McLellan v. Detroit File Works

• Citation: 56 Mich. 579,23 N.W. 321
• Court: Supreme Court of Michigan
• Decision Date: 06 May 1885
• Parties: McLELLAN v. DETROIT FILE WORKS.

23 N.W. 321

56 Mich. 579

McLELLAN v. DETROIT FILE WORKS.

Supreme Court of Michigan

May 6, 1885

Error to Wayne.

Henry M. Cheever, for plaintiffs.

Wm. H. Wells, for defendant and appellant.

COOLEY, C.J.

The plaintiffs, who are private bankers in the city of Detroit bring suit on two promissory notes, signed "DETROIT FILE WORKS, S. HAYES, Pres't," one dated July 1, and one July 14, 1884. The defendant is a corporation, and the execution of the notes on its behalf is denied by affidavit. On the trial of the case the following facts appeared: Prior to the incorporation of the defendant, Solomon Hayes and Zenas Rowe constituted a partnership in the city of Detroit doing business under the firm name of "Detroit File Works, Rowe & Hayes, Proprietors." The partnership did its banking business with the plaintiff, and on March 2 1884, the plaintiffs discounted for the firm a note for $475 made in its name by Hayes, and on March 22 1884, another like note for $200. The notes were on short time, and before either of them fell due the defendant corporation was formed. In organizing the corporation all the shares of stock except two were taken by the partners, Rowe & Hayes, in equal interests, and the partnership assets were transferred to the corporation in consideration of the stock issued to the partners. One share of stock was taken by Mervan J. Hayes, a son of Solomon Hayes, and one by Alexander Delano.

In forming the corporation a note made by Rowe & Hayes for $125 to Thomas Fairbairn was expressly assumed by it, but the notes to the plaintiff were not assumed. Hayes, nevertheless, who was made president of the corporation, assumed to renew them as notes of the corporation three or four times, making small payments upon them at the times of renewal. The avails of the original notes were transferred with the other partnership assets to the corporation, but there is evidence that the other corporators were not aware that Hayes was giving corporate obligations in the place of obligations of the firm, and when the fact came to their knowledge Hayes resigned as president, and his stock was transferred to another person. This suit was afterwards instituted on the last notes given in renewal, and in the circuit court the plaintiff recovered judgment.

1. The case was such that the plaintiff must be deemed to have accepted renewals of the notes with knowledge of all the facts. They held partnership notes, and they accepted corporation notes in renewal; and they must be deemed to have known that an officer of a corporation can have no general authority to give the notes of the corporation to take up the outstanding obligations of members. Special authority would be required to empower him to do so; and those persons who should venture to take such notes from him must, at their peril, ascertain that the special authority has been conferred. Cases like Farmers' & Mechanics' Bank v. Troy City Bank, 1 Doug. (Mich.) 457, Littell v Fitch, 11 Mich. 526, Carrier v. Cameron, 31 Mich. 373, and other cases cited on behalf of the plaintiff, to the point that notes given by the proper officer of a corporation, or by a partner in the name of the corporation or partnership, in the regular course of business, must be deemed given with due authority, have no application here, for the very obvious reason that a corporate note given for an individual obligation is not given in the regular course of business, but, presumptively, is ultra vires. An officer of a corporation can never have implied authority to give such notes. They are presumptively accommodation notes, given to take up the notes of third parties, and in order to support them it would be necessary to overcome the presumption against authority by express affirmative showing; the general authority to make notes for the corporation being insufficient for the purpose. West St. Louis...