Fidelity Nat. Bank & Trust Co. v. Southern United Ice Co.

• Decision Date: 26 June 1935
• Docket Number: No. 10170.,10170.
• Citation: 78 F.2d 438
• Parties: FIDELITY NAT. BANK & TRUST CO. OF KANSAS CITY v. SOUTHERN UNITED ICE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

78 F.2d 438 (1935)

FIDELITY NAT. BANK & TRUST CO. OF KANSAS CITY v. SOUTHERN UNITED ICE CO.

No. 10170.

Circuit Court of Appeals, Eighth Circuit.

June 26, 1935.

Robert B. Fizzell, of Kansas City, Mo. (Justin D. Bowersock and John F. Rhodes, both of Kansas City, Mo., on the brief), for appellant.

Ralph E. Murray, of Kansas City, Mo. (Justin D. Bowersock and John F. Rhodes, both of Kansas City, Mo., on the brief), for appellant.

Ralph E. Murray, of Kansas City, Mo. (Clifford Histed and William S. Hogsett, both of Kansas City, Mo., on the brief), for appellee.

Before GARDNER, SANBORN, and WOODROUGH, Circuit Judges.

WOODROUGH, Circuit Judge.

This suit in equity was brought for the purpose of having it adjudged that appellee was the owner of eighteen $1,000 sinking fund bonds issued by appellee, and that appellant had no interest in them. A decree was entered granting the relief prayed, from which this appeal has been taken. The appellant has lodged the bonds with the clerk of the District Court to abide the outcome of the appeal.

It appears that appellant is a national bank transacting business in Kansas City, Mo., and the appellee is a corporation organized under the laws of New Jersey. The bonds are negotiable instruments payable to bearer. They at one time had been sold to the public, but had been repurchased by appellee and were being held by it in its treasury, when in December, 1931, its treasurer, Vincent Wakefield, pledged them to appellant as additional collateral to secure a personal debt then owing by Wakefield to the appellant. This debt had existed for some time, and was secured by the pledge of 200 shares of the capital stock of Middle West Utilities Company, and appellant, through its vice president, Dick A. McDonald, had on several occasions called upon Wakefield for additional collateral security. Wakefield had assured McDonald that he "would give him the additional collateral at the very earliest possible moment." In December, 1931, McDonald again called upon Wakefield for additional collateral, and they had a rather lengthy conversation in regard to it. It is plainly inferable that McDonald then knew that Wakefield did not have any securities to put up for additional collateral. Wakefield had promised, as stated, to give additional collateral at the very earliest possible moment, and in this conversation he said he had contemplated asking the assistance of Mr. Insull, but had been loath to do so (meaning that he had not done so). McDonald also knew that Wakefield was treasurer of the appellee. He suggested to Wakefield "that officials of various companies were being supplied with collateral to secure their obligations"; "that other companies were helping their officers;" "that perhaps he could make some arrangement with his people to additionally secure his obligation." In the discussion McDonald said, "Of course, you use your own judgment about it, Vincent. I do not think you need to hold back. It is being done generally through other corporations that I have knowledge of." The conversation occurred in December, 1931, but neither of the only witnesses to it (Wakefield and McDonald) specifies the day. Following the conversation and on about December 29, 1931, "or a few days prior thereto," Wakefield brought the bonds in suit to the bank and deposited them with appellant as additional security for his debt. There is no testimony as to anything being said at the time this was done and McDonald testified "that at the time the bonds were so deposited he had no knowledge of the ownership of the bonds." After so pledging the bonds, Wakefield wrote a letter to the president of appellee explaining the situation, the letter being written, as Wakefield says, "under the direst pressure I ever knew in my years of experience." Both the president and vice president of appellee assumed to authorize Wakefield to use the bonds as he did, and to ratify and confirm his acts. Wakefield delivered a receipt to his company for the bonds and later gave it a policy on his life in the sum of $10,000 to secure his obligation.

The articles of incorporation of appellee provide in part that it shall have power "to guarantee interest, dividends, or other returns to the holders of securities or other obligations of other persons or companies in cases wherein it shall be advantageous to this company so to do." The trial court concluded that the use of the bonds was not authorized by the articles of incorporation; that although the appellant had no actual knowledge that the bonds were not the property of Wakefield at the time they were pledged, appellant was not a holder in due course, but was charged with notice that Wakefield had no right to pledge the bonds to it to secure his personal debt.

