made
each week. These covered the exist-
ing credits on the books of the banker,
whether or not at that time collected.
This method of business had continued
614
DEPOSITS AND CHECKS.
[§318
bill was dismissed.^ The mere credit of a check upon the books
of a bank, which may be canceled at any time, does not make the
bank a honafide purchaser for value. If, after such credit, and
before payment for value upon the face thereof, the holder
receives notice of the insolvency of the bank, it cannot become a
for many years. Notwithstanding the
checks were indorsed specially 'For
collection,' the transactions as a whole
were identical in substance with those
usual in connection with a deposit as
made in the case at har; and the
course of proceedings and the practi-
cal construction given them by the
parties were precisely the same as
though the checks had been indorsed
generally. The special indorsements
efEected nothing, except to give notice
to a transferee or other stranger.
They were covered into the transac-
tions, and added nothing to them, be-
cause checks delivered a banker are
'For collection' in any view. The
checks were accompanied with letters
stating that they were indorsed ' For
collection and credit.' The court said
that this amounted to a direction to
credit after the collection; but the
practice was to credit before, so that
the letters of advice wei-e thus actually
superseded. Moreover, as already
said about the word 'collection,' the
word 'credit' added nothing, and was
entered into the transactions, because
the banker could do this in any event
unless instructed to remit specially.
In this case the Court of Appeals held
that the title to the checks remained
in the depositor while they were un-
collected. In Balbach v. Frelinghuy-
sen, already cited, the United States
Circuit Court for the district of New
Jersey laid down as the result of its
conclusions the rule that a bank is,
until collection, a bailee of checks
deposited, or agent of its customers'
depository."
' St. Louis & S. F. Ry. Co. «. Johns-
ton, (1886) 27 Fed. Rep. 343. Wallace,
J. , having stated the question involved
as stated in the text, discussed it in
these words: " The case of Metropoli-
tan Nat. Bank ». Loyd, 90 N. T. 531
(affirming the same case in the Supreme
Court, reported in 35 Hun, 101), is an
authority directly in point against the
plaintiff's right to recover. In that
case the plaintiff deposited with the
bank a check drawn upon another
bank in a different city, indorsed by
him, and the amount of the check was
entered by the bank upon the pass
book of the depositor as cash, with the
depositor's knowledge. It was held
that the bank became the owner of the
check. The opinions delivered in this
case, both in the Court of Appeals and
in the Supreme Court, are a full and
able discussion of the questions in-
volved, and contain a full review of
the authorities bearing upon them.
On the other hand, the case of Balbach
V. Frelinghuysen, 15 Fed. Rep. 675, de-
cided by the Circuit Court of the dis-
trict of New Jersey, follows the views
expressed in Morse on Banks and Bank-
ing (page 437), and holds that the
checks so deposited do not become the
property of the bank, although by the
course of business between the de-
positor and the bank the depositor has
been allowed to draw against the de-
posits before the paper has been actu-
ally collected. Upon principle, there
is no reason why, if the parties choose
to treat the deposit of such paper as a
deposit of cash, the transaction should
not be deemed equivalent to a dis-
count of the paper by the bank. Sight
bills drawn by one corporation upon
another of prominent financial stand-
ing, like the interest coupons of such
§318]
DEPOSITS AND CHECKS.
615
honafide holder by subsequent payment.' A national bank in
Dakota, with knowledge that the county treasurer of a county had
not sufficient county funds in his hands to balance his official
accounts, consented to give him fictitious credit in order to enable
corporation, or like certified checks
upon banks, are generally accepted in
commercial usage as the equivalent of
money. They have practically the
same attributes as bills issued by bank-
ing corporations, which are merely
promises to pay at sight, and are every-
where accepted as money, in the ab-
sence of special circumstances affect-
ing the financial standing of the cor-
poration issuing them. "Where bank
bills are credited at their face to their
depositors, and are treated by the de-
pository as a deposit of money, the
bank receiving them becomes a debtor
to the depositor for the face amount,
although the ciirrency may at the time
be depreciated. Marine Bank ». Ful-
ton Bank, 3 Wall. 353. When a sight
bill is deposited with a bank by a cus-
tomer at the same time with money or
currency, and a credit is given him by
the bank for the paper, just as a like
credit is given for the rest of the de-
posit, the act evinces unequivocally
the intention of the bank to treat the
bill and the money or currency with-
out discrimination, as a deposit of
cash, and to assume towards the de-
positor the relation of a debtor instead
of a bailee of the paper. If the cus-
tomer assents to such action on the
part of the bank by drawing checks
against the credit, or in any other way,
he manifests with equal clearness his
intention to be treated as a depositor of
money, and, as such, as a creditor of
the bank instead of a bailor of the pa-
per. Under such circumstances it
should be held that the bank acquires
title to the paper just as it would to a
deposit of money. The intention of
the parties in the particular transaction
may be ascertained from the course of
their previous dealings. When it ap-
pears that it has been the uniform prac-
tice between the parties in their past
dealings to treat deposits of paper as
deposits of cash, their intention to do
BO in the particular transaction should
be inferred, in the absence of new and
inconsistent circumstances. It is quite
certain that bankers do not invariably
credit their , customers for sight paper
as for cash, but are generally influenced
by the financial responsibility of the
customer or the drawee of the paper, or
both. If a bank does not wish to as-
sume the relation of a debtor for the
paper to the depositor, this intention
may be manifested in a very explicit
manner by crediting the paper as pa-
per. This was done in Thompson -u.
Giles, 3 Barn. & C. 433, in the Case of
Rowton, 1 Rose, 15, and in the Case of
Sargeant, Id. 153. Some significance
must be attached to a credit entry of
the paper upon the books of the bank
as cash, and the natural implication
would seem to be that the bank, by
making such an entry, assumes to re-
ceive the bill as money. Correlatively,
if the depositor understands that the
bank proposes to receive the paper as
money, and assents, expressly or by
acquiescence, it would seem that he
consents to part with the title to the
paper. For these reasons the con-
clusions reached in Metropolitan Nat.
Bank t\ Loyd, are adopted as satis-
factory. The authorities bearing upon
the general questions are so fully cited
and discussed in the opinions in that
case that it is deemed unnecessary for
present purposes to refer to them."
' Dresser «. Missouri, etc. , Construe ■
tionCo., 93 U. S. 93: Mann «. Second
National Bank, 80 Kans. 413; Central
616 DEPOSITS AND CHECKS. [§ 319
liim 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 liis 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 cheek, 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 honafide 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
Court 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.'
§ 319. Deposits in savings banks. — A savings bank cannot
refuse to return a depositor's money to him because he deposited
National Bank ii. Valentine, 18 Hun, a bank, in the ordinary course of
417;]Vranfg.NationalBanks).Newell, 71 business, of checks, drafts or other
Wis. 309; BuUer ». Harrison, Cowp. negotiable paper, received and credited
665. on his account as inoney, the title to
' Thompson e. Sioux Palls 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 affirmati\rely appears. Further, that
deposit, see Ditch v. Western Nat. an indorsement by the customer of a
Bank of Baltimore, (Md. 1894) 39 Atl. check payable to his own order "for
Rep. 73, 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 v. 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 indorsemenL"
deposit being made by a customer of The coiu-t cite in support of its ruling
§ 319] DEPOSITS AND CHECKS. 617
it in the name of some one else.* General depositors of savings
banks cannot set off their deposits against tlieir debts due the
bank. The rule is different in the case of special deposits out of
the ordinary course of business which the bank may have received
and converted to its own use.^ A savings bank in New Jersey,
under a special charter, was authorized to receive and invest
deposits for 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 as 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 tliem " special deposits,"
which were not to participate in the profits, and were to be
repaid to the depositors without any preliminary notice. Both
kinds of deposits were mingled in the funds of the bank indistin-
guishably. A receiver was appointed for the bank under insol-
vency proceedings. The court, as to the relations between the
depositors and the bank and the rights of the different claims
against the assets, held as follows : That the bank 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 the
receiver could not be maintained ; that money paid to the bank
Bauk V. Miller, 77 Ala. 168; Bank ». H. 338; Bartlett v. Remington, 59 N.
Smith, 132 Mass. 237; Fletcher v. H. 364; Giles «. Merritt, 59 N. H. 325.
Osbourn, (Minn.) 57 N. W. Rep. 336. ' Cogswell v. Rockingham Savings
' Davis V. Lenawee County Savings Bank, 59 N. H. 43. As to the state-
Bank, 53 Mich, 163. As to deposits in ments in a savings bank deposit book
savings banks by one in the name of being a part of the contract between
others, see Kimball v. Norton, 59 N. the bank and the depositor, see Heath
H. 1; Blasdel v. Locke, 53 N. H, 338; r. Portsmouth Savings Bank, 46 N.
Marcy v. Amazeen, 61 N, H, 181; H. 78,
Smith V. Onsipee Savings Bank, 64 N.
78
618 DEPOSITS AND CHECKS. [§ 319
in excliange 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.' 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.^ Keasonaole care and dili-
gence is required of the officers of savings institutions.^ Keason-
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.* 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.' 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
° Makin «. Institution for Savings, sustained when a depositor has not
19 Me. 128; Makin ■». Institution for given notice of his book being stolen
Savings, 23 Me. 350. or lost, if such book be paid in whole
^ Sullivan v. Lewiston Institution or in part on presentment." Subse-
f or 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 ftorea _^ 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
erty 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 ' Howard «. Savings Bank, 40 Vt.
without the production of the original 597.
book, that such payment may be
§ 320] DEPOSITS AND CHECKS. 619
weeks from date. Upon the upper margin of the blank form
used were printed the words, ""Return notice ticket with this
order." On the lower margin below the drawer's signature were
the following printed words : " Deposit book must be at bank
before 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 was not
intended to operate as such, but was drawn on a specially deposited
fund, held by the bank subject to certain rules and regulations
requiring certain things to be done before payment of the order
could be required. "The effect of these requirements," they
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.*
§ 320. Receiving deposits by a bank knowing its insol-
vency.— In receiving a deposit, after his insolvency, a banker is
guilty of fraud. In such case the depositor will be entitled to
rescind the contract and recover the check.^ 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
' Iron City National Bank «.McCord, Hadley, 99 N. Y. 131; s. c, 1 N. E.
(1891) 139 Pa. St. 53. Rep. 537, an action was brought by
"American Trust & Sav. Bank i>. the plaintiff against the receiver of
Gueder & Paeschke Manufg. Co., the First National Bank of Buffalo to
(ni. 1894) 37 N. E. Rep. 237; Chaffee recover the amount of a draft deposited
V. Fort, 3 Lans. 81; St. Louis, etc., with the bank at a time when the
R. R. Co. V. Johnston, 133 TJ. S. 566. managers thereof knew that it was
^ Grant v. Walsh, (N. Y. 1895) 40 insolvent. It was held that permitting
N. E. Rep. 309. Haight, J., speak- the plaintiff to make the deposit in
Ing for the court, said : "The rule ap- reliance upon the supposed solvency
pears to be well settled that one who of the bank was a gross fraud upon
has been induced to part with his the plaintiff, and that the latter was
property by the fraud of another, entitled to reclaim the draft or its
under guise of a contract, may upon proceeds. The same rule was recog-
the discovery of the fraud rescind nized in Bank v. Loyd, 90 N. Y. 530-
the contract and reclaim the property, 537, but in that case there was no
unless it has come into the possession allegation of fraud in the answer, and
of a bona fide holder. In Cragie v. consequently it was held that the evi-
620 DEPOSITS AND CHECKS. [§ 320
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 ionafide holder for value.* If the proceeds of such a check
or draft can be traced, the fund wUl create a trust in favor of the
depositor in those proceeds.^ 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 tonafide holder
of the check would be upon the bank to which the check was
transferred.' In a South Dakota case it appeared that the plain-
deuce offered, tending to show fraud, 357-364; s. c, 23 N. E. Rep. 801,
was properly excluded." O'Bkibn, J., says : ' In this state it
'National Citizens' Bank of New must be regarded now as a settled rule
York ». Howard, (N. Y. Super. Ct. that, when a maker of negotiable
Spl. Term, 1886) 3 How. Pr. (N. S.)511. paper shows that it has been obtained
' Importers' & Traders' Bank v. from him by fraud or duress, a subse-
Everett, (Sup. Ct. 1889) 31 N. Y. quent transferee must, before entitled
St. Repr. 98; s. c, 4 N. Y. Supp. to recover on it, show that he is a
599; citing Anonymous, 67 N. Y. iona fide purchaser.' In Bank «.
598. Green, 48 N. Y. 298, it was held that
^ Grant ». Walsh, (N. Y. 1895^ 40 N. a party suing upon a negotiable note
E. Rep. 209. Haight, J., speaking purchased before maturity is pre-
f or the Court of Appeals, said : "In sumed, in the first instance, to be a
Bank d. Diefendorf, 123 N. Y. 191- ionafide holder, but when the maker
206; s. c, 25 N. E. Rep. 402, Rugbr, has shown that the note was obtained
Ch. J., in delivering the opinion of the from him under duress, or that he was
court, says : ' The burden of making defrauded of it, the plaintiff would
out good faith is always upon the then be required to show under what
party asserting his title as a honafide circumstances, and for what value, he
holder, in a case where the proof became the holder. The reason of
shows that the paper has been fraudu- this rule, as stated by Rapax-lo, J., is
lently, feloniously or illegally ob- that ' where there is a fraud the pre-
taiued from its maker or owner, sumption is that he who is guilty will
Such a party makes out his title by part with the note for the purpose of
presumptions, until it is impeached enabling some third party to recover
by evidence showing the paper had a upon it, and such presumption
fraudulent inception; and when this operates against the holder, and it
is done the plaintiff can no longer rest devolves upon him to show that he
upon the presumptions, but must gave value for it.' Citing Bank u.
show affirmatively his good faith.' In Noxon, 45 N. Y. 762; Bank ti. Carll,
Vosburgh i\ Diefendorf, .119 N. Y. 55 N. Y. 440; Wilson v. Rocke, 58 N.
§ 320] DEPOSITS AND CHECKS, 621
tifE had deposited witJi a bank, a few days before its insolvency
was admitted and its doors closed, a sum of money, taking from
the bank a receipt, stating the purpose for which the money was
left. This purpose was, as shown by the receipt, that when a
warranty deed, properly executed, conveying to him certain lands,
together with an abstract showing good title in the party who was
to execute this deed, was delivered to the bank by the grantor, the
money was to be paid to the latter. The bank going into the
hands of a receiver, the latter refused to pay the sum of money
to the plaintiff upon demand. The Supreme Court affirmed the
order of the court in which the proceedings in insolvency were
instituted to the receiver to pay this money to the plaintiff on his
petition for such order, holding that the sum of money so deposited
was a trust fund, and did not become assets of the bank, nor pass to
the receiver as such.' A depositor in a bank in ISTebraska which had
T. 642; Nickerson i). Euger, 76 N. Y. bank. Suppose, under the same cir-
379; 3 Greenl. Ev. § 172; Bailey «. cumstances, [plaintiff] had left the
Bidwell, 13 Mees. & 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 khowledge of their insolvency, ment, would this money so found in
see Cragie i). Hadley, (1885) 99 N. Y. his possession pass to his assignee as
181; Rochester Printing Co. «. Loomis, his property? If so, when and how
(1887) 45 Hun, 93. did it become due? That he, or the
' Kimmel v. 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 [his] rights,
of the bank stating that when it was Abuse of a trust can confer no rights
left with the bank this money "was on the party abusing it, or on those
treated the same as any other deposits claiming privity with him. It is not
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 is the
that this was done with the knowledge very money or a part of it deposited
of the one who left the money with by [plaintiff], and it is not necessary
the bank for a distinct purpose, or that it should be so. Ifthe money deli v-
that he in any manner consented to it. livered to the bank had been used by it
The court said: "Upon these facts it in its business, it had presumably either
would appear that the money was left paid its debts pro tanto, or increased
in trust for a particular purpose. He its assets; and the general creditors of
could not, afterwards, without the ac- the bank would be in the same condi-
quiesoence of [the one who left it] tion if the money found in its posses-
change its relation to him from that of sion were paid over in execution of
a bailee or trustee to that of a general the trust as though the money depos-
debtor. We apprehend that no dif- ited had been kept separate, and the
ferent principle is involved because identical money received had been so
one of the parties happens to be a paid over. Peak v. EUicott, 30 Kans.
622
DEPOSITS AND CHECKS.
[§320
become insolvent and made an assignment, claimed in the courts
that, npon 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.' In a late case
156; s. c, 1 Pac. Rep. 499, was a case
entirely analogous to this. Peak had
left with the banls; of which EUicott,
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; 8. c, 1 Pac. Rep. 767, was a simi-
lar case and the same rule controlled.
McLeod u. Evans, 66 Wis. 401; s. c,
38 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 v. Bank
of Dansville, 39 Hun, 187."
' "Wilson 1). Coburn, (1892) 35 Neb.
530.' The court said: "The rule on
the subject is stated by Judge Stokt
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
Bq. 1259. That the foregoing rule is
applicable to oases 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 co-jies
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-
§320]
DEPOSITS AND CHECKS.
623
in the federal court for the district of Indiana, it has been held
that where money and checks were unsuspectingly deposited in a
bank, which was known by its managing officer to be hopelessly
insolvent, a few minutes before closing time on the last day on which
it did business, and the checks were subsequently collected by the
bank's clerk, the whole of the deposit was charged with a trust,
and an equal amount might be recovered from the receiver, who
retained the specific money among the general mass of the bank's
funds.^ It was insisted in this case, on behalf of the^eceiver of
guished,' etc. Counsel for plaintiff
in error rely with confidence upon the
case of Cragie v. Hadley, 99 N. Y.
