Grommes v. Sullivan

• Decision Date: 17 June 1897
• Docket Number: 374.
• Parties: GROMMES et al. v. SULLIVAN.
• Court: U.S. Court of Appeals — Seventh Circuit

81 F. 45

GROMMES et al. v. SULLIVAN.

No. 374.

United States Court of Appeals, Seventh Circuit.

June 17, 1897

This appeal is from a decree dismissing the intervening petition of the appellants, John B. Grommes and Michael Ullrich, in the case of Towle v. Investment Soc. 78 F. 688 wherein William K. Sullivan had been appointed receiver of the assets of the society. The case was submitted and heard upon the petition, answer, and a stipulation of the parties. The substance of the petition is that George F. Montgomery being indebted to the appellants in the sum of $1,608.47, on October 5, 1893, executed to them the following accepted draft:

'$1,608.47-100 Chicago, Oct. 4, 1893.

'Sixty days after date pay to the order of Grommes & Ullrich one thousand six hundred eight and 47-100 dollars, value received, and charge to account of

'George F. Montgomery.

'To the American Building & Loan Society, Owings Building.'

The acceptance written upon the face of the draft being as follows:

'10-5-'95 Accepted. Am. B.,L.&I. Soc'y. F. B. Modica, V.P.'

It is alleged that prior to the delivery of the acceptance the appellants had from time to time taken from Montgomery 'various and sundry other accepted drafts,' drawn upon, and which at their maturity had been severally paid by, the American Building, Loan & Investment Society; that at the time when the first of the drafts had been taken from Montgomery in satisfaction of the amount which he owed the appellants, they had been advised by F. B. Modica, as the agent of the society, that Montgomery was a creditor of the society, and that his drafts upon it were good, and would be met at maturity; that each of the earlier drafts was accepted by the association 'by F. B. Modica, its vice president, in manner and form precisely similar to the acceptance on the face of the draft of October 4, 1893, aforesaid'; that 'Modica was, at the time, in full charge and control' of the society, 'and in all business matters, so far as your petitioners were concerned, he was the chief managing officer of the said society.' It is further alleged that, the draft not having been paid at maturity, the petitioners in December, 1893, began in the superior court of Cook county an action at law, and procured a writ of attachment to be issued and levied upon real property of the society in the county of La Salle, Ill.; that the attachment was a first and valid lien upon that property, which was worth more than the amount of the demand. The petition concludes with an offer to dismiss the proceedings in the superior court of Cook county, and to release the attachment, if leave to file the petition be granted, and the receiver ruled to answer the same within a short day.

The receiver answered, admitting the averments of fact in the petition, but alleging that when the draft was accepted Montgomery was not, and had not since been, a creditor or member or stockholder of the society; that by the by-laws of the society, of which the articles defining the powers of the president and vice president are set out, Modica had no authority to sign, and that the society had no right or power to execute, the acceptance. The by-laws referred to read as follows: 'It shall be the duty of the president to preside at all meetings of the shareholders and of the board of directors, to sign all certificates of stock, and to sign all releases of mortgages, and he shall do all other duties usually pertaining to this office. ' 'The vice president shall perform all the duties of the president in his absence. In case of any vacancy in that office he shall be ex officio president until the vacancy is filled.'

The stipulation of the parties is to the effect that the copy of the by-laws set out in the answer is correct; that the petitioners, when the accepted draft was delivered to them, had no knowledge that such were the by-laws, other than the general knowledge imputed to them from the nature of the society; that it is true, as alleged in the answer, that the society was not and had not been indebted to Montgomery, of which fact, and that he was not a member or stockholder of the society, the petitioners were ignorant until the date of the stipulation. The American Building, Loan & Investment Society was incorporated on November 22, 1888, under the act of the general assembly of Illinois entitled 'An act to enable associations of persons to become a body corporate to raise funds to be loaned only among the members of such association,' which went into force July 1, 18979. 1 Starr &C.Ann.St. (2d Ed.) c. 32, Secs. 108-134.

Frederick S. Winston and James F. Meagher, for appellants.

Lorin C. Collins and Wm. Meade Fletcher, for appellee.

Before WOODS, JENKINS, and SHOWALTER, Circuit Judges.

WOODS Circuit Judge, after making the foregoing statement, .

We are of opinion that, under the law of its creation, the American Building, Loan & Investment Society had power to execute negotiable paper. The rule is well established that corporations authorized to do a particular business, unless especially denied the power, have implied authority to contract debts in the legitimate transactions of the business authorized; and the right to contract debt, it is the equally well settled American rule, carries with it the power to give negotiable notes or bills in payment or security for the debts,...