Appellant contends before this court (1) that the officers of appellee were authorized by its articles of incorporation to allow Wakefield to use the bonds of the corporation as he did, and that the transaction was ratified by the corporation; (2) that the appellant was a holder in due course.

1. The theory of the appellant is that when the officers of appellee allowed Wakefield to take the bonds to pledge for his own debt, "the corporation was guaranteeing a return to the holder of an obligation of another person" within the meaning of the provision of the articles of incorporation above quoted, and it cites Finance Company of Pennsylvania v. New Jersey Short Line (D. C.) 193 F. 507. In that case a holding company loaned its moneys to operating companies whose stock was all owned by the holding company to enable the operating companies to meet interest obligations on their bonds. The loans were amply authorized by the express provisions of the articles of incorporation of the holding company, which empowered it "to aid in any manner any other corporation of which any stock or bonds, etc. are held by this corporation." But in this case the power of the corporation to guarantee the obligation of another person was expressly limited "to cases wherein it shall be deemed advantageous to this company so to do," and the advantage to the company referred to in the phrase cannot be dissociated from the furtherance of the business which the company was organized to carry on, and only an advantage in the sense of consideration moving to the company can be inferred. It would require very clear and express language to convince that there was an intent to confer power upon a corporation which holds corporate property as a trust fund for its stockholders and creditors, to guarantee vicariously the obligations of others without consideration to itself. The contention of appellant is ruled against it on the authority of Park Hotel Co. v. Fourth Nat. Bank (C. C. A. 8) 86 F. 742; Germania Safety-Vault & Trust Co. v. Boynton (C. C. A. 6) 71 F. 797, 798; Pennsylvania R. R. Co. v. St. Louis, etc., R. R., 118 U. S. 290, 6 S. Ct. 1094, 30 L. Ed. 83; Pantaze v. Murphy (C. C. A. 5) 54 F.(2d) 895; Mapes v. German Bank of Tilden (C. C. A. 8) 176 F. 89; Hamburg Bank et al. v. Ouachita Natl. Bank (C. C. A. 8) 78 F.(2d) 100.

The claim of ratification must also be denied because, as the corporation was without power to guarantee the debt of Wakefield, it was equally without power to ratify such guarantee. Park Hotel Co. v. Fourth Nat. Bank, supra; Germania Safety-Vault & Trust Co. v. Boynton, supra.

2. Is the appellant a holder in due course of the negotiable bonds?

The appellee contends that the fact that Wakefield was treasurer of the corporation whose bonds he was using to secure his own debt was sufficient to put the appellant on inquiry as to Wakefield's authority. In re German Savings & Loan Assn. (C. C. A. 7) 253 F. 722, 724; Germania Safety-Vault & Trust Co. v. Boynton, supra; Lamson v. Beard (C. C. A. 7) 94 F. 30, 45 L. R. A. 822; Wilson v. M. E. R. Co., 120 N. Y. 145, 24 N. E. 384, 385, 17 Am. St. Rep. 625; Garrard v. Pittsburgh, etc., R. R. Co., 29 Pa. 154; Board of Education v. Sinton, 41 Ohio St. 504; Farrington v. South Boston R. Co., 150 Mass. 406, 23 N. E. 109, 5 L. R. A. 849, 15 Am. St. Rep. 222; Park Hotel Co. v. Fourth Nat. Bank, supra; Thompson on Corporations (3d Ed.) § 1810.

In Re German Savings & Loan Ass'n, supra, it appears that the officer of the corporation went to the various places of business of the claimants and offered them the corporation's certificates of indebtedness, having the face characteristics of general corporation negotiable bonds payable to bearer ten years after date, as security for his personal debts. The Court of Appeals of the Seventh Circuit said: "What evidence there is tends to prove that the claimants were not good-faith purchasers. Pfau, secretary and general manager of the bankrupt, went to the various places of business of the claimants and offered them the bankrupt's certificates, payable to bearer, as security for...