131. We do not, however, regard that
case as authority. That was an ac-
tion against the defendants for the
proceeds of a draft received for collec-
tion from an insolvent bank. The
fund, therefore, was easily distin-
guishable from the other assets of the
bank. It is evident from subsequent
cases in New York that that case has
never been regarded as an authority
in cases like this, where the money of
the claimant has been mingled with
the other funds of the bank, and can-
not be distinguished from other assets
in the hands of the assignee or re-
ceiver. In re N. River Bank, 14 N.
Y. Supp. 261, is a case directly in
point. The Supreme Court therein,
after showing that Cragie v. Hadley
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 appear that the money had not
gone into the general funds of the
bank, and because he had failed to
impress upon the funds in the hands
of the receiver the character of a trust.
In Atkinson v. Rochester Printing Co.,
114 N. Y. 168, the same distinction is
made, and the court says: 'The fact
that the defendant became a creditor
of the insolvent bank through the
fraud of its officers, and the bank, a
trustee ex malejicio, gave the defendant
no right to a preference over other
creditors unless it could trace and re-
cover its property.' And such is the
law as recognized from the earliest
history by the courts of chancery.
Ryall r. Rolle, 1 Atkyns, 173; Thomp-
son's Appeal, 23 Pa. St. 16; Perry on
Trusts, § 128."
' Wasson «. Hawkins, (1894) 59 Fed.
Rep. 233. Arguendo, it was said by
Baker, D. J. • "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 i). Webb, 110 U. S.
7; s. c, 3 Sup. Ct. Rep. 428; Bank d.
Walker, 130 U. S. 267; s. c, 9 Sup.
Ct. Rep. 519. It fraudulently con-
cealed its insolvency from the com-
plainant, who was ignorant of it, and,
believing it to be solvent, he deposited
in the bank bank notes and checks to
[a certain] amount within five minutes
of its final collapse. The reception of
the money and checks, under such cir-
cumstances, was a fraud upon the
plaintiff, and entitled him to rescind
the transaction, and recover back his
deposit from the bank. The keeping
of the bank open, and 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;
624
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.^
and if the bank was known to be in-
solvent by the oflBcers who were
charged with its management, the con-
cealment of that fact from a person
about to make a deposit would consti-
tute a fraud upon him. The title
acquired by the bank to the money
and checks deposited under such cir-
cumstances would be voidable at the
election of the depositor, who could
bring suit to recover his deposit, with-
out any previous demand. The bank
would become a trustee ex maleficio,
and would hold the deposit for the use
of the depositor, and subject to his
right of reclamation. Railway Co. ».
Johnston, 133 U. S. 566; s. c, 10 Sup.
Ct. Eep. 390; Cragie v. Hadley, 99 N.
Y. Rep. 131; s. c, 1 N. E. Rep. 537;
City of Someryille v. Beal, 49 Fed.
Rep. 790; Peck v. Bank, 43 Fed. Rep.
357. In the case of Cragie v. Hadley,
supra, it was held that the acceptance
of the deposit by a bank hopelessly
insolvent constituted such a fraud as
entitled the depositor to his drafts or
their proceeds. In Anonymous Case,
67 N. Y. 598, the court say: 'This is
not like the case of a trader who has
become embarrassed and insolvent,
and yet has reasonable hopes that by
continuing in business he may retrieve
his fortunes. In such a case he may
buy goods on credit, making no false
representations, without the necessary
imputation of dishonesty. Nichols v.
Pinner, 18 N. Y. 295; Brown v. Mont-
gomery, 30 N. Y. 287; Johnson v. Mo-
nell, 2 Keyes, 655; Chaffee v. Fort,
3 Lans. 81. But it is believed that no
case can be found in the books holding
that a trader who was hopelessly in-
solvent and knew that he could not
pay his debts, and that he m.ust fail in
business, and thus disappoint his cred-
itors, could honestly take advantage
of a credit induced by his apparent
prosperity, and thus obtain property
which he had every reason to believe
he could never pay for.' And it was
decided that ' in the case of bankers,
where greater confidence is asked and
reposed, and where dishonest dealings
may cause widespread disaster, a more
rigid responsibility for good faith and
honest dealing will be enforced than in
the case of merchants and other
traders; ' and that ' a banker who is,
to his own knowledge, hopelessly in-
solvent, cannot honestly continue his
business and receive the money of his
customers; and, although having no
actual intent to cheat and defraud a
particular customer, he will be held to
have intended the inevitable conse- '
quences of his act, i. e., to cheat and
defraud all persons whose money he
receives, and whom he fails to pay be-
fore he is compelled to stop business. ' "
' Wasson v. Hawkins, (1894) 59 Fed.
Rep. 233. The discussion by the court
of the question thus raised deals very
§321]
DEPOSITS AND CHECKS.
625
§ 321. Certificates of deposit. — In making the discount of a
note, a bank may give a certificate of deposit for the proceeds,
instead of paying over the money to the borrower.^ Where one
person intrusts money to another to deposit in bank, the bank
having knowledge of the ownership, but no discretion as to the
away in currency; and this point has
been determined even in the infancy
of banknotes." Lord Ellbnbokough,
in Taylor v. Plumer, 3 Maule & S.
563, 575, observed: "The dictum that
money has no earmarls must be under-
stood as predicated only on an undi-
vided and uudistinguishable mass of
current money; but money kept in a
bag, or otherwise kept apart from other
money, guineas, or other coin
mai'ked (if the fact were so) for the
purpose of being distinguished are so
far earmarked as to fall 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 English
cases, it was said : "The true distinc-
tion, therefore, between money, bank
notes or negotiable bills, and other
chattels, would seem to be that the
former, for the protection of com-
merce, cannot be followed into the
hands of a bona fide holder to whom
they have passed in due course of
business, while other chattels 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 trustee alid
cestui que trust, because money had no
earmark, has given way to a more
just and enlightened doctrine.
Money, bank notes and negotiable
bills may be followed by the rightful
owner, where they have not been cir-
culated or negotiated, or if the person
to whom they have passed has ex-
press notice of the trust. Miller «.
Race, 1 Burrows, *453; 1 Smith Lead.
fully with English as well as other au-
thorities, and was in these words: "It
was said by Lord King in Deg v. 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 «. Bateman, 3 Ves. Sr. 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 bo 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,
*453, Lord Mausfield 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 that 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 bona 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
' Mississippi Railroad Co. -o. Scott, 7 How. (Miss.) 79.
79
«26
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 Maule & S. 562,
575; King v. Egginton, 1 Term R.
370; Ryall v. RoUe, 1 Atk. 173; Pen-
nell «. Deflfell, 4 DeGex, M. & G. 372;
In re Hallett's Estate, 36 Eng. R.
779; s. c, 13 Oh. Div. 696; National
Bank ®. 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 injustice is done, for he leaves an
equitable amount of his own in place
of every coin or bank note deposited
by another. Pennell ». Deffell, 4
DeGex, M. & G. 372; In re Hallett's
Estate, 36 Eng. R. 779; s. c, 13 Ch.
Div. 696; Cragie v. Hadley, 99 N. Y.
131; s. c, 1 N. E. Rep. 537; National
Bank v. Insurance Co., 104 U. S. 54;
Frelinghuysen «. Nugent, 36 ' Fed.
Rep. 229; Peters ii. Bain, 133 TJ. S.
670; s. c, 10 Sup. Ct. Rep. 354; Bank
11. 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
§ 321] DEPOSITS AND CHECKS. 627
reasonable time, he will be held to have ratified the same. And
after the lapse of several years he cannot object that the bank
eubsequently paid over the money to his agent upon the presenta-
tion of the certificate of deposit, the bank hav'mg no knowledge
that the agent's possession of the certificate was wrongful and
tortious.* A certificate of deposit is prima facie evidence of
indebtedness.^ A certificate of deposit payable in "currency"
means prima 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.^ A
certificate of deposit has been treated, in fact and in law, as a
promissory note for the payment of money. ^ A certificate of
deposit for a stated sura, 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 ». McConnell, (1863) 33 111.
judgment, the modern and better 74. As to the meaning of "currency "
doctrine is that the depositor may take and "current bank bills" the court
out of the common mass so much as said: " This court has repeatedly held
he has put in." that currency and current bank bills
' Bank of Montreal ii. Dewar, (1880) have a fixed known signification. That
6Bradw.([ll.) 394. On the first point the the term currency means bank bills or
court cited McNeil v. Tenth National other paper money, which passes as a
Bank, 46 N. Y. 335; Anderson v. Arm- circulating medium in the business
stead, 69 HI. 453. community as and for the constitu-
'Cushman«. Illinois Starch Co., 79 tional coin of the country. Current
111. 381. bank bills, it will be perceived,' mean
' Phelps «. Town, 14 Mich. 874. In precisely the same thing as currency.
Hulbert v. Carver, (1863) 40 Barb. 365, This question has been repeatedly
where the plaintiffs had deposited before the court, and it has been uni-
money with defendants, bankers in formly so held. See Chicago Fire &
Chicago, Illinois, taking a certificate Marine Ins. Co. v. Keiron, 37 111. 501;
that they had deposited in the bank- Marine Bank «. Chandler, 37 111. 535;
ers' oflBce a certain amount "Illinois Galena Ins. Co. ®. Kupfer, 38111.383;
currency," payable to the order of Chicago Marine & Fire Ins. Co. v. Car-
themselves on return of the certifl- penter, 38 111. 360; Marine Bank v.
Gate, the Supreme Court of New York Rushmore, 38 111. 463; Swift ». Whit-
held that they were at least entitled to ney, 30111. 144; Trowbridge®. Seaman,
payment in Illinois currency, receiv- 31 HI. 101."
able in the ordinary transactions of *Bank of Peru v. Farnsworth, 18
business at par, if not entitled to 111. 568; Laughlin s. Marshall, 19 HI.
specie. 390.
628 DEPOSITS AND CHECKS. [§ 321
been held to be a good promissory note.' Where a bank addresses,
to another bank an instrument stating that a person had deposited
with it a stated sum of money to the credit of the latter bank
for the use of a third person, such instrument would be in its
legal character a certilicate of deposit.^ A certificate of deposit,
" payable in current funds," is equivalent to a promissory note,
but not being payable in money is not governed by law merchant.^
Indorsees of a certificate of deposit, not bearing interest, who
received it more than six years after it had been paid and should
have been surrendered, were held by the Indiana Supreme Court
to have taken it as dishonored paper, and not as a continuing
negotiable security, and not entitled to enforce its second pay-
ment after such an unreasonable delay.* The transferree by
indorsement of a certificate of deposit, takes it subject to all
equities between the payee and the bank.' In a case where a
national bank upon a deposit made by a depositor over its coun-
ter, in the usual course of business, issued to him a certificate of
deposit, which he received in the belief that it was the obligation
of the bank, but which purported to be the individual obligation
of its president, the ofiicers of the bank knowing of and permit-
ting this course of business, the Supreme Court of New York
held that the defendant was not bound by the acceptance of the
certificate to knowledge or notice that the deposit was accepted
by the president of the bank individually, but was entitled, under
the circumstances, to believe the certificate was the obligation of
the bank, and that the bank was estopped to deny its liability on
the certificate.^ A bank has been held responsible for the money
of a depositor notwithstanding a fraud perpetrated by its officers
in inducing the depositor to accept their certificate of deposit as
that of the bank.' But a bank would not be responsible for an
1 Howe V. Hartness, (1860) 11 Ohio 322; Lindsey v. McClelland, 18 Wis.
St. 449. 481; Klauber ». Biggerstaff, 47 Wis.
' Armstrong v. American Exchange 551.
National Bank, 133 U. S. 433. ■ « Humboldt Trust Co.'s Estate, 3
=1 National State Bank of La Fayette Pa. Co. Ct. Rep. 621.
V. Eingel, (1875) 51 Ind. 393. « West v. First National Bank of
« Gregg V. Union County National Elmira, (1880) 20 Hun, 408. As. to
Bank, (1882) 87 Ind. 238. As to the negotiability of a certificate of deposit,
regularity of certificates of deposit, see see Smith v. Mosby, Receiver, (1872) 9
O'Neill 11. Bradford, 1 Finn. (Wis.) Heisk. (Tenn.) 501.
890; Ford i). Mitchell, 15 Wis. 804; ' Steckel i>. Bank, 93 Pa. St. 376;
Piatt V. Sauk County Bank, 17 Wis. Ziegler v. Bank, 93 Pa. St. 398.
§ 321] DEPOSITS AND CHECKS. 629
interest-bearing certificate of deposit, issued by its president in
tbe name of his firm, under circumstances by which the depositor
could not have been misled.' In an Illinois case it appeared that
the employee of owner of money, who had intrusted it to him to
deposit for him in a bank, deposited it in liis own name, the bank
knowing whose money it was at the time. The employee after-
ward indorsed the certificate of deposit to the owner of the
money, who deposited the certificate in the safe to which his
employer had access, but gave no notice of these facts to the
bank until after the employer had taken the certificate, and drawn
the money on it, and had it placed to his own individual account,
when he did inform the bank of his rights. After this, however,
he treated the transaction as a loan to his employee for over
three years, expecting to have him secure it. Daring this time
he made no claim on the bank. The Supreme Court held that
under these facts the owner of the money thus deposited could
not maintain an action of trover against the bank for a conver-
sion of the money, for the reason that he had by his acts vested
his employee with an apparent ownership or control of the money,
and had thus acquiesced in 'the payment of the money to him.*
The assigning of a certificate of deposit transfers to the assignee
the whole sum deposited, as stated in the certificate.' An innocent
holder of a certificate of deposit issued to a cashier, naming him,
for funds deposited belonging to his bank whicii the cashier
transferred to him, would be protected, though the transfer may
be in bad faith on the part of the cashier.* An attempt by the
holder of a certificate of deposit to obtain payment of it before
• Bank v. Williams, 11 W. N. C. ' Springfield Marine & Fire Ins. Co.
(Pa.) 347. In Jenkins v. Walter, 8 G. v. Peck, (1882) lOS 111. 265. In Hazle-
& J. (Md.) 318, a guardian had depos- ton ». Bank of Columbus, 33 Wis. 34,
ited money of his ward in a bank and a bank which had paid its, certificate
received a certificate of deposit pay- of deposit to one to whom it had been
able to his own order. On the day of properly indorsed, though without
deposit, by an indorsement on the cer- consideration as to one who reaUy
tiflcate made to himself, he declared it owned it and the money, and the
to be the property of his ward, and indorsement was forged, it was held,
placed in bank for his benefit. The would not be liable on the certificate
depositor subsequently failed. The to the original payee,
court held that the bank might apply * Perpetual Ins. Co. v. Cohen,
the fund in satisfaction of any claim (1845)9 Mo. 421. In Philipps «. Fran-
it had against the depositor. ciscus, (1873) 53 Mo. 370, where one
■^Dewar ®. Bank of Montreal, 115 owing money to another took the
111. 32. amount, and, after placing it in an en-
630 DEPOSITS AND CHECKS. [§ 321
it falls due, is not inconsistent with its ownership by some one
else.' The hona fide holder of a certificate of deposit issued by
a bank payable on its return, properly indorsed, to whom it was
transferred seven years after its issue, has been held entitled to
recover the amount from the bank, notwithstanding the bank had
paid it to the original holder.^ The holder of a non-negotiable
certificate of deposit, which has been indorsed to him in blank by
the payee and delivered to him, may make a valid pledge of it to
an innocent party, without reference to the equities between him-
self and the payee.' On demand of payment of a certificate of
deposit in a savings institution payable to the depositor or order,
on demand and on return thereof, the bank has the right to insist
that the certificate shall be produced and delivered up as its
voucher of payment, and security against any future claim.* In
a Vermont case it appeared that an insolvent person fraudulently
procured a certification of a check from a bank, which he deposited
in a second bank to the credit of a thir^ bank for the use of one
to whom he was indebted to that amount. The creditor of the
insolvent had previously directed the latter to deposit that sum
for him in bank, but had no communication with the second bank,
above referred to, on the subject. The bank, on receiving the
deposit, had addressed a letter to the third bank, informing them
of the deposit and credit, but, before this bank received the letter,
notified them by telegraph by procurement of the bank certify-
ing the check, not to make payment to the creditor upon this
credit, as there was something wrong. The creditor was also
velope, sealed the package and placed the wife was not authorized, but that
it in the hands of a banker and took a the bank was entitled to a credit for
certificate of deposit of the same, the amount which she had drawn and
which he indorsed and delivered to his applied to the use of his estate in the
creditor, the title of the latter to the way of personal expenses, etc. Citing
money was held to be complete. In Murray v. Cannon, Admr., 41 Md.
Second National Bank of Baltimore «. 466; Taylor v. ■ Henry & Bruscup,
Wrightson, Exr., (1884) 63 Md. 81, it Admrs.j 48 Md. 550.
appeared that the appellee's testator, 'Burrows «. Bangs, 34 Mich. 304.
had deposited a sum of money in the ' National Bank of Fort Edward ».
bank and received a certificate of de- Washington County National Bank,
posit stating that the same was pay- (1875) 5 Hun, 605.
able to the order of himself or of his ^ International Bank v. German
wife (naming her) on the return of the Bank, (1879) 71 Mo. 183.
certificate. The Court of Appeals * Fells Point Savings Inst, of Balti-
held that upon the death of the de- moie v. Weedon, Admr., 18 Md. 320.
positor a payment of the certificate to
§ 321] DEPOSITS AND CHECKS. 631
inforped by telegraph by his debtor, the, insolvent, the drawer of
the check, that payment of the credit had been stopped. These
telegrams were received as early at least as the creditor received
notice of the deposit, and before he had in any way acted upon
it. The certifying bank, before becoming fully informed of the
fraud, had paid the money on the check to the second bank. On
the bill in chancery brought by the certifying bank, the Supi'eme
Court held that it was entitled to reclaim the money from the
bank to which it had paid it ; that the receipt of the money by
that bank was not in law a payment to the creditor, considering
the relations between all the parties growing out of this trans-
action.^ The right of action upon an ordinary certificate of
deposit does not arise until a demand for payment is made.'
Limitations on a certificate of deposit payable with interest on
demand and on return of same, run along from the time of
demand actually made.' The defendant in this New York case,
a director of a national bank, had deposited a certain amount of
money in the bank, and received three certificates of deposit, two
at one time and one at another, bearing six per cent 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 bank in the
settlement of exchanges between the banks in the usual man-
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 Republic v. Baxter, 31 while failed. In an action against the
Vt. 101. In Gate «. Patterson, 25 payee as indorser, he was held not to
Mich. 191, the payee-of a certificate of .have been relieved from liability on
deposit had transferred it with a special the ground that the presentment for
request that it should not be presented payment was not in due time,
until three months had expired, and * Hunger v. Albany City National
had actually received from the pur- Bank, (1881) 85 N. Y. 580.
chaser the interest accrued at the date ' Fells Point Savings Inst, of Balti-
of the transfer. The purchaser pre- more v. Weedon, Admr., etc., 18 Md.
sented the certificate after the time 320.
expired and the bank had in the mean-
632 DEPOSITS AND CHECKS. [§ 321
doiug 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 Revised Statutes cited
below,^ 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-, 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 tlie 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 ISTew 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 aflirmed by the General Term.^ In a case it appeared
' § 5342. seated by its numerous customers.
' Hayes v. Beardsley, (1892) 136 N. The first two certificates were paid, as
y. 399. Eabl, 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 ultimately 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.
633
that two persons who were directors both of a savings bank and
of a national bank, procured money from the savings bank on
two notes made by third persons to them, and given for the pay-
ment of stoclc of the national bank, issued in the names of
the third persons for their benefit. These persons represented to
tlie savings bank that it would have to carry the notes but a short
time, and that the national bank would take care of them. They
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, wliich money was used in settling their accounts
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 for 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
defendant was not selected as a favor-
ite creditor. During all the years of
the insolvency of the bank all cred-
itors were treated alike, and there was
no preference of one over another.
All its demands were met at maturity.
There does not appear from the facts
found" to be any better ground for
claiming that these payments made to
the defendant were void than there is
for making the same claim in refer-
ence to the numerous payments made
in the regular course of business by
this bank to its customers during
many months prior to the closing of
its doors. In order to uphold a re-
covery in an action like this there
should be some satisfactory evidence
that the cashier or other officer actu-
ally paid the money of the bank in
contemplation of insolvency for the
purpose of giving a preference to the
payee and with a view to prevent the
application of the assets of the bank
to the creditors generally, as provided
in the National Banking Act. We
think all the circumstances surround-
ing these deposits and payments for-
80
bid such an inference." As to the
effect of the defendant being a di-
rector it was said: ' ' The insolvency of
this bank seems to have been covered
up and concealed by the cashier with
great skill and ingenuity. It was
not discovered by the bank examin-
ers in making their examinations of
the bank, and no one of the directors
had the least suspicion of it. The
fact that the defendant, entirely igno-
rant of the insolvency of the bank,
was a director does not, under such
circumstances, as a matter of law,
charge him with liability for the pay-
ment made to him. In the trial of the
case and in weighing and balancing
the evidence that fact might have
weight — in some cases controlling
weight — with the trial court. But
when, after all the evidence is given,
it is found that the director acted in
good faith, was ignorant of any
wrongdoing or of the insolvency of
the bank, then a payment made to him
must be tested under section 5343 [U.
8. Rev. St.] like payments made to
any other creditor of the bank."
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.'
§ 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.^ 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 diflierent 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.*
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.* 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.^ 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
' Murray v. Pauly, (1893) 56 Fed. (1885) 103 Ind. 562; Keene c. Collier, 1
Rep. 963. 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 «. National Bank of Brattleboro, N. Y. 671.
50 Vt. 888. « Keen v. Beekman, 66 Iowa, 672.
' Coffin V. Anderson, (1837) 4 Blackf . " Lowry v. Polk County, 51 Iowa, 5a
(Ind.) 395. As to a bank's liability to return a spe-
* McLain v. "Wallace, (1885) 103 Ind. cial deposit In kind, see Chesapeake
562. Distinction between special and Bank «, Swain, 29 Md. 483.
general deposits, McLain v. "Wallace,
§ 322] DEPOSITS AND CHECKS. 635
to suppose is exercised in caring for its own property of like
description.^ A bank, receiving a package of money as a special
deposit without compensation, will be bound only for slight care,
and responsible only for gross negligence.^ The obligation of a
banker in the keeping of a deposit will not be increased by a mere
showing to the depositor the facilities and securities of the bank.*
A bank will be liable where special deposits are lost by reason of
gross negligence or willful inattention on the part of its directors.*
In case a special deposit of bonds, stock or coin with a bank be
stolen or embezzled by its clerk or cashier and he does not 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 occasioned by the
loss, through negligence, of a special deposit made in it with the
knowledge and acquiescence of its officers and directors.* Robbery
by burglars of securities deposited for safe-keeping in the vaults
of a bank would be no proof of negligence on the part of the
bank in caring for the property.' In a Vermont case, one depos-
iting with the cashier of a national bank $4,000 of United States
bonds, received this writing : " Received of J. D. Whitney four
thousand dollars for safe-keeping as a special deposit." [Signed]
" S. M. Waite, C." This appearing to be a naked deposit with-
out reward, the Supreme Court of that state held that the word
" safe-keeping " only indicated the purpose for which the bonds
were delivered and received, and did not import a contract to
keep safely ; that the bank was answerable only for f raiid or gross
negligence in the keeping of the bonds, and was not liable for the
' United Society of Shakers v. Un- tion. The Supreme Court held that
derwood, (1873) 9 Bush (Ky.), 616. the transaction should he deemed one
' Hale V. Rawallie, (1871) 8 Kans. for a compensation and not a gratui-
136. tous one, and that the bank was liable
'Ibid.. An illustration of a bank as a bailee for hire,
being rendered liable to a depositor as * United Society of Shakers u. Un-
trustee for a breach of trust in connec- derwood, (1878) 9 Bush, 616. As to
tion with its application of the avails of the care with which a bank must keep
a special deposit for the benefit of de- a special deposit, see Boyden «. Bank
positor's agent, Manhattan Bank v. of Cape Fear, 65 N. C. 13.
Walker, 130 U. S. 367. In Leach v. ' Sturges «. Keith, (1870) 57 111. 451.
Hale, 31 Iowa, 69, United States bonds ' National Bank v. Graham, (1879)
were deposited with a bank for the 100 U. S. 699.
purpose of their being converted into ' Wylie «. Northampton Bank, 119
similar bonds of another denomina- U. S. 361.
636 DEPOSITS AND CHECKS. [§ 323
loss by robbery or larceny, if the bank acted in good faith and
took the same care of these bonds as it did of its own of like
character.' 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.^ 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.^
1 323. 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.*
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.^ Where a depositor of a bank
' Whitney ®. National Bank of lently takes away a special deposit
Brattleboro, 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 1).
posits where loss is the result of their Westfield Bank, (1868) 99 Mass. 605.
gross negligence, see Foster v. Essex * Wilson «. Dawson, (1876) 52 Ind.
Bank, 17 Mass. 479; Lancaster County 513, in which case the surety of a de-
National Bank v. Smith, 62 Pa. St. positor for debts due at the bank,
47; Scott V. National Bank of Chester where the depositor had deposited
Valley, 73 Pa. St. 471; First National more than sufficient to pay those debts;
Bank of Carlisle «. Graham, 79 Pa. St. but under special agreement that these
106; Turner «. First National Bank of deposits were to be paid out on checks
Keokuk, 26 Iowa, 562; Smith ». First for certain purposes, some of which
National Bank in Westfield, 99 Mass. deposits was in bank when the debts
605; Chattahoochee National Bank v. matured, and paid out under the
Schley, 58 Ga. 369. agreement, was held not released,
' First National Bank of Monmouth though ignorant of the special agree-
«. Dunbar, 19 Bradw. (111.) 558. ment with the depositor.
« Bay V. Bank of Kentucky, (1874) ^ -Watts ®. Shipman, (1880) 31 Hun,
10 Bush (Ky.), 350. That a bank is 598.
not liable in case its cashivjr friudu-
§ 323] DEPOSITS AND CHECKS. 637
is indebted to the bank by bill, note or other independent indebt-
edness, the bank has the right to apply so much of the funds of
the depositor to the payment of his matured indebtedness as may
be necessary to satisfy the same.* And the same rule obtains
where a depositor makes his paper to third persons payable at
the bank. As it is the duty of the bank to pay its customers'
checks, when in funds, so at least it has authority, if it is not
under actual obligation, to pay his notes and acceptances made
payable at the bank. It is a presumption of law that if a cus-
tomer does so make payable or negotiable at a bank any of his
paper, it is his intent to have the same discharged by his deposit.''
The Supreme Court of Illinois has held that the order of a
depositor to his bank to apply his funds deposited to the payment
of a note of his payable at the bank is necessary to give the bank
power to pay the note.^ Yerbal direction, or a check or draft or
some other writing signed by a depositor to a bank in which he
has deposits, is necessary to justify a payment by the bank out
of his funds of a draft which the depositor has accepted made
payable at such bank.^ A bank may apply all the funds of a
' Home National Bank «. Newton, if a bank advances the money to pay
(1881) 8 Bradw. (111.) 563; citing Morse a note or bill of its customer made
on Banks & Banking (2d ed.), 43; Com- payable at the bank, it may recover
mercial Bank of Albany «. Hughes, 17 from the depositor as for money
Wend. 94. loaned, the paper so made payable be-
' Home National Bank v. Newton, ing deemed equivalent to a request to
(1881) 8 Bradw. (111.) 563; citing Morse pay. He makes the bank his agent
on Banks & Banking, 37. The Illinois with implied authority to protect his
Appellate Court in Home National credit by appropriating his deposits to
Bank «. Newton, supra, further said : the payment of his maturing obliga-
" The neglect of the bank to make tions made payable at the bank,
such appropriation would discharge Forster B.Clements, 2 Camp. 17; Man-
the indorsers and sureties. McDowell deville v. Union Bank of Georgetown,
V. Bank of Wilmington, 1 Harrington 9 Cranch, 9. These general principles
(Del.), 369; Dawson v. Real Estate are sufficient to show the relation
Bank, 5 Pike (Ark.), 283. The act of which exists between a bank and its
thus making his paper payable at depositors in respect to the paper of
a bank is considered as much his the latter made payable by its terms
order to pay as would be his check, at the bank, and they make the bank
and, if the bank pay without express the agent, not of the payee of such
orders to the contrary, it is a defense paper, but of the maker."
to a suit by the depositor for the 'Ridgely National Bank ii. Patton,
money so paid. Mandeville ii. Union 109 111. 479.
Bank of Georgetown, 9 Cranch, 9. * Haines ®. McFerren, 19 Bradw.
And the rule seems to be settled that (111.) 173. As to the lack of power of
638 DEPOSITS AND CHECKS. [§ 323
depositor which it has to his credit to an indebtedness created by
the payment upon a discount by the bank upon him until it is
fully discharged.^ The full balance due a general depositor may
be tendered to him at any time by the bank holding it, but he
cannot be compelled by the bank to receive less.^ A bank can-
not set off an individual deposit against a partnership debt to the
bank.^ Where money is deposited in a bank in the name of a
firm, and the bank pay a check out of the same drawn by one of
the firm in his own name only, to justify such payment the bank
would be required to show that the money thus drawn on the
firm account was applied to the iise of the firm.^ It would be
no excuse for a bank, in paying out funds deposited in the name
of a firm upon the individual check of a member of that firm,
that the partner drawing the check told the officer of the bank
that it was drawn on the joint account and in his individual name
by mistake, and directed him to pay it and any other of the like
kind which he might draw out of the firm's funds.^ In an Indi-
ana case money in the form of a draft was sent by A. to a bank,
with directions to place it to his , credit and await his further
orders. The banking firm gave a receipt for it. Afterward A.
agreed with B. that the draft should be transferred to B.'s credit,
but the banking firm was not privy to the agreement, nor did A.
notify them of it. B., without authority from A., wrote to the
firm, ordering them to place the draft to his credit, and they
replied that they had done so. In the suit brought by A. against
the bankers after payment of the same was refused by them upon
his demand, the Supreme Court held that the bankers were liable
to A. for the amount of the draft.* A bank is under no obli-
gation to pay checks of its depositors in excess of their deposits,
unless there be a special arrangement to that effect.' A bank
a bank to transfer money deposited ' Union Bank of Quincy v. Tutt,
with it to the payment of notes exe- (1878) 5 Mo. App. 343.
cuted by the depositor, payable at the ^ Coots ». McConnell, 39 Mich. 743.
bank, unless depositor consent, see ' International Bank v. Jones, 119
Scott ». Shirk, (1877) 60 Ind. 160. As 111. 407.
to its not being bound to pay such ■♦Coote & Jones s.BankofU. S.,3
money on a note held by a third party Cranch Cir. Ct. 50.
upon oral request of the depositor ''Ibid.
when not proposed to surrender the ' Coffin v. Henshaw, (1858) 10 Ind.
note to the banker or give any other 277. ,
evidence of payment, see McEwen v. ' Decatur National Bank ®. Murphy,
Davis, (1873) 89 Ind. 109. (1881) 9 Bradw. (HI.) 113.
§ 323] DEPOSITS AND CHECKS. 639
may maintain an action against the drawer for payment made by
its cashier on checks overdrawn.' Should a depositor fraudu-
lently overdraw his account, and the identical money is placed
by him to his credit in another bank, the bank from which it was
drawn may reclaim it from the one in which he has placed it.^
After receiving from a depositor a genuine cheek 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 the
drawer's account may have been overdrawn at the time the check
was deposited.' A bank receiving a deposit under an agreement
to apply it to the payment of a debt due some designated person,
cannot divert it from the purposes of the trust by paying it to a
different person.* Should one to whom a bank has by mistake
paid 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 depositor.^
Where the bank book of a depositor is written up and balanced,
his checks returned and his indebtedness canceled, this constitutes
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 and 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.' Where one indebted to a bank has a less sum standing
to his credit on deposit on the bank's books, the bank has a right
to retain the sum on deposit in part payment of its claim.'
Where the maker of a note indorsed by the payee 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
' Franklin Bank ». Byram, 39 Me. ' IJgenfritz v. Pettis County Bank,
489. '■ (1886) 21 Mo. App. 558.
' Tradesman's Bank v. Menitt, « Peddicord «. Connard, 85 III. 103.
(1839) 1 Paige Ch. 303. 'Frank i>. Chemical National Bank
'OddieB. National City Bank, (1871) of New York, (1874) 37 N. Y. Super.
45 N. Y. 735. Ct. 26.
* Judy v. Farmers & Traders' Bank, * Union Bank v. Cochran, 7 O. & J.
(1884) 81 Mo. 404. (Md.) 138.
640 DEPOSITS AND CHECKS. [§ 323
in insolvency.^ 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." 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.' 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.* 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 sufiicient sum from the
deposits in its possession made by the depositor.^ A bank is not
bound to apply subsequent deposits to the payment of a note for
the protection of a guarantor.* 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.'' But a bank has no lien upon the deposit of a cus-
' Demmon v. Boylsfon Bank, (1849) payable at the bank. It was held
5 Cush. (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 ». Peck, (1879) 127 fourth, and that he could not rnaib-
Mass. 398. In ^tna National Bank ». tain an action against the bank.
Fourth National Bank. (1871) 46 N. Y. i* Citizens' Bank of Steubenville v.
82, it appeared that certain depositors Carson, (1862) 32 Mo. 191.
remitted to a bank a check for deposit, ' 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 *'Ticomc Bank v. Johnson, 21 Me.
five thousand dollars due 4th inst.'' 426.
The bank received the check and 'McBwen v. Davis, (1872) 89 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 paj'ment of a past-due note of ' Muench v. Valley National Bank,
15,000 made by the depositors and (1881) 11 Mo, App. 144.
323]
DEPOSITS AND CHECKS.
641
tomer for the purpose of indemnifying itself against a possible
loss upon unmatured commercial paper of the customer dis-
counted by the bank.' And a bank holding the note of a
depositor for a certain sum can, on the morning of the last day
of grace upon such note, apply to its payment any money of the
depositor then remaining on deposit in the bank.^ There is no
such lien on the funds deposited with a bank in its favor as will
allow it to apply the funds of a depositor upon an indebtedness
or liability of his not yet due.^ IsTeither can a bank retain the
money of a depositor to meet a note, the payment of which the
' State Savings Association v. Boat-
men's Savings Bank, (1881) 11 Mo.
App. 293.
2 Home National Bank t>. Newton,
(1881) 8 Bradw. (111.) 563. Tliis was
an action brought by the payee of a
checli 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 wlien
this check was presented, the applica-
tion of the balance being made before
the presentation of the check with
others for payment. Arguendo, 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 ®. Kirk, 14 111.
55; Reese v. Mitchell, 41 111. 365;
Osborn v. Moncure, 3 Wend. 170;
Smith V. Aylesworth, 40 Barb. 104;
Wilcombe v. Dodge, 8 Cal. 260;
Staples ». Franklin Bank, 1 Met.
(Mass.) 43; Greeley «. Thurston, 4
Greenl. (Me.) 479; Dennie n. Walker, 7
N. H. 201; Farmers' Bank ». Duvall, 7
a. & J. (Md.)89; Wilson «. Williman,
1 Nott & McC. (S. C.) 440; Coleman «.
Ewing, 4Humph. 241; Flint s.'Rogers,
3 Shepley, 67; Leftley ®. Mills, 4 Term.
R. 170. They then referred to cases
as to the presentment of such notes:
Griffin v. Goff, 12 Johns. 433; Jack-
son V. Newton, 8 Watts, 401; Farmers'
Bank i>. Duvall, 7 G. & J. (Md.) 78;
Mechanics' Bank «. Merchants' Bank,
81
6 Met. (Mass.) 13. They then said :
"As a bill or note is payable on the
last day of grace, or, when there is no
grace, on the day of its 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 con-
sent of the holder. By making his
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 note payable
there, was, as we have already seen, a
direction to the bank to appropriate
any moneys he might have on deposit
to the payment of his note, so far as
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 in
the afternoon, and it is no answer to
say that an action for its non-payment
could not be brought against him for
its non-payment until the following
day. He authorized his agent to pay
it on the day of its maturity, and this
must be construed to mean at any hour
of the day."
'Merchants' National Bank v. Rit-
zinger, 30 Bradw. (111.) 37; Jordan v.
National Shoe & Leather Bank, 74 N.
Y. 467; s. c, 30 Am. Rep. 319; Bank
V. Jones, 2 Pennypacker (Pa.), 377.
642 DEPOSITS AND CHECKS. [§ 323
depositor may have guaranteed, the note not being due at
the time.' 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.^ A bank holding a depositor's note must
charge it against his account at maturity, or else the indorser will
be discharged.' 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.* A bank may refuse to apply a
deposit of the maker of a note after maturity, so as to relieve the
indorser .° 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.^ 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.' 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.'
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-
' Commercial National Bank i>. posits in its hands, see Bank v.
Proctor, (1881) 98 Bl. 558. LeGrandj 13 W. N. C. (Pa.) 317.
''McDowells. Bank of Wilmington 'Huckstein e. Herman, 1 Walk.
& B., 1 Harr. (Del.) 369. (Pa.) 93.
2 Banks. Foreman, 27 W. N. C. (Pa.) * National Bank of Newburgh v.
154. Smith, (1876) 66 N. Y. 271; s. c, 23
* Bank ii. Henninger, 105 Pa. St. Am. Rep. 48.
496. As to the duty of a bank to ' Laubach «. Leibert, 87 Pa. St. 55.
sureties on promissory notes as to de- ' Harrison u. Smith, (1884) 83 Mo. 310.
§ 323] DEPOSITS AND CHECKS. 643
ing it had made an assignment, it was hold that the fund remained
in the first bank impressed with the trust, and that the relation
of general creditors was not created between the depositors and
the bank.' A court in Illinois having by order made a bank a
depository of court funds and of funds of its officers, a clerk of
the court made a deposit of funds belonging to the court in the
bank, 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 bank 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 bank 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.^ "Where the circumstances under
which a lost check came into plaintiff's possession were so sus-
picious that a person of ordinary prudence ought to have hesi-
tated and examined further before buying, the Supreme Court of
Louisiana held that no recovery could be had on it.' Where a
bank check 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 bad
faith could be inferred, the same court held that the holder
might recover from the drawer, though the check had been lost
or stolen.* A bank having, without instruction, paid a forged
' Stoller D. Coates, (1885) 88 Mo. checks were collected the assets of the
514, holding the bank chargeable with Southern Bank were seized by the
the amount of the converted fund as a sherifE, and receivers were appointed,
preferred demand. In State ex rel. The Bank of Commerce claimed in
Crirardey «. Southern Bank, 33 La. this case the restitutio M integrum of
Ann. 957, it appeared that the Bank of the proceeds of the three checks. The
Commerce sent to the Southern Bank Supreme Court held that the Bank of
for collection three checks on other Commerce was an ordinary depositor
banks in New Orleans. The checks of the Southern Bank; that the pro-
were collected and the proceeds passed ceeds of the checks were mixed with
to the credit of the Bank of Commerce its general funds, 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 «. Gross, (1880) 96 111. 612.
contrary, drew against the proceeds ' Vairin v. Hobson, 8 La. 55.
of these checks as an ordinary de- ■• Marsh 8. Small, 3 La. Ann. 403.
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.' 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.'
§ 324. Checks, generally. — Checks, like bills, are generally
negotiable instruments payable to bearer, sometimes to order^
requiring as essentials a drawer, drawee and payee.^ That it
shall be instantly payable on demand is an essential characteristic
of a check upon a bank.* The payment of a check, before made,
can be countermanded by the drawer.' 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.* 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
' First National Bank v. Tappan, that sum out of tlie 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. Ot. Rep. 1191. illustration of what would be a bank-
' Hewitt V. Goodrich, 10 La. Ann. er's 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, * Merchants' National Bank v. Eit-
after giving the date and the name zinger, 118 Dl. 484.
of the bank: "Pay to A. and B. for ^ Albers v. Commercial Bank, (1884)
account of C. & Co., ten hundred and 85 Mo. 173; Bank ®. Bank, 118 Pa. St.
eighteen 23-100 dollars,'' and signed 394.
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 CHECKS. 645
fund to each successive holder.^ But a banker is not bound to
pay the check of a depositor in anything but money. So, where
a depositor drew a check upon his banker for Chicago exchange,
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, maintain an
action against the banker upon the original check drawn upon
him.^ A bank check payable in " current funds " is payable in
whatever is current by law as money .^ When a check is drawn
upon a bank payable to the drawer's order and assigned by him,
and he has 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.* 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 ease, 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
' Merchants' National Bank v. Kit- denied in Hogue ii. Edwards, (1881) 9
zinger, 20 Bradw. (111.) 27; Bank of Bradw. (111.) 363.
America «. Indiana Banking Co., 114 'Bull i>. Bank of Kasson, 133 U.
111. 488. As to the drawing of a check S. 105.
by a depositor upon the bank holding * Coates v. Preston, 105 HI. 470. In
the deposits operating to transfer the Pack «. Thomas, 13 Smedes & Marsh,
title to the sum named in the check, see (Miss.) 11, it was held that it was not
Poster V. Paulk, 41 Me. 435; Hogue -e. competent to prove by parol that a
Edwards, (1881)9 Bradw. (111.) 148; check payable in "dollars" simply.
Union National Bank v. Oceana was intended by the parties to be
County Bank, 80 111. 213. And that the paid in depreciated bank notes, as that
payee may sue the bank therefor, see would be to vary a written contract by
Brown v. Pierce, 80 111. 314; C. M. & parol.
P. Ins. Co. «. Stanford, 38 111. 168; ' Bank v. Millard, 10 Wall. 153 ;
Bickford v. First National Bank, 43 Bank «. Schuler, 120 U. S. 511; s. c,
111. 339; Brown v. Leckie, 48 111. 497; 7 Sup. Ct. Eep. 644.
Seventh National Bank v. Cook, 73 ' Fourth Street National Bank v.
Pa. St. 485. Yardley, (1898) 55 Fed. Rep. 850 (a
^ Hogue V. Edwards, (1881) 9 Bradw. bill against the receiver of the bank
(111.) 148. A rehearing of this case was to charge him as trustee of a fund).
646 DEPOSITS AND CHECKS. [§ 324r
amount of an outstanding check, impliedly accepts the check, and
subjects itself to an action by the holder upon the check.^ 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.' 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.' A check upon a bank is payable ir\ 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.* 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 alsence 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-
' Saylor ». Bushong, 100 Pa. St. 37. ' 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 Banyon v. Stanton, 44 Wis. 479 ;' depositor, see Dodge v. National Ex-
Cork ». Bacon, 45 Wis. 193. change Bank, (1870) 20 Ohio St. 234.
' Florence M. Co. v. Brown, 124 <• Marine Bank of Chicago v. Ogden,
U. S. 385. (1862) 29 HI. 248.
§ 324] DEPOSITS AND CHECKS. 64Y
out further order, in the class of paper designated in the letter, at
its nominal value, or in the paper of any one of the banks desig-
nated. Further, this right of the holder of the deposits would
not be affected by the fact that subsequent to the notice given
him, and before he had received any further notice on the sub-
ject, the paper of such banks had continued to depreciate in value.
It appeared also in this case that the holder of the deposits had
transmitted to the owner the entire balance due him in a package
of these bills ; the latter retained it a week without opening it to
learn 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 paper of
banks contained in the package.' An individual depositor
may draw a check in favor of a hona fide 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.^ A check duly notified to the bank upon
which it is drawn constitutes an equitable assignment of the fund
on which it is drawn.^ 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 hona fide holder
whether it had funds of the drawer or not.* A cheek drawn by
one m eoet/remis, with directions to the payee to defray the funeral
expenses of the drawer from the amount, and to pay 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.^ The Indiana
Supreme Court has held that a banker's check drawn upon the
drawer's banker without words of transfer, and drawn upon no
' Cushman «. Carver, (1869) 51 111. * Meads «. Merchants' Bank of Al-
509. See, also. Marine Bank of Chicago bany, (1862) 35 N. Y. 143.
«. Rushmore, 38 111. 463 ; Marine ' Second National Bank i>. ■Williams,
Bank of Chicago «. Chandler, 27 111. 13 Mich. 383. That a check Is an ap-
525. propriation of so much money in the
'International Bank «. Jones, 119 bank to the payee and holder, see Chou-
111. 407. teau v. Rowse, (1874) 56 Mo. 65; Lewis
' Gordon & Gomila v. Muchler, 34 v. International Bank, (1883) 13 Mo.
La. Ann. 604. App. 302.
648 DEPOSITS AND CHECKS. [§ 324
particular designated fund, did not of itself, either as between tlie
drawer and drawee, or drawer and payee or holder of the check,
act as an appropriation or equitahle 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.' 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.^ 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 ^ivithout his authority.^ 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.* 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 bound to
prove that the payee has parted with his title.' 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.* A
banker cannot set off a demand he holds against the person pre-
senting a check for payment.' A check drawn iipon a bank for
more than the amount of the drawer's funds on deposit creates no
1 Harrison v. Wright, (1884) 100 Ind. « TJnioa Gold Mining Co. v. Rocky
515. Mountain National Bank, (1873) 2 Colo.
2 WillettSD. Paine, (1867) 43 111. 433. 248.
See Lawrence a. Schmidt, 35 111. 440; ' Brown i>. Leckie, (1867) 43 111. 497.
Galena Ins. Co. v. Kupfer, 28 111. 333. The court said: " In the case of Crom-
' 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
■• Mcintosh 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, 435; Burkhalter «. Second procure the money. The holder, in
National Bank, 42 N. Y. 538; Kelty i>. such a case, becomes the agent of the
Second National Bank, 53 Barb. 338. drawer to collect the money, and if
' Citizens' National Bank of Daven- guilty of no negligence whereby an
port ». Importers', etc., National Bank actual injury is sustained by the
of New York, (1887) 44 Hun, 386. owner, he will not be answerable, if,
§324]
DEPOSITS AND CHECKS.
649
lien upon, and will give the payee no right to the actual balance,
until the bank has agreed to pay it fro tomato} The Illinois
Supreme Court has held that the holder of a bank check, who has
paid value for it, is entitled to as much of the funds of the drawer
on deposit as the check calls for, and, when 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 be
bound to account to him for the amount unless other equities
have intervened.^ The rights of the holder of the check and
the bank are fixed from the time the check is presented for pay-
ment, and the bank will have no right, subsequently, to pay 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 purpose, not in the
regular course of banking business, has been held to be responsi-
ble for an erroneous appropriation of the proceeds.* The payee
of a check has been held not responsible to a bank for amount
from any peculiar circumstances at-
tending the bank, the check is not paid.
And in a suit against the drawer for
the consideration of such a check, the
holder may treat it as a nullity, and
resort to the original cause of action,"
' Dana v. Boston Third National
Bank, (1866) 13 Allen, (Mass.) 445.
^ Fourth National Bank of Chicago
s. City National Bank of Grand Rapids,
1873) 68 111. 398.
' Ibid. Mr. Justice Brbese said :
"The universal custom informs us
what the contract of all the parties to
such transaction is. It informs us
that the banker, when he receives the
deposit, agrees with the depositor to
pay it out on the presentation of his
checks, in such sums as those checks
may specify, and to the person pre-
senting them, and with the whole
world the banker agrees that whoever
shall become the owner of such check
shall, upon presentation thereof, be-
come thereby the owner, and entitled
to receive the amount specified in the
check, provided the drawer shall at
that time have that amount on de-
82
posit. It was further said in Munn
». Burch, 25 111. 35, to deny to the
holder of a bank check both a legal
and equitable right, after presentation
of the check, to the money of the
drawer in the hands of a banker, would
destroy the most valuable feature of
bank deposits and checks. In the very
nature of such transactions a banker's
lien cannot extend to the money left on
deposit with him, according to the
customs and usages of banks. It has
never been so extended, but is con-
fined to securities and valuables which
may be in the banker's custody as col-
laterals. The credit must be given on
the credit of the securities or valuables,
either in possession or expectancy.
Russell v. Hadduck, 3 Gilm. 233. This
is the extent of a banker's lien." See,
also, Johnson v. Ward, 2 Bradw. (111.)
261; Brahm ®. Adkins, 77 111. 363.
When the holder of a check is not sub-
ject to equities existing between the
original parties. Rochester Bank ».
Harris, (1871) 108 Mass. 514; Ames v.
Meriam, (1867) 98 Mass. 294.
^ Parker v. Hartley, 91 Pa. St. 465.
650 DEPOSITS AND CHECKS. [§ 324
paid to him, without fraud on his part, although paid by mis-
take.' The mere presentment of a check does not fix upon a bank
the liability to pay it.' Should a bank, without funds, pay a
check long overdue, it would take it subject to all the equities of
the drawer.^ 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.^
One receiving a counterfeit bill from a bank in payment of a
cheek may return it in a reasonable time after discovering that it
is not genuine.' 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.' No law requires the drawee of a cheek to delay pay-
ment until advice that it has been drawn.'' 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.* "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.' 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.^" 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 cheek to it through
the mail."
■ Hull V. Bank, Dud. (S. C.) 359. amount of the counterfeit bill to the
' Albers v. Commercial Bank, (1884) owner of the check.
85 Mo. 173. s Warrens burg Co-operative Build-
' Lancaster Bank ■». Woodward, 18 ing Assn. ■». ZoU, (1884) 83 Mo. 94.
Pa. St. 357. ■" Merchants' Bank v. Exchange
* State Savings Association v. Boat- Bank, 16 La. 457.
men's Savings Bank, (1881) 11 Mo. » Clark ». Stackhouse, 3 Mart. (La.)
App. 393. 336.
' Boyd «. Mexico Southern Bank, » Foster ». Paulk, 41 Me. 425.
(1878) 67 Mo. 537. In Murray ii. Bull's >» Godin v. Bank of Commonwealth,
Head Bank, (1871) 3 Daly, 364, a bank (1856) 6 Duer, 76.
which had through its teller cashed a " People v. Merchants & Mechan-
check drawn on another bank, and part ics' Bank of Troy, (1879) 78 N. T. 369;
payment was made in a counterfeit s. c, 34 Am. Rep. 532.
bank bill, was held liable for the
§ 325] DEPOSITS AND CHECKS. 651
§ 325. Certification of checks. — A bank may render itself
liable to the holder and payee of a check by a formal acceptance
written upon the check, in which case it stands to the holder in
the position of a drawer and acceptor of a bill of exchange.* The
same result may be accomplished by the bank's writing upon the
check the word " good " or any similar words which indicate a
statement by it that the drawer has funds in the bank applicable
to the payment of the check, and that it will so apply them.*
Such a certificate discharges the drawer of the check, and, as to
him, amounts to a payment.^ The certifying of a check as " good "
is not a mere declaration of an existing fact, but creates a new and
binding obligation on the part of the bank. Its meaning is 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 specifies, as an ordinary bank note ; and
laches in making the demand is no more imputable in the one
case than in the other.* The fact that a check may have been
properly drawn on a national bank (a public depository) by an
ofiicer of the government in favor of a public creditor does 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.^ 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 as upon an
accepted check.' 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 that account, any of the char-
' Merchants' Bank v. State Bank, 10 holders for value, were entitled to re-
Wall. 604; Espy v. Bank of Cincin- cover the sum advanced by them upon
natl, 18 Wall. 604. four checks certified by the bank,
'^ Cook «. State Bank of Boston, 53 although payment was not demanded
N. Y. 96. until two months after the checks were
'Bank v. Leach, 53 N. Y. 350; certified, and in the interval the drawer
Meads v. Merchants' Bank, 35 N. Y. had withdrawn, upon other checks, all
143; Mussey ». Prest., Directors, etc., his funds from the bank.
Eagle Bank, 9 Met. (Mass.) 311; Wil- « B^nk of the Eepublic*. Millard, 10
lets V. Phcenix Bank, 3 Duer, 131. Wall. 153.
* Willets 9. Phcenix Bank, (1853) 3 " First National Bank of Washing-
Duer (N. Y.), 131. Holding upon the ton v. Whitman, (1876) 94 U. S. 343.
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.^ The
only efEect 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.' The
indorsement, by the proper officer of a bank, upon a check drawn
upon it payable to bearer, that it is " good," would be frim,a 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.^ Certifying a check is only an agreement that
the signature of the drawer is genuine, and that he has funds to
meet it.* A bank will not be relieved from its responsibility to
the innocent holder of a check certified by its ofiicer authorized to
do so, by the fact that he may have transgressed his authority and
certified checks where the drawer had no funds.' 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, 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 not 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.' A bank will not be bound, by a parol repre-
sentation that a check is good, to pay it whenever presented imtil
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.''
The deposit of the drawer of a check upon which it is drawn, is
paid as the efliect of the holder of the check procuring it to be
' Bickford «. First National Bank, Am. Eep. 305. As to the power of a
42 111. 238. bank to certify checks, see Merchants'
2 Brown v. Leckie, (1867) 43 111. 497; Bank «. State Bank, 10 Wall. 604.
citing Rounds «. Smith, (1860) 42 111. « Hill o. Trust Co., 108 Pa. St. 1.
245; Bickford ». First National Bank, ^ Freund ». Importers & Traders'
42 111. 238. National Bank, (1875) 8 Hun, 689; s. c,
3 Smith ?;. Branch Bank at Mobile, 6 T. & C. 286.
(1845) 7 Ala. 880. ^ Bank of Springfield «. First Na-
* Marine National Bank «. National tional Bank of Springfield, (1888) 30
City Bank, (1874) 59 N. Y. 67 ; -s. c, 17 Mo. App. 271.
§ 325] DEPOSITS AND CHECKS. 653
certified instead of collecting it.* The drawer of a check -will be
discharged by the holder's procuring it to be certified instead of
collecting it.'' In case a certificate of " good " on a check be erro-
neously made by a bank, and the error be discovered and notice
given to the bank presenting the check in time for it to make a
re-presentment and charge the indorsers, 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.^ The act of a bank certifying the genuine-
ness of a check and directing its payment by a correspondent
bank, operates as a promise to pay the check upon presentation at
the correspondent bank, properly indorsed. The obligation of the
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.' A bank certifying a check drawn iipon 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 the
ordinary course of his business, may recover against the bank
although the signature to the cheek may be a forgery. And it
' Bills V. National Park Bank, 47 N. bank to meet the check, the plaintiff
Y. Super. Ct. 303. was held not entitled to recover, on ac-
' First National Bank of Jersey count of her negligence in delaying the
City V. Leach, (1873) 53 N. Y. 850; s. c, presentation of the check for payment
11 Am. Rep. 708. for so long a time.
' Irving Bank v. Wetherald, (1867) * Lynch v. First National Bank of
36 N. Y. 335, affirming 34 Barb. 333. Jersey City, (1887) 107 N. Y. 179; s.
* Farmers & Mechanics' Bank ». c, 1 Am. St. Eep. 803; citing ^tnaNa-
Butchers & Drovers' Bank, (1855) 4 tional Bank i>. Fourth National Bank,
Duer, 319. In Mills v. State Bank, 5 46 N. Y. 82; Crawford v. West Side
N. J. Law J. 56, it appeared that on a Bank, 100 N. Y, 50; Risley v. Phenix
certain date a check was drawn in fa- Bank, 83 N. Y. 318; Oneida Bank v.
vor of the plaintiff on the State Bank, Ontario Bank, 21 N. Y. 490.
and indorsed by the cashier "good at * Drovers' National Bank «. Provis-
the Mechanics' Bank." The plaintiff ion Co., 117 111. 100. As to what the
retained the check for two months, liability of a bank upon certified
when the Mechanics' Bank failed. In checks results from, see Cooke v. State
this action, on proof that at the date of National Bank of Boston, (1873) 52 N.
the failure of the Mechanics' Bank the Y- 96; s. c, 11 Am. Rep. 667.
State Bank had sufficient funds in that
654 DEPOSITS AND CHECKS. [§ 326
would make no difference that the payee's name was fictitious.'
The money paid upon a raised check bj a bank certifying and
paying it may be recovered from the one receiving it, as for
money paid under a mistake of f act.^ The money paid by a bank
upon a certified check may be recovered if it prove that the fillmg
in of the check was forged. And the bank will not be estopped
from showing the body of the check to be a forgery by the verbal
assurance of its teller to the payee that the check was correct in
every particular.' Payment of a raised check on the faith of a
certificate of a bank has been held not to raise an estoppel pre-
cluding the bank from recovering back the money paid on it.*
§ 326. Acceptance of a check by a bank — illustration. —
In a case in the United States Circuit Court for the western dis-
trict of Missouri it appeared that a cattle company had agreed
to sell to one T. a large number of cattle for a fixed sum of
money. He offered in payment for the cattle his check on
defendant bank. The cattle company refused to accept it unless
persons to whom it was indebted would accept it in payment of
the debt. The payee of the check telegraphed to the bank asking
if it would pay T.'s check for the amount specified, and the bank
telegraphed : " T. is good. Send on your paper.'' The telegram
was shown to the creditors of the cattle company, who took the
check in payment of their debt. Upon the issues raised by the
defendant's answer it was held that the answer by the bank was
an acceptance of the check for the sum named in the first tele-
gram, and was sufficient, under Revised Statutes of Missouri
(§ 533), providing that an acceptance of a bill of exchange must
be in writing, and section 534, providing that an acceptance on a
separate paper will bind the acceptor in favor of one to whom it
has been drawn, who takes the bUl on the faith thereof for a
valuable consideration, to render the bank liable to plaintiffs on
the check. And in such case, the evident purpose of the inquiry
' Hagen v. Bowery JSational BaiiTt, s Security Bank of New York «.
(1872) 6 Lans. 490; s. c, 64 Barb. 197. National Bank of Republic, (1876) 67
»8t. Nicholas Bank «. National N. T. 458; s. c, 23 Am. Rep. 139.
Bank of the State of New York, (1876) « Marine National Bank v. National
3 N. Y. Wkly. Dig. 583; citing City Bank, (1874) 59 N. Y. 67; s. c,
Marine Nat. Bank ®. National City 17 Am. Rep. 305.
Bank, (1874) 59 N. Y. 67; s. c, 17 Aia
Rep. 305.
§ 327] DEPOSITS AND CHECKS. 655
being to obtain assurance of payment before taking the check,
the bank was liable under Revised Statutes of Missouri (§ 535),
providing that an unconditional written promise to accept a biU
before it is drawn shall be deemed an actual acceptance in favor
of any person to whom it is shown, and who on the faith thereof
receives the bill for a valuable consideration.' The same case
was before the court again, when there were some further rulings
as to the bank's liability on the check by reason of its acceptance
by telegram. It was held that the bank which had agreed to
accept the check for a certain sum could not refuse payment
because the check when presented concluded with the words
" with exchange," no place of exchange being mentioned. Still
this was mere surplusage-, and of no effect.^ It was also held that
a bank check payable to "the order of" the payee was a bUl of
exchange within the meaning of Revised Statutes of Missouri
{§ 553), requiring an acceptance of a " bill of exchange " to be in
writing.'
§ 327. Presentment of checks for payment. — Upon pre-
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.^ Bank checks being payable immediately on present-
' Grarrettson D. North Atchison Bank, Bank, 76 Iowa, 629; s. c, 41 N. W.
(1889) 39 Fed. Rep. 163. As to priuci- Rep. 381; Hughitt ii. Johnson, 28 Fed.
pies applicable to bank checks, see Rep. 865; Hill e. Todd, 39 El. 101-103;
Bank i>. Bank, 10 Wall, 647; Cooke 11. Clauser v. Stone, 39 111. 114. As to a
Bank, 53 N. Y. 96; Jarvis «. Wilson, defense that presentation of a check
46 Conn. 90-93; Freund 1). Bank, 76 for payment was unreasonably de-
N. Y. 355, 356; Bank «. Richards, 109 layed, see Bull ». Bank, 133 U. S.
Mass. 413; Whilden «. Bank, 64 Ala. Ill, 113; s. c, 8 Sup. Ct. Rep. 62.
39, 80. As to how an acceptance of a * Garrettson v. North Atchison Bank,
check may be made, see Bank v. Bank, (1891) 47 Fed. Rep. 867, aflBrming Gar-
1 N. Y. Leg. Obs. 26; Espy v. Bank, rettson «. North Atchison Bank, (1889)
18 Wall. 604 ; Whilden «. Bank, 64 89 Fed. Rep. 163. Garrettson v. North
Ala. 33, 33; Bank v. Howard, 40 N. Y. Atchison Bank, 39 Fed. Rep. 163,
Super. Ct. 30. As to a check passing and 47 Fed. Rep, 867, were affirmed
to another for a valuable consideration, by the United States Circuit Court of
see Railroad Co. v. Bank, 102 U. S. Appeals in North Atchison Bank v.
14-23; Pope i>. Bank, 59 Barb. 326; Garrettson, (1893) 51 Fed. Rep. 168.
Freund «. Bank, 76 N. Y. 353-358. ■'Shaffner v. Edgerton, 13 Bradw.
» Garrettson «. North Atchison Bank, (111.) 133; Priest «. Way, 87 Mo. 16;
(1891) 47 Fed. Rep. 867. C. f.. Brink- Munn v. Burch, 25 111. 35.
man v. Hunter, 73 Mo. 179; Lindley v. •
656 DEPOSITS AND CHECKS. [§ 327
ment are not entitled to days of grace.^ "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.^ A cheek 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.^ 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.* 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.^ 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.^ 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.' A demand in business hours on the day succeeding
that on which a check is drawn is a sufficient presentment.^ Pre-
sentment of a check is excused by the stoppage of its payment by
the drawer.' The fact that a cheek 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.^** 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
' Barbour v. Bayon, 5 La. Ann. 304. ' Woodruff v. Merchants' Bank, 25
2 Morrison i>. Bailey, (1855) 5 Ohio Wend. 673.
St. 13. When an instrument drawn * Bowen v. Newell, 8 N. T. 190.
on a bank is a check and not a bill of ' Glenn «. Noble, 1 Blackf. (Ind.) 104.
exchange, and not entitled to days of ' Ocean Co. ®. Ophelia, 11 La. Ann.
grace, see Andrew «. Blachly, (1860) 38.
11 Ohio St. 89. ' Woodin ». Frazee, (1874) 38 N. T.
'Ivory V. Bank of Missouri, (1865) Super. Ot. 190.
36 Mo. 475. '" Bank of America v. Indiana Bank-
<Cutler 11. Reynolds, (1872) 64 111. ing Co., 114 111. 483.
321.
§ 330] DEPOSITS AND CHECKS. GYS
refrain from doing any act that would reasonably have the efEect
of misleading the bank to its hurt or injury, and not fail to do
any act that positive duty requires him to do for the protection
of the bank. Should a bank account be 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, vrithin which the
checks and account might be compared, without objection being
made, a presumption will arise that the account as balanced and
the checks charged in the account are correct. This presump-
tion proceeds upon the ground simply of an implied admission,
and is only prima facie in its effect.^ 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 depositor had
not had an opportunity to examine the accounts.^ If a
depositor who is in the habit of drawing checks upon his deposit
account, should, by word or acts, cause the bank, the latter acting
upon such reasonable grounds as prudent biisiness 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, by
his conduct, had induced the bank to act on as a genuine check,*
Where on a forged indorsement a bank has paid a check, the
bank is not responsible to the drawer where the person who com-
mitted the forgery is identified to the bank by one who believes
him to be the payee, and is in fact the person to whom the
drawer had delivered the check, and whom he believes to be the
payee. And should the drawer of such a check, for more than a
month after discovering that it had been paid upon a 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, some of the checks
paid by the bank were forged by a coniidential clerk intrusted by
' Wiggins «. Burkham, 10 Wall. 129. * United States v. National Ex-
"Weisser «. Denison, 10 N. Y. 68, change Bank, (1891) 45 Fed. Rep. 163.
76; National Bank «. Whitman, 94 U. As sustaining the first point, see
S. 343, 346. Gloucester Bank v. Salem Bank, 17
^ Hardy & Bros. ■». Chesapeake Mass. 83; Bank of U. S. «. Bank of
Bank, (1879) 51 Md. 563, 586. Georgia, 10 Wheat. 338; Price ». Neal,
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 balanced bank
book to the bank. The court distinguished De Feriet v. Bank of
America, 23 La. Ann. 310, in these words : " There, when the
lirst check was forged by the plaintiff's confidential clerk, and
paid by the bank, the jDlaintiff 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
end point, see Redington v. Woods, bank from the United States the
45 Cal. 406; Cooke i). United States, amount of the check. In this action
91 U. S. 396; United States ». Bank, 6 by the collecting bank against the
Fed. Rep. 184. 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 latter, 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 AND CHECKS. 675
check, while he stated that he had not signed the check himself,
he refused to denounce it as a forgery. After seeing the clerk,
the plaintiff reported back to the bank that the check was all
right. The clerk made deposits to make the check good, and the
plaintiff himself drew upon the deposits thus made. He contin-
ued the forger in his employ ; and, subsequently, the same clerk
forged another check which the bank paid ; and, upon discovery
of the second forgery, the plaintiff denounced it. But it was 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 case there
was no question as to the want of knowledge on the part of the
plaintiff of the first forgery committed by the clerk, and his 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 States
Supreme Court reversed the judgment of the Circuit Court in
favor of a depositor against a bank, holding that a depositor in a
bank, who sends his pass book to be written up and receives it
back with entries of credits and debits and his paid cheeks as
vouchers for the latter, is bound personally or by an autliorized
agent, and with due diligence, to examine the pass 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 by
the pass book. Further, it held that if a depositor in a bank
delegates to a clerk the examination of his written-up pass book
and paid checks returned therewith as vouchers, without proper
supervision of the clerk's conduct in the examination, he does
not so 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 checks,
and thereby misled the bank to its prejudice, in spite of due care
on the part of its officers.^
'Leather Manufacturers' Bank v. well and fully considered opinion,
Mergan, (1886) 117 U. S. 96. In a Hablan, J., for the court reviewed
676
DEPOSITS AND CHECKS.
[§331
the leading cases pertinent to the
questions before the court, and de-
clared the law in such cases in the fol-
lowing words : " While it is true that
the relation of a bank and its depositor
is one simply of debtor and creditor
(Phoenix Bank ii. Risley, 111 U. S. 125,
127), and that the depositor is not
chargeable with any payments except
such as are made in conformity with
his orders, it is within common knowl-
edge that the object of a pass book is
to inform the depositor from time to
time of the condition of his account
as it appears upon the books of the
bank. It not only enables him to dis-
cover errors to his prejudice, but sup-
plies evidence in his favor in the event
of litigation or dispute with the bank.
In this way it operates to protect him
against the carelessness or fraud of the
bank. The sending of his pass book
to be written up and returned with
the vouchers, is, therefore, ia effect, a
demand to know what the bank claims
to be the state of his account. And
the return of the book, with the
vouchers, is the answer to that demand,
and, in effect, imports a request by the
bank that the depositor will, in proper
time, examine the account so rendered,
and either sanction or repudiate it.
In Devaynes v. Noble, 1 Meriv. 530,
535, it appeared that the course of
dealing between banker and customer,
in London, was the subject of inquiry
in the High Court of Chancery as
early as 1815. The report of the mas-
ter stated, among other things, that
for the purpose of having the pass
book ' made up by the bankers from
their own books of account, the cus-
tomer returns it to them from time to
time as he thinks fit ; and, the proper
entries being made by them up to the
day on which it is left for that pur-
pose, they deliver it again to the cus-
tomer, who thereupon examines it,
and, if there appears any error or
omission, brings or sends it back to be
rectified ; or, if not, his silence is re-
garded as an admission that the entries
are correct.' This report is quite as
applicable to the existing usages of
this country as it was to the usages of
business in London at the time it was
made. The depositor cannot, there-
fore, without injustice to the bank,
omit all examination of his account,
when thus rendered at his request.
His failure to make it, or to have it
made, within a reasonable time after
opportunity given for that purpose, is
inconsistent with the object for which
he obtains and uses a pass book. It
was observed in First National Bank
V. Whitman, 94 U. S. 848, 846 —
although the observation was not, per-
haps, necessary in the decision of the
case — that the ordinary writing up of
a bank book, with a return of
vouchers or statement of accounts,
precludes no one from ascertaining
the truth and claiming its benefit.
Such undoubtedly is a correct state-
ment of a general rule. It was made
in a case where the account included a
check, in respect to which it was sub-
sequently discovered that the name of
the payee had been forged. But it did
not appear that either the bank or the
drawer of the check was guilty of
negligence. The drawer was not pre-
sumed to know the signature of the
payee; his examination of the account
would not necessarily have disclosed
the forgery of the payee's name; there-
fore, his failure to discover that fact
sooner than he did was not to be at-
tributed to want of care. Without im-
pugning the general rule that an ac-
count rendered which has become an
account stated, is open to correction
for mistake or fraud (Perkins «. Hart,
11 Wheat. 237, 356; Wiggins ». Burk-
ham, 10 Wall. 129, 132), other princi-
ples come into operation, where a party
to a stated account, who is under a
duty, from the usages of business or-
otherwise, to examine it within a rea-
I 331.]
DEPOSITS AND CHECKS.
677
sonable time after having an oppor-
tunity to do so, and give timely notice
of his objections thereto, neglects alto-
gether to make such examination him-
self, or to have it made, in good faith,
by another for him, by reason of which
negligence, the other party relying
upon the account as having been ac-
quiesced in or approved, has failed to
take steps for his protection which he
could and would have taken had such
notice been given. In other words,
parties to a stated account may be es-
topped by their conduct from ques-
tioning its correctness." After some
discussion of the doctrine of estoppel
and the citation of cases bearing upon
the doctrine, it is said: "Upon this
doctrine substantially rests the decis-
ion in Bank of United States ■». Bank of
Georgia, 10 Wheat. 333, 343, where the
question was as to the right of the
Bank of Georgia to cancel a credit
given to the Bank of the United States
in the general account the latter kept
with the' former for the face value of
certain bank notes, purporting to be
genuine notes of the Bank of Georgia,
and which came to the hands of the
other bank in the regular course of
business and for value. The notes
were received by the Bank of Georgia
as genuine, but being discovered nine-
teen days thereafter to be counterfeits,
they were tendered back to the Bank
of the United States, which refused to
receive them. The court held that the
loss must fall upon the Bank of Geor-
gia. Mr. Justice Story, who deliv-
ered the opinion of the court, after
observing that the notes were received
and adopted b^ the Bank of Georgia as
its genuine notes, and treated as cash,
and that the bank must be presumed
to use reasonable care, by private
marks and otherwise, to secure itself
against forgeries and impositions, said:
'Under such circumstances, the re-
ceipt by a bank of forged notes, pur-
porting to be its own, must be deemed
an adoption of them. It has the means
of knowing if they are genuine; if
these means are not employed it is cer-
tainly evidence of a neglect of that duty
which the public have a right to re-
quire. And in respect to persons
equally innocent, where oneis bound to
know and act upon his knowledge, and
the other has no means of knowledge,
there seems to be no reason for burden-
ing the latter with any loss in exonera-
tion of the former. There is nothing
unconscientious in retaining the sum
received from the bank, in payment of
such notes, which its own acts have
deliberately assumed to be genuine.
If this doctrine be applicable to ordi-
nary cases, it must apply with greater
strength to cases where the forgery
has not been detected until after a con-
siderable lapse of time. Even,' he
added, 'in relation to forged bills of
third persons received in payment of a
debt, there has been a qualification en-
grafted on the general doctrine that
the notice and return must be within a
reasonable time; and any neglect will
absolve the payor from responsibility.'
It was, therefore, held that, as the
Bank of Georgia could by ordinary
circumspection have detected the
fraud, it must account to its depositor
according to the entry made in its
books at the time of receiving the
notes. Further on it was said: This
court, in the [cases Bank of United
States V. Bank of Georgia, 10 "Wheat.
333, and Cooke ». United States, 91 U.
S. 389, recognizing the same principle]
refers, with approval, to Gloucester
Bank v. Salem Bank, 17 Mass. 33, 43.
In that case it appeared, that the Salem
Bank exchanged with the Gloucester
Bank, for value, certain bank notes
which purported to be, and which
both banks at the time believed to be,
the genuine notes of the Gloucester
Bank, and which the latter bank did
not, until about fifty days after the
exchange, discover to be forgeries.
The question was whether the Salem
Bank was bound to account for the
678 DEPOSITS AND CHECKS. [§ 331
value of the notes so ascertained to be negligence upon the part of the de-
counterfeit. Chief Justice Pakebr, positor as precluded him from disput-
speaking for the whole court, observed ing the correctness of the account ren-
that the parties being equally innocent dered by the bank, the verdict could
and ignorant, the loss should remain not have been set aside as wholly un-
where the chance of business had supported by the evidence. In their
placed it, and that in all such cases the relations with depositors, banks are
just and sound principle of decision held, as they ought to be, to rigid re-
was that if the loss can be traced to sponsibility, But the principles gov-
the fault or negligence of either party, erning those relations ought not to be
it should be fixed upon him. He said : so extended as to invite or encourage
'And the true rule is that the party such negligence by depositors in the
receiving such notes must examine examination of their bank accounts,
them as soon as he has opportunity, as is inconsistent with the relations of
and return them immediately. If he the parties or with those established
does not, he is negligent; and negli- rules and usages sanctioned by busi-
gence will defeat his right of action, ness men of ordinary prudence and
This principle will apply in all cases sagacity, which are or ought to be
where forged notes have been re- known to depositors. We must not
ceived, but certainly with more be understood as holding that the ex-
strength where the party receiving amination by a depositor of his account
them is the one purporting to be bound must be so close and thorough as to
to pay. For he knows better than any exclude the possibility of any error
other whether they are his notes or not, whatever being overlooked by him.
and if he pays them, or receives them Nor do we mean to hold that the de-
in payment, and continues silent after positor is wanting in proper care when
lie has had sufficient opportunity to he imposes upon some competent per-
examine them, he should be considered sou the duty of making that examina-
as having adopted them as his own.' tion and of giving timely notice to the
These cases are referred to for the pur- bank of objections to the account. If
pose of showing some of the circum- the examination is made by such
stances under which the courts, to an agent or clerk in good faith and
promote the ends of justice, have sus- with ordinary diligence, and due notice
tained the general principle that where given of any error in the account, the
a duty is cast upon a person, by the depositor discharges his duty to the
usages of business or otherwise, to bank. But when, as in this case, the
disclose the truth — which he has the agent commits the forgeries which
means, by ordinary diligence, of ascer- misled the bank and injured the de-
taining— and he neglects or omits to positor, and, therefore, has an interest
discharge that duty, whereby another in concealing the facts, the principal
is misled in the very transaction to occupies no better position than he
which the duty relates, he will not be would have done had- no one been
permitted, to the injury of the one designated by him to make the re-
misled, to question the construction quired examination, without, at least,
rationally placed by the latter upon his showing that he exercised reasonable
conduct." The court then applied the diligence in supervisingi the conduct
principle just referred to to the facts of the agent while the latter was dis-
in this case, and said: "It seems to us charging the trust committed to him.
that if the case had been submitted to In the absence of such supervision,
the jury, and they had found such the mere designation of an agent to
§331]
DEPOSITS AND CHECKS.
679
discharge a duty resting primarily
upon the principal, cannot be deemed
the equivalent of performance hy the
latter. While no rule can be laid
down that will cover every transaction
between a bahk and its depositor, it is
sufBcient to say that the latter's duty is
discharged when he exercises such dili-
gence as is required by the circum-
stances of the particular case, includ-
ing the relations of the parties, and
the established or known usages of
banking business." The court, refer-
ring to Weisser v. Denison, 10 N. Y.
68, 70; Welsh v. German-American
Bank, 73 N. Y. 424; Frank ».
Chemical Bank, 84 N. Y. 209, 213,
which showed a settled course of
decision in the highest court of the
state of New York sustaining the
grounds upon which the Circuit Court
proceeded in giving its judgment,
said : " There are, it must be conceded,
some expressions in the first two cases
which, at first glance, seem to justify
the ppsition 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 eflfect
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 ■». 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 be, 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 he was guilty of negligence in
not discovering, upon receiving his
pass book, the fact that his clerk, or
some one else, had forged the payee's
name in the indorsement. The latest
expression of the views of the Court
of Appeals of New York is in Frank
«. Chemical National Bank. From
what is there said it is evident that
that learned tribunal does not give its
sanction to the broad proposition that a
depositor who obtains periodical state-
ments of his account, with the vouchers,
is under no duty whatever to the bank
to examine them, and give notice,
within a reasonable time, of errors dis-
covered therein. The court in that
case, speaking by Judge Andrews,
who delivered the opinion in Welsh v.
German-American Bank, refers to
Weisser «. Denison. After observing
that it was unnecessary to restate the
ground of that decision, and adverting
to the argument that where a pass
book was kept, which was balanced
from time to time and returned to the
depositor, with the vouchers for the
charges made by the bank, including
forged checks, the latter is under a
duty to the bank to examine the ac-
count and vouchers, with a view to as-
certain whether the account is correct,
he proceeds: ' It does not seem to be un-
reasonable, in view of the course of
business and the custom of banks to
surrender their vouchers on the peri-
odical writing up of the accounts of
depositors, to exact from the latter
some attention to the account when it
is made up, or to hold that the negli-
gent omission of all examination may,
when injury has resulted to the bank,
which it would not have suffered if
such examination had been made and
the bank had received timely notice of
the objections, preclude the depositor
from afterwards questioning its cor-
rectness. But where bogus checks
have been paid and charged in the ac-
count and returned to the .depositor,
680 DEPOSITS AND CHECKS. [§ 331
lie 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 pljiintifEs 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 the}'' 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 impUed. 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 ®.
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
genes 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.' Thft were charged to his account, the
court distinguished Manufacturers' court, upon an elaborate review of the
National Bank «. 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 «. that prudent business men generally
Bank of the Republic, 133 Mass. 156, bestow on such cases, in the examina-
158, where the issue 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.' "
positoTS, owed to the bank ' the duty of
CHAPTER XII.
COLLECTIONS.
I 332. General rules.
338. Duty of bank.
334. Rules as to notes payable at
bank.
335. When a bank is liable for failure
to collect notes.
386. What action on its part will re-
lieve a collecting bank from
liability.
§ 337.
Rules as to checks and
drafts.
338. Negligence of a bank as to
check held for collection.
889. When a bank collecting a draft
is liable to the owner.
When indorser of check is re-
lieved from liability.
340.
§ 332. General rules. — An indorsement of a promissory note
" for collection " makes the indorsee an agent for the collection of
the note.' Such an indorsement is restrictive and cannot be
shown, by parol, to be absolute.^ 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.^ A bank has authority only
to receive payment of a note placed with it for collection ; it can-
not sell or transfer it.* 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 sent for
'Rock County National Bank v.
Hollister, 21 Minn. 385.
' Third National Bank e. Clark, 23
Minn. 368. As to kind of agency
a bank has when a note or bill is placed
with it for collection, its duty and its
liability for negligence in the dis-
charge of that duty, see Bank of Mo-
bile V. Huggins, (1841) 3 Ala. 206. In
this case the Alabama Supreme Court
differs as to the duty to cause the
note to be protested with the New
York courts in Smedes ». Utica Bank,
20 Johns. 372: s. c, on error, 8 Cowen,
668; McKinster ■v. Bank of Utica, 9
Wend. 46; s. c, on error, 11 Wend.
473. They refer to Colt v. Noble, 5
Mass 167; Tunno ■». Lague, 2 Johns.
Cas. 1. The question of damages in
such cases is fully discussed by the
Alabama courts, and they comment
86
upon Bank of Washington ». Triplett
& Neale, 1 Pet. 36, and Van Wart v.
Woolley, 8 B. & C. 439; Hamilton v.
Cunningham, 3 Brock. 350; Stowe v.
Bank of Cape Fear, 3Dev. 408; Branch
Bank at Montgomery «. Knox, 1 Ala.
148, They differ with the Louisiana
Supreme Court in Durnford «. Pat-
terson, 7 Mart. 460; Crawford 11.
Louisiana State Bank, 1 Mart. (N. S.)
214; Montillet v. Bank of the United
States, 1 Mart. (N. S.) 865; Pritchard
V. Louisiana State Bank, 2 La. 415;
Miranda ». City Bank, 6 La. 741. They
comment on Allen v. Suydam, 17
Wend. 868; St. John v. O'Connel, 7
Port. (Ala.) 466.
» Burnham u. Webster, 19 Me. 283.
"Wolff V. Walter, (1874) 56 Mo.
293; Puller v. Bennett, 55 Mich. 357.
682 COLLECTIONS. [§ 332
collection and that they belonged to a third person.^ Paper coming
from one bank to another indorsed, and with directions to collect
it, and there being nothing to indicate that 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.'' 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.' 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.^ 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.^ A suitable agent must be some
other than the one who is to make the payment.^ 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.''
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.^ A bank
' Sweeny v. Easter, 1 Wall. 166. » Hazlett v. Bank, 132 Pa. St. 118;
'Cody «. City National Bank, 55 s. c, 35 W. N. C. 283.
Mich. 379. " Ibid. Bank v. Goodman, 109 Pa.
' Guelich «. National State Bank, 56 St. 423.
Iowa, 434. As to the duty of a bank ' "West «. 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 v. Nininger, 5 Minn.
(1839) 23 Pick. (Mass.) 330; Phipps ii. 523; Jagger v. National German-
Millbury Bank, (1844) 8 Met. (Mass.) American Bank, 53 Minn. 386; s. c,
V9; Steele ». Russell, 5 Neb. 314. 55 N. W. Rep. 545.
* Drovers' National Bank v. Anglo- ^ Jagger d. National German- Ameri-
American P. & P. Co., ISBradw. (111.) can Bank of St. Paul, (1893) 53 Minn.
191. 386; s. c, 55 N. W. Rep. 545.
§ 332]
COLLECTIONS.
683
exercising reasonable care and skill in selecting an agent to pre-
sent paper received for collection at a distant place will not be
liable for that agent's default.* The duty of a bank, where it
receives a bill or note for collection, and its transmission to
another place is necessary, is discharged by sending it in due
season to a competent, reliable agent, with proper instructions for
its collection.^ A collecting bank, in another city, cannot, on
' Stacy ®. Dane County Bank, 13
Wis. 639; Lee v. Bank, 1 Chest. (Pa.)
109. As to a note payable at another
place, left for collection with a bank,
and its seasonably transmitting it to
a suitable bank in that place for col-
lection, and the transmitter not being
liable for any negligence of the latter,
see Fabens v. Mercantile Bank, (1839)
33 Pick. 330; Dorchester & Milton
Bank v. New England Bank, (1848)
1 Oush. (Mass.) 177.
" ^tna Insurance Co. v. Alton City
Bank, (1861) 35 111. 348. As to the
question of liability of a bank, occur-
ring from the acts of its correspond-
ents, the Illinois court said: " Upon
examination of the adjudged cases it
will be found that entire harmony upon
this question does not prevail. In the
case of The Mechanics' Bank v. Earp,
4 Eawle, 384, it was held that a hank
in which bills had been deposited,
having only received them for trans-
mission to their agents for collection,
at the place of the residence of the
drawees, with the instructions of the
depositors, was not liable for the fail-
ure of the bank to whom the bills were
transmitted to collect the money. In
that case the court refers to the cases
of Lawrence «. Stonington Bank, 6
Conn. 538,*and The Bank of Wash-_
ington V. Triplett & Neale, 1 Pet.
35, and Jackson «. Union Bauk, 6
Harr. & J. (Md.) 148, as sustaining
the rule announced. Again, in the
case of The Bank of New Orleans d.
Smith, 3 Hill (N. Y.), 560, the court
lield that when a bill is left with a
bank for collection, and they transmit
it in due season to a competent agent
at the place of the residence of the
drawee, with the necessary directions,
that they thereby fully discharge their
duty and incur no further liability.
In support of the rule the court refers
to the cases of East-Haddam Bank v.
Scovil, 13 Conn. 303, and Fabens ».,
The Mercantile Bank, 33 Pick. 330.
The court also refer to and approve
of the case of Allen v. Merchants'
Bank of N. Y., 15 "Wend. 483, where
the same doctrine is announced in these
words: 'And we find, on an examina-
tion of these cases, they fully sustain the
rule announced in this case.' It is true
that the case of Allen v. The Mer-
chants' Bank, 33 Wend. 315, decided
by the Court of Errors, announces a
different rule and reverses the decision
of the Supreme Court. In that case
the decision was by a divided court,
the chancellor delivering a dissenting
opinion. The last case extends the
rule,, so that a bank receiving com
mercial paper for collection is liable
for loss resulting from neglect, to
banks receiving such paper for trans-
mission, where loss occurs by neglect
of the agent to whom it is transmitted,
and makes no distinction in the two
classes of cases. Where a bank re-
ceives a bill or note for collection
against a drawee or maker, resident at
the place of the bank, or where the
bank undertakes for its collection by
their own officers, there Can be no
doubt that it would be liable for any
loss that might result from neglect."
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.* 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.^ 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.' 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.* 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.' 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 oflBcer 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.^ The accidental loss or dis-
appearance in a bank of a bill sent to it for collection would be
presumptive proof of negligence.' 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. 373; Bank of Utica -o. McKin-
sponsibility by using due diligence in ster, (1838) 11 Wend. 473; Curtis v.
the selection of the correspondent to Leavitt, 15 N. Y. 9, 167.
which it transmits for collection a bill *Bury ». Woods, (1885)17 Mo. App.
or note left with it for collection, see 345.
Daly V. Butchers & Drovers' Bank, ' Bank of Metropolis v. New Eng-
(1874) 56 Mo. 94. land Bank, 1 How. 334.
' Hackett i>. Reynolds, 114 Pa. St. ' Exchange National Bank v. Third
328. National Bank, 113 U. S. 376.
' Pendleton v. Bank of Kentucky, ' Chicopee Bank v. Philadelphia
(1834) 1 Mon. (Ky.) 171. Bank, 8 Wall. 641.
'Smedes v. Utica Bank, (1833) 30
§ 333] COLLECTIONS. 685
the bank receive payment in a currency then in general use, of
a depreciated character as compared with gold, the bank will be
held liable only for the real value of such depreciated currency.'
A bank receiving a check in payment of a note held by it against
the drawer, after the check has been paid, cannot refuse to deliver
up the note for cancellation on the ground that it had not
matured.^ A collection made by a bank after it has suspended,
must be held by it as agent in trust for the owner .^ The negli-
gence of a collecting bank in not presenting a draft for payment,
is the negligence of the holder.* A bank's duty, where a note
is left with it for protest, is to exercise ordinary and reasonable
diligence in giving notice.^ A known custom to demand pay-
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.* 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.'
§ 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 due time
'Henry v. North. Bank of Ala., 63 inthematterof demand and protest, see
Ala. 527, In whlcli the collections were Warren Bank i). Suffolk , Bank, (1853)
made in confederate money. 10 Cush. (Mass.) 583.
'Union Savings Association v. « Jones «. Fales, (1808) 4 Mass. 345;
Clayton, (1878) 6 Mo. App. 587. Whitwell «. Johnson, (1831) 17 Mass.
•Jockusch V. Towsey, 51 Tex. 139. 453; City Bank v. Cutler, (1836) 3
^Harvey «. Bank, 119 Pa. St. 313. Pick. (Mass.) 414.
'Mount -0. First National Bank, 37 ■> Jones v. Fales, (1808) 4.Mass. 245;
Iowa, 457. As to liability of a bank. City Bank «. Cutter, (1836) 3 Pick,
receiving note for collection and fail- (Mass.) 414. What is a sufficient de-
ing to notify indorsers of its protest, mand for payment of a note left witK
and thereby discharging them, for the a bank for collection, see Tredick ».
holder's loss, see Bank of Washington?). Wendell, 1 N. H. 80. The effect of
Triplett, 1 Pet. 35; Bird «. Louisiana usage on the part of banks concerning
State Bank, 93 U. S. 96. As to the d mands on makers of notes, and no-
duty of bankers in such cases, see Brit- tices to indorsers, see Lincoln & Kenne-
ton v.- NiccoUs, 104 U. S. 757. As to beck Bank ii. Page, (1813) 9 Mass. 155;
liability for neglect on the part of a Smith b. Whiting, (1815) 12 Mass. 8;
bank receiving a note for collection, see Blanchard «. Hilliard, (1814) 11 Mass.
Thompson i>. Bank, 3 Hill (S. C), 77. 85; Central Bank o. Davis, (1837) 19
As to.a bank's being protected from pick. (Mass.) 375; Chicopee Bank v.
liability by its usage, and not being Eager, (1845) 9 Met. (Mass.) 583.
liable for the negligence of a notary
686 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.* 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.^ 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.^ 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.^ 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 coUeetion whereof the owner of
the note may suffer loss.^ 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 indorsers of the note were entirely discharged,
the bank was held responsible to the owner of the note.' A bank
having received a note for collection with direction that it should
receive payment of the note in ISTew 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
' Citizens' Bank of Baltimore v. for neglect in protesting, etc., notes
Howell, 8 Md. 530. deposited with them for collection,
« Bell V. Hagerstown Bank, 7 Gill see Chapman v. McCrea, (1878) 63 Ind.
{Md.), 333. 360. As to available defense of bank
' Streater v. Bank of Cape Pear, 3 when charged with such neglect, see
Jones Eq. (N. C.) 31. Locke v. Merchants, National Bank,
« Bank of the United States «. Lane, (1879) 66 Ind. 353. Liability of bank
3 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, (1843)
bank in sending notice of dishonor of 6 Blackf. (Ind.) 335.
a protested bill of exchange to the ' Bank of Lindsborg v. Ober, (1884)
indorser. Runyon v. Montfort, Busb. 31 Kans. 599.
(N. C.) 371. As to liability of banks « Ibid.
§ 333] COLLECTIONS. 687
of deposit payable on demand was a discharge of the indebted-
ness, notwithstanding its failure to remit the amount to the cred-
itor and afterwards becoming insolvent, it appearing that on the
day it received this payment the bank was paying its obligations
and had money on hand with which the certificate could have
been paid in cash if demanded, although it was actually insolvent,
that fact not being known to the holder of the certificate.' The
measure of damages in an action against a bank with which a bill
has been deposited for collection, and it has failed to take proper
steps to charge the drawer or indorsers, whereby the holder of
the bill was unable to collect it, is the face of the bill, with
interest.^ By delivering a bill held by it for collection to a notary
with instructions to protest on the wrong day, a bank would ren-
der itself liable to the owner of the bill.' It seems though that
where negotiable paper is deli\-ered to a bank for collection
merely, the bank's duty will be discharged by a proper demand
of payment, and by giving notice of its non-payment to the
bank's principal only, without giving the proper notice also to
other indorsers, unless some contract or commercial usage be
shown to raise a more extended obligation.'' In a Massachusetts
case it appeared that a bank, holding a note for collection,
received the amount from an agent of the maker, and by mistake
gave up to him a similar note of another person and returned the
first note to its owner, to whom the maker paid it on demand,
and immediately, though four days after the payment to the
bank, examined the note in his agent's hands, and, discovering the
mistake, returned it to the bank and demanded back his 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 paid the amount to the owner
of the other note, the maker of which was insolvent and the
' British & American Mortgage Co. ' Commercial Bank of Kentucky v.
V. Tibballs, 63 Iowa, 468. Varnum, (1873) 49 N. Y. 369. As to
' American Express Co. v. Haiie, the liability of a collecting bank tak-
(1863) 31 Ind. 4. For an illustration ing a draft which may be dishonored,
of the owner of a promissory note see First National Bank of Meadville
placed for collection through a bank v. Fourth National Bank, 77 N. Y.
and its correspondent not sustaining 330; 8. c, 83 Am. Rep. 618.
damage, see Indig v. National City * State Bank of Troy v. Bank of
Bank of Brooklyn, (1880) 80 N. Y. the Capitol, (1863) 17 Abb. Pr. 364; s.
100. c., 41 Barb. 343; 27 How. Pr. 57.
688 COLLECTIONS. [§ 333
indorsers discharged for want of demand.* 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.^ 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.*
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.* 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.^ A bank will not
be held liable for an omission to protest notes deposited with it
for safe-keeping and not for collection.^ The plain ti£E bank in
a Connecticut case brought its action to recover of a national
bank in the hands of a receiver the amoiint 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 plaintifE
bank to the cashier of defendant bank for collection and charged
' Andrews ». Suffolk Bank, (1859) quired of a bank receiving a note or
12 Gray (Mass.), 461. bill for collection, and its liability in
' Scott V. Ocean Bank, (1861) 33 N. default of such diligence, see Capitol
T. 289, affli-ming 5 Bosw. 192. State Bank v. Lane, 53 Miss. 677. As
' Ayrault v. Pacific Bank, (1868) 6 to the rules governing as to demand
Robt. (N. y.) 337; afiBrmed in 47 N. Y. and presentment of notes payable at
570. bank, see Lewis v. Planters' Bank, 3
* Mobley i). Clark, (1858) 28 Barb. How. (Miss.) 267; Ellis v. Commercial
390. In Jacobsohn ». Belmont, 7 Bank of Natchez, 7 How. (Miss.) 294;
Bosw. 14, a banker, who, under pecu- Harrison «. 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 v. Watson, 6
' Smith V. Essex Co. Bank, (1856) Cush. (Miss.) 187; Goodloe «. Godly,
23 Barb. 637. 13 Smedes & Marsh. (Miss.) 338; Bland
" New Orleans Canal Co. v. Bscoffle, ■». Commercial & Railroad Bank, 3
3 La. Ann. 830. As to diligence re- Smedes & Marsh. (Miss.) 350.
690 OOLLEOTIONS. [§ 334
that the deposit was a full defense to the action of the payee or
indorsee against the maker.* !N^otes payable at bank must be pre-
sented to the bank for payment to charge the indorser.* A bank
would not be authorized to receive the money for the payee of a
note not in its possession simply because the note was made pay-
able at that bank.' When a note payable at a bank is held by it,
the note should remain in the bank until the completion of busi-
ness hours.* The known custom of a bank, that notice to the
directors thereof, who are indorsers on notes, should be left on the
cashier's desk, instead of being delivered to the directors, would
be binding on the directors.^ The practice of banks to give
notice to the makers of notes of the time of their maturity can-
not, where such notice has been delivered, be substituted for a
demand for payment so as to charge the indorser.^ A bank
which by mistake has certified a promissory note made payable at
its banking house to be " good " can correct such mistake before
rights and liabilities have been incurred or losses sustained in con-
sequence of it.'' When a note is made payable at a bank, all that
the holder is required to do is to make demand for payment at
the bank.^ Where a note payable at bank is left there, and
remains during banking hours on the last day of grace, and no
funds are provided for taking it up, that would be sufficient evi-
dence of demand and refusal of payment.' In the absence of
' Ibid. cumstances, was entitled to recover
' Sullivan «. Mitchell,- 1 Carolina from the principal and his trustees
Law Repository (N. C), 483; Smith v. the amount of the note so canceled
McLean, N. C. Term Rep. 73. and delivered up.
3 Cheney «. Lihby, 134 U. S. 68. « Weld ii. Gorham, (1813) 10 Mass:
'' Planters' Bank v. Markham, 5 How. 366. As to notice of protest by mail
(Miss.) 397. In Dewey v. Bowers, 4 where that method of service Is the
Ired. (N. 0.) 538, a bank received usage, see Benedict?;. Rose, 16 S.C. 629.
from the maker of a note which it had As to notice by a bank of non-pay-
discounted a draft on New York and ment of note, see Bank v. Wallace, 13
agreed to apply the proceeds, if the S. C. 347.
draft was collected, to the payment of * Farmers' Bank of Maryland v.
the note after declining to receive the Duvall, 7 G. & J. (Md.) 78.
draft in discharge of the note. After- ■" Second National Bank of Baltimore
wards the cashier of the bank, by ». Western National Bank of Balti-
mistake, supposing the draft to have more, (1878) 51 Md. 128.
been paid, canceled the note and de- *Bank r. Flagg, 1 Hill (S. C), 177.
livered it to the principal. It was ^ Lafayette Bank v. McLaughlin,
soon ascertained that the draft had (Super. Ct. Cincinnati, 1846) 4 West,
been protested and never paid. It Law J. 70.
was held that the bank, under the cir-
§ 334] COLLECTIONS. 691
any special contract, a bank with which notes are deposited is
only bound to receive the money, if paid, and, if not paid, to fix
the liability of the parties by due demand and notice.* The
maker of a note payable at bank will be presumed to consent to
be governed by the custom of the bank with regard to making
them and of payment of such notes.^ Where, by the custom of
a bank, notes payable there and in its possession and not paid dur-
ing banking hours on the day on which they fall due, are con-
sidered as dishonored, without any formaV demand, then no such
formal demand and presentment would be necessary to charge an
indorser.^ Where the bank at which a note is p&jahle is the
holder, it would be a sufficient demand for the officers of the bank
to hand it to a notary after banking hours, telling him there are no
■funds to meet it.* When discounting a note or bill, should a bank
inquire of the one presenting it as to the indorser's residence, and
send a notice to the place named, this would be sufficient to
charge the indorser, even though he may never have resided at
the place named.^ A person indorsing a note with the knowl-
edge of a custom of a bank not to give out notes for protest
until three o'clock on the third day of grace would be bound
thereby.^ Where the known and established usage in a bank as
to papers, the third day of grace on which falls on Sunday, is not
to demand payment until Monday, the bank receiving a ndte, the
third day of grace falling on Sunday, to be collected according
to the known and established mode of transacting its business,
' Crow v. Mechanics' Banlr, 12 La. = Palmer v. Whitney, (1863) 21 Ind.
Ann. 692. 58. In Commercial & Railroad Bank
'Harrison v. Crowder, 6 Smedes & «. Hamer, 7 How. (Miss.) 448, it was
Marsh. (Miss.) 464. held that generally a note payable in
8 Oohea e. Hunt, 2 Smedes & Marsh, bank should be presented for payment
<Miss.) 227. In Mount v. First Na- during banking hours, but where it
tional Bank, 37 Iowa, 457, the note was the custom of the bank to keep its
was left with the bank for protest back door open, with its teller present
without direction as to where notice after banking hours to answer demands
to the indorser was to be sent. The then made, and a note was then pre-
notice was sent by mistake to a person sented, and the teller answered, ac-
of the same name as that of the in- cording to the truth of the case, that
dorser and living in the neighborhood, there were then no funds and had not
The court held that the bank was not been during the day to pay the note,
liable for negligence. the presentment was good.
••TJ. S. Bank ■». Carneal, 2 Pet. «Bank of Columbia v. Mc Kenny.
543. 8 Cranch Cir. Ct. 361.
692 COLLECTIONS. [§ 335
would not be liable to damage for omitting to demand^ payment
on Saturday.'
§ 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, ita
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.^
'Patriotic Bank ■». 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 hank for negligence in give it in the words of the court. It
such matters, see Bank v. Burns, 13 was said: "The real contention be-
Colo. 539; s. c, 21 Pac. Rep. 714; tweeu the parties was whether, [the
Drovers' Nat. Bank e. 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; s. 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
«. Bank, 89 N. Y. 182. In Holmes ». paid at maturity. If [defendant] by
Roe, 63 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
ferent places, the check must be for- such action as would charge the in-
warded for presentment on the day dorser. When 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
2 Bank «. 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-
§336]
COLLECTIONS.
693
§ 336. What action on its part will relieve a collecting
bank from liability.— The United States Circuit Court of
Appeals for the sixth circuit has held that a bank receiving a cer-
tificate of deposit issued by a bank for collection and mailing it
to the bank which issued it, with a request for a remittance, was
guilty of negligence. But in this particular case it appeared that
the plaintiff bank on May 8, 1888, mailed to the defendant bank
the certificate of deposit for collection, and on May ninth the lat-
charge the indorser. It did neitlier.
That the note was conditionally paid is
suggested; what that may mean in this
connection is not clear. No doubt,
that, as between the holder and the
maker of a promissory note, a condi-
tional payment may be made; but the
rules of the commercial law require a
holder, who intends to hold an in-
dorser liable, to give notice to the lat-
ter of the default of the maker. Any-
thing less than a full and absolute
payment is a default, but nothing less
than that measures the duty of the
maker. In this case, however, there
was no conditional payment made.
True, the [defendant] had in its hands
the means of enforcing payment, but
did nothing; it simply accepted the
maker's promise that, if [the payee]
did not give further time, they would
pay the note. If the [defendant] had
given notice to the [plaintiff] of the
default of the maker, it would have
discharged its duty, for it would have
afforded the latter an opportunity to
give notice to [the indorser]. Lawson
V. Bank, 1 Ohio St. 306. Where, how-
ever, a holder of a promissory note
passes by an immediate indorser, and
serves notice of non-payment upon one
more remote, he cannot avail himself
of the time the immediate indorser
would have had to serve the remote
one if the holder had given notice to
the former; but the holder in that case
must give notice to the remote indorser
within the same time that he is re-
quired to give it to the immediate
indorser. 1 Parsons on Notes &
Bills, 514; Dobree «. Eastwood, 3 Car.
& P. 350; Simpson «. Turney, 5
Hump. 419; Rowe «. Tipper, 13 C. B.
349; Marsh ». Maxwell, 3 Camp. 310.
Therefore, if the letter of [the makers]
had been suflBcient in form and sub-
stance to fix the liability of [the payee
indorser] it was mailed too late and
for that reason he was disch*,rged.
This release of [the indorser] was an
accomplished fact before the makers
of the note applied to him to extend
the time of payment. The omission
of the bank to require payment, or in
default thereof to give the necessary
notice to charge [the indorser] was
caused by the solicitation of the
makers. * * * The most careful
scrutiny of the record fails to disclose
that [the indorser], up to this time,
said or did anything to mislead the
bank or to induce it to relax its vigil-
ance, or omit any step necessary in
law to charge him as indorser. [The
indorser], therefore, had a perfect de-
fense against any action taken to
charge him as an indorser, unless by
his subsequent conduct he has for-
feited his right to set up this de-
fense." After discussing whether
there was sulBcient notice to the in-
dorser and whether he was estopped
to defend, the court then made this
query: "Was due diligence shown in
giving this notice ? " This was an-
swered as follows: " The last day of
grace was October 17 and the letter
was not mailed until the 19th, two
694
COLLECTIONS.
[§336
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 ti 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; Lawsou
». Bank, 1 Ohio St. 306. On October
17, 1888, 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 iu 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 iu 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
until 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 advise him
of their existence. Under these circum-
§ 337] COLLECTIONS. 695
remittance obtained from the issues of tlie certificate. On June
twenty-second, having received no answer to this letter, the
defendant bank wrote the plaintiff bank that repeated letters
about the item had remained unanswered, that they had written
the plaintiff bank for a duphcate, and that they now charged the
plaintiff bank with the item, which was accordingly done in the
account current for June. This closed the correspondence with
reference to the matter. The issuers of this certificate continued
in good credit until after January 1, 1889, when they failed.
The Court of Appeals held that under these facts the defendant
bank was not responsible to the plaintiff bank for more than
nominal damages, approving of the instruction of the lower court
that those letters and the charging back amounted to a renuncia-
tion of the defendant's agency so far as the defendant could
renounce it, adding that the defendant could not, by its renuncia-
tion, put an end to the agency as the facts then were, and relieve
itself from liability without the consent, express or implied, of
the plaintiff, and that such consent would be implied from the
silence of the plaintiff after being informed of the renunciation ;
and that if the plaintiff made no objection to the renunciation,
the defendant was not liable for damage thereafter resulting from
events subsequent, and not from the sending of the certificate to
the issuers for collection.'
§ 337- Rules as to checks and drafts. — A bank receiving
a bill for collection from another bank, becomes the agent of the
remitting bank and not of the owner of the bill, and, in the
absence of agreement to the contrary, would be answerable to the
remitting bank for neglect in the discharge of its duties as agent,
whereby that bank sustains loss or damage.^ It is the duty of a
bank receiving for collection a bill payable at a future time to use
due diligence in presenting it and in giving notice of a failure of
due acceptance, or where a bank receives a bill for collection, pre-
sents it for acceptance, and gives no notice of non-acceptance, it
stances [the defendant] must be held ' First Nat. Bank of Evansville v.
to have assumed the risks that natu- Fourth Nat. Bank of Louisville, (1893)
rally flowed from its actions, one of 56 Fed. Rep. 967.
which was that [the indorser] might * Commercial Bank v. Union Bank,
avail himself of a defense thus af- (1854) 11 N. Y. 203.
forded to him by its own negligence."
696 COLLECTIONS. [§ 337
will be held liable to the owner for the amount of the bill in case
the acceptance be defective.' 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.^ 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.' 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 imtil 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.* 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, whetlier the drawer, indorser or indorsee.^ 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 .°
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.'' The words " for collection," appended to
' 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
' Merchants' Bank of Canada ®. 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-
' International Bank v. Ferris, 118 come insolvent. Collingwood v. Mer
111. 465. chants' Bank, 15 Neb. 121.
■■ Ibid.
' Drovers' National Bank v. Provis-
ion Co., 117 111. 100.
§ 337] COLLECTIONS. 697
an indorsement upon a cheek, limit the effect which the indorse-
ment would have without them and give authority to the holder
only to collect for the benefit of the indorser.^ It may be shown
by a bank taking a certified check on another bank, either as a
payment, on account, or for the purpose only of collection, that
the check had availed nothing, where the bank so receiving the
check may have discharged its duty by an effort to collect it.^
A bank receiving a check for collection and retaining it for four
days without presenting it for payment, or making any offer for
its collection, or giving any notice to the depositor of its non-
payment, has been held in ]^orth Carolina liable for loss ensuing
therefrom.' Where a bank received a check upon itself for col-
lection, being at the time a large creditor of the drawer, and
failed without excuse to notify the depositor of the non-payment
of the check, ^t was held guilty, in law, of negligence, and that
by its action the bank had lYiade the check its own and was liable
for its whole amount.* A bank receiving a cheek for collection
payable at a day subsequent, would be liable to the owner for
failing to present it at the proper time where it had presented it
for payment without allowing days of grace.'' A bank i-eceiving
' Hoffman v. First National Bank of required to send it to the principal of-
Jersey City, 17 Vroom (N. J.), 604. iice in New York city. Two days
^ Drovers' National Bank ». Provis- after the check was given it was re-
ion Co,, 117 111. 100. In Bickford ». turned in due course of collection to
First National Bank of Chicago, (1866) the Newark bank, which had mean-
43 111. 238, the check was drawn and while failed. It was held that there
certified and deposited in a bank after was no negligence in the presentation
ten o'clock a. m., and before three of this check which would prevent the
o'clock p. M. on a certain day, where it company recovering the amount of
remained until next morning, when it the check from the drawer.
was taken in the usual course of busi- " Bank of New Hanover «. Kenan,
ness to the bank on which it was 76 N. C. 340.
drawn. The bank was closed and con- * Ibid. An illustration of no want
tinued so. The check was protested want of reasonable diligence in the pre-
for non-payment and due notice given, sentation of a check for payment.
Thrs Supreme Court of Illinois held "Werk r. Mad River Valley Bank,
that there was sufficient diligence to (1858) 8 Ohio St. 301. As to the effect
hold the owner of the check. In New of delay in presenting check for pay-
York, etc., R. B. Co. v. Smith, 4N. J. ment, see Stewart v. Smith, (1867) 17
Law J. 34, a certified check was Ohio St. 82; McGregor v. Loomis,
given on a New York bank to the agent (1850) 1 Disney (Ohio), 247.
of the railroad company in Newark. ' Ivoiy «. Bank of Missouri, (1865),
By a rule of the company the agent 3fi Mo. 475.
could not indorse the check, but was
698 COLLECTIONS. ' [§ 337
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.' 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
cheeks 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 ;
' Decatur National Bank v. Mur- aid, 51 Cal. 64; Boyd «. Emerson, 29
phy, (1881) 9 Bradw. (111.) 113. See, B. C. L. 68.
also, National Gold Bank v. McDon-
§ 337] COLLECTIONS. 699
that the collecting bank was the agent of the failed bank, and
being notified by the indorsement on the check that the latter
was not the owner of it or entitled to its proceeds, the former
had no right to credit the amount to the latter on its indebted-
ness to the former ; that the notice it had of the failure of its
correspondent was sufBcient to require the collecting bank
to regulate its action with a view to the rights of the remitting
bank, as affected by the failure of its correspondent; that the
directions in the letter of the'easliier of the remitting bank to the
failed bank constituted an authority to mingle the fund with the
general funds of the bank when collected, whereby the former
bank would become a general creditor of the latter instead of
being entitled to the fund ; that the insolvency and suspension of
the latter operated as a revocation of such authority, and if it
had authority to collect at all after its suspension, the former
bank woiild be entitled to the specific fund, and the collecting
bank, being an agent of the failed bank, had no more power or
right as to the specific fund than its principal ; that the rights of
the remitting bank were not injuriously affected by anything done
by 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 discharge it from
liability.^ A bank to which an inland bill of exchange is
transmitted for collection through the intervention of another
bank, becomes the agent of the payee and is answerable to him
alone for any breach of its duty in relation to the bill.^
Where accounts are kept between different banks, and one of
them fails to pay over money received on drafts or bills of
exchange collected for the other, the remedy is against the
defaiilting bank, and not against the drawer of the bill or draf t.^
Should a bank receive a bill for collection and omit to present it
at the proper time or place for payment, and a loss be sustained
in consequence of such an omission to present it for payment, the
bank would be liable to the extent of the loss.'' And the right
of action against the bank would not be waived by the owner of
the bill withdrawing it from the custody of the bank ; nor would
' First National Bank v. First Na- ^ Kupfer v. Bank of Galena, (1864)
tionalBank, (1881) 76 Ind. 561. 34 111. 328.
° Farmers' Bank ■». Owen, 5 Craucli ■* Branch Bank at Montgomery v.
Cir. Ct. 504. Knox, (1840) 1 Ala. 148.
700 COLLECTIONS. [§ 33T
the bank be discharged from its liabihty to answer for its negli-
gence by the pursuit of any of the parties liable upon the bill.^
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.^ The measure of damages in such a case was held to be the
' Ibid. As to the time withia 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 «. Eaymond, 13 Vt. 401. qulry concerning the draft, and more
* First National Bank of Trinidad than a reasonable time had elapsed he-
«. 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 heen received hy 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 the 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 ia
if indeed it does not increase, the dili- thereby occasioned."
gence required of the collecting bank
§ 337] COLLECTIONS. 701
full amount of the draft.' In an early Connecticut case it
appeared that the plaintiff had drawn a bill of exchange, payable
to his order, upon a person residing in the city where the defend-
ant bank did business ; that he indorsed it in blank and lodged it
with a IsTew York bank for collection ; that the cashier of that
bank indorsed it in blank and forwarded it to a bank in Connecti-
cut, the cashier of which indorsed it in the same manner and
transmitted it to defendant bank, each of these indorsements being
made for the purpose of collection only. The money was paid
to the defendant bank by the acceptor, and the defendant claimed
in this action of the drawer the right of treating it as a collection
on account of the Connecticut bank, through which it came to
defendant, and to set off the avails of the collection to the credit
of that bank upon the general account between the banks. The
Supreme Court of Connecticut held that the defendant was not
the factor or banker of the Connecticut bank through which it
received the bill, and as agent, or in any other capacity, did not
have a lien on the avails of the bill for the general balance of its
account with that bank.^ They further held that the custom of
transmitting bills for collection from one bank to another, and
crediting on account the avails received, whatever effect it might
have had between themselves, could not affect the claims of a
third person, who may have confided the collection of a bill to
one of them, without assent, either express or implied, to the
mode of transacting their business.^ Where a draft was deposited
' First National Bank of Trinidad B. to be nearest in value to the sum ad-
First National Bank of Denver, (1878) vanced, but without any special agree-
4 Dill. 890. ment to that effect. This does not in-
^ Lawrence i). Stonington Bank validate the banker's general lieu vipon
(1827) 6 Conn. 530. The court referred all the other bills in his hands, but he
as follows to certain English cases: may retain them in order to secure the
"In Jourdaine ». Leprone, 1 Esp. 66, payment of his general balance. These
it was said by Lord Kbnyon that a oases, and others to the same effect, ■
banker had a lien on a note paid into are inappropriate to the one before us.
his house, and of course a right to re- The transaction of sending notes for
tain it for his general balance. The collection from one bank to another
doctrine more clearly appears from the has no analogy to the payment of notes
case of Davis ». Bowsher, 5 Term Rep. to a banker and obtaining discount on
488. A customer lodges bills of ex- a part of them.''
change in the hands of his banker gen- * Lawrence «. Stonington Bank,
erally, and when the banker advances (1837) 6 Conn. 531. That bills of ex-
money to him he applies it to the dis- change must be presented to the
count of such of the bills as happen drawees in a reasonable time, and that
702 COLLECTIONS. [§ 337
in 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.^ 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.' "Where acceptance of a draft is refused, it
is not necessary to present the draft for payment.^ 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 v. to it, see Millikin «. Shapleigh, (1865)
Charles, 76 111. 303; Walsh ». Dart, 23 36 Mo. 596.
Wis. 334; Knott v. Venable, 43 Ala. » Exeter Bank v. Gordon, 8 N. H.
186; Veazie Bank ». Winn, 40 Me. 60; 66, 78. In Nunnemaker i>. Lanier,
East River Bank «. Gedney, 4 E. D. (1867) 48 Barb. 234, the bankers had
Smith, 583; Phoenix Ins, Co. «. Allen, received for collection a draft upon a
11 Mich. 501; Fugitt «. Nixon, 44 Mo. trust company, and on presenting the
295; Aymar d. Beers, 7 Cow. 705; Stee same at their office received in pay-
's. Cunningham, 1 Cow. 897; Robinson ment the check of the trust company
v. Ames, 30 Johns. 146; Bachellor v. upon a bank and surrendered the draft.
Priest, 13 Pick, 399; Wallace «. Agry, The bankers neglected to present the
4 Mason, 336, check for payment on the day they
1 Bdson ». Angell, 58 Mich. 336. received it, and before banking hours
^ Simpson ■». 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 «. 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 certiflca-
§ 338] COLLECTIONS. Y03
it becomes liable to tbe owner for the damages which he may
sustain by such neglect to perform its duties, unless there be some
agreement to the contrary, express or implied.*
§ 338. Negligence of a bank as to check held for collection.
— In a late Kansas case the payee of a check upon a bank brought
action against the drawer, basing his action upon the fact that there
was money to the credit of the drawer in the bank, and the bank
becoming insolvent, had made an assignment, and the cheek came
back unpaid. It appeared that the payee of the check had placed
it in the hands of his bank as his agent for collection, and the
latter had sent it to the drawee for collection. The question for
decision by the Supreme Court of Kansas was stated to be
whether the negligence of the payee and his agent, his bank, in
sending the check directly to the drawee operated, under the
facts agreed upon, to discharge the drawer from liability. The
court said : " From the agreed statement it appears that the
check reached Richfield on the 12th of December, 1889, after
business hours; that the bank on which it was drawn was open,
doing a general business, receiving deposits and paying money on
checks during its regular banking hours on the thirteenth. Dur-
ing that day a letter was written, addressed to the [payee's bank],
with which was inclosed the check and the statement ' JSTo funds
in bank.' This letter was deposited in the post office after bank-
ing hours, and received at [the place where the check was drawn]
after business hours on the fourteenth. The refusal to pay was,
therefore, not commiinicated to any one until the fourteenth. Can
it be presumed that if the check had been regularly presented over
the counter to the Richfield Bank on the thirteenth a false
answer would have been given, as was in fact given by letter and
payment refused ? It is admitted that the defendant had more
than money enough to his credit to meet the check. Had pre-
sentment 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 hands of
the drawee, of course no effort could be made by it to prosecute
itself, and the fact that payment was refused was not communi-
tion, in the same manner as bank ' Montgomery County Bank v. Al-
ehecks, was no defense to an action by bany City Bank, (1853) 7 N. Y. 459.
the owners of the draft to recover the
amount of the same.
704: COLLECTIONS. [§ 338
Gated to tlie [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
' Anderson ®. 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 D.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 positioa
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
I
§ 339] COLLECTIONS. 705
would not be negligence on the part of a bank receiving a check
from one of its customers for collection to forward the check by
mail ; but if, failing to hear from it within a reasonable time, the
bank neglects to make inquiry or give notice, this would be neg-
ligence, and the bank would make itself liable for ensuing loss
occasioned by the drawer's insolvency.*
§ 339- When a bank collecting a draft . is liable to the
owner. — It was held in the federal court for the district of
Indiana that a bank which was an indorsee for collection for
failure of the drawer, is definitely contemplation of law, to enforce in
fixed by the authorities: (1) Where the behalf of another a claim against itself.'
payee to whom the check is delivered This proposition is sustained by
receives it in the place where the bank abundant authorities. Drovers' Nat.
on which it is drawn is located, he Bank v. Anglo-American Packing &
must present it by the close of bank- Provision Co., 117 HI. 100; s. c, 7 N.
ing hours on the next business day. E. Rep. 601; Bank v. Burns, 13 Colo.
(2) Where the check, as in this case, is 539; s. c, 31 Pac. Rep. 714; Bank v.
drawn on a bank located at a place Goodman, 109 Pa. St. 432; s. c, 2 Atl.
distant from that in which it was re- Rep. 687; First Nat. Bank of Evans-
ceived by the payee, it must be sent villei). Fourth Nat. Bank of Louisville,
for presentment for payment by mail 6 C. C. A. 183; s. c, 56 Fed. Rep.
on the next secular day after it is re- 967; Farwell ». Curtis, 7Biss. 160; s. c,
ceived, and presented on the next day Fed. Cases, No. 4,690." It was in-
after its receipt. In this case the sisted before the court that inasmuch
check seems to have been forwarded as the check was forwarded in due
for payment in due time, but it was time and came into the hands of the
sent directly to the drawee by mail, drawee, which refused payment, and
with the request that the bank of returned the check with the state-
Richfleld remit the amount by mail in ment " No funds in bank," the defend-
exchange on Kansas City. The ant was not injured by the mode of
[payee's bank], therefore, elected the presentment; that an answer of "No
drawee of the check as its agent for I'unds," sent by mail, was as effectual
collection. That this was negligence a refusal to pay as 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 pre-
ments (volume 1, § 828a), 'For the sentment is not made the burden of
purposes of collection, the collecting proof is upon the holder of the check
bank must employ a suitable sub- to show that the drawer has not suf-
agent. It must not transmit its checks fered injury." Ford «. McOlung, 5
or bills directly to the bank or party W. Va. 166; 2 Pars. Notes & B. 71; 2
by whom payment is to be made, with Dan. Neg. Inst. § 1588; Daniels v-
the request that remittances be made Kyle, 1 Ga. 804.
therefor. It is considered that no ' Shipsey u. Bowery National Bank,
firm, bank, corporation or individual (1875) 59 N. Y. 48&.
can be deemed a suitable agent, in
89
706 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.' 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.^
§ 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 mtist present the same
for payment in any given time to h61d the indorser. But in this
'Commercial Nat. Bank of Cinciii- Nat. Bankof Chicago ». Bank, 3 Fed.
nati 11. Hamilton Nat. Bank of Ft. Eep. 257; Blaine v. Bourne, 11 R. I.
Wayne, (1890) 42 Fed. Rep. 880. See 119; Bank ». Hubbell, 22 N. E. Rep.
Sweeny ». Easter, 1 Wall. 173; Bank 1034; White v. Bank, 102 U. S. 658.
of the Metropolis «. First Nat. Bank of « Peck «. First National Bank, (1890)
Jersey City, 19 Fed. Rep. 303; Bank 43 Fed. Rep. 357.
V. Armstrong, 39 Fed. Rep. 684; First
§340]
COLLECTIONS.
Yor
particular case they held that the checks were not presented in a
reasonable time.^
' First National Bank of Wymore «. them by mail to a bank in Omaha,
Miller, 37 Neb. 500. The court con- Nebraska, which bank in turn sent
sidered the question as to whether the them by mail to the bank on which
indorsee- was damaged by the delay in they were drawn, they arriving there
presenting the checks was wholly im- on June 5, where they were then pro-
material, upon the rule stated, as they tested for non-payment. In Smith v.
said, in the following cases: " In North- Janes, 20 Wend. 192, the Supreme
western Coal Co. r. Bowinan & Co , 69 Court of New York say : ' The holder
Iowa, 150, the court say, after deciding of a check can recover against the in-
that the plaintiff had held the check in dorser only when he has used due
question an unreasonable time before diligence iu presenting or giving notice
presenting it, and that it could not of demand and non payment. * * *
recover against indorsers : ' The fact
that the drawer had no funds in the
hands of the drawee when the check
was di'awn, makes no difference.' In
Gough V. Staats, 13 Wend. 549, the
Where the parties all reside in the same
place, the check should be presented
on the day it is received, or on the fol-
lowing day; and when payable at a
different place from that in which it is
Supreme Court of New York say : ' If negofiated, it should be forwarded by
there has not been due diligence iu the mail on the same or the next suc-
presenting the check for payment, the ceeding day for presentment.' See,
indorser is discharged, although he has also, Holmes r. Roe, 62 Mich. 199.
not been prejudiced by the delay.' In Mohawk Bank s\ Broderick, 10
The Nebraska court said further: 'The Wend. 304, the Supreme Court of New
authorities all say that in order to hold York say: ' A check on a bank for the
an indorser of a check it must be pre- payment of money, to charge an in-
sented by the indorsee in a reasonable dorser, must be presented with all dis-
time, and as to what is a reasonable patch and diligence consistent with the
time, depends upon the facts and cir-
cumstance§ of each particular case.'
The facts in this case were that the
checks were placed in the bank about
the close of banking hours, on the 31st
day of May, 1890. The bank on which
they were drawn was in a place
twenty-seven miles distant from the
location of the bank receiving them,
and a mail left the latter place at 6 p.
M. daily, arriving at the place where
transaction of other commercial con-
cerns, and it was accordingly held,
where a check was received in Schen-
ectady on the 14tli of January, drawn
on a bank in Albany, a distance of six-
teen miles from the former place, and
between which places there is a daily
mail, and not presented until the 6th
of February, that laches was imputable
to the holder, and that the indorser was
discharged. Although it is said that
the bank upon which the checks were checks are like inland bills of exchange,
drawn was located, at 9 p. m. of the and are to be governed by the same
same da3^ The bank receiving the principles, greater diligence is required
checks made no inquiry of the bank in presenting them than in presenting
on which they were drawn, as to bills of exchange.' This case was
whether the checks were good, nor did affirmed by the Court for the Correction
it at any time advise that bank that it of Errors in 13 Wend. 133. See to the
held the checks, but on the day of same effect Northwestern Coal Co. v.
their receipt mailed them to a bank Bowman, 69 Iowa, 150."
in another state, which bank sent
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